By Alejandra Garcia on April 6, 2024
On April 2, the Trump administration announced the imposition of tariffs against the majority of nations worldwide, with a special emphasis on Latin American nations, marking a turning point in global trade and the biggest change in the last one hundred years.
Tariffs, which are those additional taxes applied to products that wish to enter the U.S. market, have made the commercial link more expensive, having a direct impact on the daily life of the populations. Experts predict a possible economic recession, while fearing an increase in inflation, which continues to rise since the COVID-19 pandemic. It also means that those increases on products entering the US will be regressively passed onto US consumers.
This decision has a direct impact on the region. Most Latin American countries face a 10% increase in tariffs, although there are notable exceptions: Guyana with 38%, Nicaragua with 18% and Venezuela with 15%. Mexico faces a unique situation, as it is subject to a 25% general tariff on products not covered by the Canada-U.S.-Mexico Free Trade Agreement, affecting 50% of its exports.
Looking at the global picture, Latin America might seem “favored” compared to Asia, where tariffs range from 25% to 49%, or to the European Union, which faces a 20% increase. However, the reality is that Latin America is a region with low economic growth and little export diversification. As a consequence, this increase in the cost of trade with the United States will have serious adverse effects for this side of the continent.
Experts warn that the immediate impact on Latin American economies will be an increase in the prices of imported goods and a possible loss of competitiveness. Although some analysts rule out a series of trade retaliations that could lead to an economic recession, uncertainty remains a concern.
Ernesto Revilla, Citi Research’s chief economist for Latin America, points out that “all Latin American countries are vulnerable to a greater or lesser extent to the global uncertainty stemming from the Trump administration’s actions”. In this context, Mexico stands out as the most vulnerable country, as many of the issues that concern Trump, such as migration and drug trafficking, are intrinsically linked to its relationship with this nation.
But what are the real motivations behind this new trade order? According to Gabriel Pastor, journalist and analyst specializing in the United States, “Trump is convinced that the international system of cooperation allows the world to take advantage of his country’s generosity”. Not only is this delusional but also a smoke screen of severe consequences to cover up to the fact that the US is losing its grip on its global hegemony of the past. Never the less his policies imply a profound renegotiation of the rules of the game.
Some even suggest that his real goal is to dismantle the international order. However, his aggressive tactics to challenge even his historical allies do not seem to respond to a coherent strategy. The tariffs represent a significant shift in U.S.-Latin American trade relations, with potentially profound and long-lasting effects on the region’s economy. Uncertainty and vulnerability are recurring themes that Latin American countries will have to face in this new context.
Source: Resumen Latinoamericano – English