Trump’s relationship with Latin America has been strained thus far – his trade deals with the region may make things worse.
Given Donald Trump’s well-known anti-free trade stance it was unsurprising that his campaign and his election on 8th November were carefully watched by other countries of the Americas whose trade relations with the USA were seen to be dependent on the result of this election. As it became clear that Trump was going to win, the value of the Mexican Peso plummeted by 13% as people predicted negative impacts of Trump’s anti-NAFTA policy on the Mexican economy. This represented the largest fall in the currency’s value in over 20 years. Similarly, Brazil’s stock market index and currency also experienced falls in value upon Trump’s victory. After these dramatic but not unforeseen responses in Latin American nations, many questions have been raised about the future prospects for Latin American trade with the USA and the potential impacts of Trump’s proposed policies on their economies.
Mexico is set to be the country to lose the most economically from Trump’s trade policy in his plan to “make America great again”. The president-elect has threatened to possibly revoke NAFTA and implement tariffs of up to 35% on Mexican manufactured exports to the USA. With 80% of Mexican export revenue coming from its trade with the USA, this puts millions of jobs in the country in danger. A US withdrawal from the agreement could also create a contraction in the Mexican economy according to Carlos Capistran, chief Mexico economist of Bank of America.
On the other hand, Trump’s criticism of NAFTA as the “worst trade deal ever” is also shared by some on the other side of the border. Critics of NAFTA in Mexico have been saying that the agreement has locked Mexico in a neoliberal economic model, obstructing effective poverty reduction and damaging Mexico’s agricultural sector which is unable to compete with US imports. The revocation of NAFTA could perhaps therefore benefit the Mexican economy if this view is correct. Additionally, the impact of NAFTA’s collapse could be mitigated by businesses’ deviation of Mexican manufactured exports towards other markets, as laid out in General Motors’ plan for its current factories in Mexico by Johan de Nysschen, president of Cadillac.
Like Mexico, Central America’s biggest export market is also the USA. The sub region has begun to worry about the implication of Trump’s election on CAFTA-DR, a free trade agreement between Central American countries, the Dominican Republic and the USA. Yet the prospect of CAFTA-DR’s renegotiation or cancellation is less likely – Trump has never mentioned it up to now. Moreover, most Central American exports to the USA do not represent the high-skilled manufactured goods whose production Trump has promised his supporters to bring back to the USA either.
Curiously, Trump’s election victory also comes at the time when South American countries are moving away from populism and nationalistic rhetoric towards more open economic models. Peru and Chile, along with Mexico, have been members of the Trans-Pacific Partnership (TPP) trade deal between countries of the Pacific Rim which Trump has promised to kill during his first days as President. Trump’s protectionism and South America’s increasingly favourable view to foreign trade may force the region to shift attention from the USA to East Asia, as the region looks for alternative markets to the USA. Nonetheless, Trump’s talk of raising tariffs of up to 45% on Chinese exports to the USA in his bid to move factories back from China to the USA could further dampen the growth of Chinese manufacturing industries and so reduce South America’s potential gain from further trade deals with China.
Featured image: Wikimedia