How Trump’s Tariff Threats Could Impact Latin America

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U.S. President Donald Trump Getty Images U.S. President Donald Trump inflamed trade tensions when he signed executive orders imposing 25% tariffs on imports from Canada and Mexico and a 10% tariff on imports from China.

Trump invoked the International Emergency Economic Powers Act (IEEPA) to justify the measure, claiming that the countries were not doing enough to stop the "extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl," according to the White House's statement.

Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau were able to stave off tariffs for 30 days by making some concessions to Trump, including Mexico sending 10,000 National Guard troops to the US border to prevent drug trafficking. The levies on China moved forward.

However, with the threat of more tariffs looming, analysts are considering potential scenarios for the impact they would have on Latin America: disruptions to supply chains, possible acquiescence to Trump's policy demands, and even pushing Latin American countries closer to U.S. trade rivals like China are among them.

After initially clapping back against Trump's "slanderous" accusations of alliances between Mexico's government and drug cartels, Sheinbaum took a more measured approach on February 3, announcing a "series of agreements" which led to the 30-day pause on the tariffs.

Mexico agreed to send 10,000 National Guard troops to the U.S. border "to prevent drug trafficking from Mexico to the U.S., in particular fentanyl," Sheinbaum stated. In return, she said, the U.S. committed to prevent the flow of high powered weapons into Mexico.

Trump's aggressive measures against two of the U.S.'s greatest trade allies "could be less counterintuitive than it looks," according to Agathe Demarais, a Senior Policy Fellow for Geoeconomics at the European Council on Foreign Relations (ECFR).

Demarais told Latin Times that "Trump knows that he may be able to extract quick concessions from these economies," something that "he would see as a major win for U.S. domestic political purposes."

There's an immediate precedent to Trump's aggressive tariff threats proving successful in forcing governments to capitulate to his administration's regional policy goals. Just a week before he announced the tariffs on Mexico, Canada and China, Trump got Colombia to agree to accept deportation flights from the U.S. after threatening to impose tariffs and visa restrictions on the country.

"Canada and Mexico's governments will be keen to avoid a trade war at all costs, as both economies are deeply intertwined into U.S. supply chains and rely on the U.S. as a major market for their exports," Demarais said. She also cautioned that Trump's "obsession to curb trade deficits" could have unintended consequences, as tariffs "act as a tax on U.S. consumers, eventually fueling inflation."

The degree to which Trump may be successful in pressuring Latin American leaders to bend to his will is still uncertain. As Latin America Risk Report author James Bosworth noted, Sheinbaum was successful thus far in convincing Trump to postpone tariffs "in exchange for something very minimal: a show of [10,000] National Guard troops that are already in position..."

Tariffs on Mexico could open up opportunities for other Latin American exporters A potential trade war between the U.S. and Mexico could see prices immediately spike on everything from cars to avocados. In the longer-term, however, sustained tariffs could also open doors for other Latin American exporters.

Citing data from the U.S. Department of Agriculture, the International Food Policy Research Institute (IFPR) reported that between 2021 and 2023 the United States imported more than $72 billion of agricultural products from Latin America and the Caribbean (LAC), with Mexico leading the way with $52 billion.

Joseph Glauber, a Research Fellow Emeritus at the IFPR, told Latin Times that, "The immediate impact of tariffs will be to sharply reduce imports of fruits and vegetables from Mexico." And while in the long-term other LAC countries could partially fill demand, it would be "very difficult to compensate for these losses in the short run."

If tariffs were sustained, however, the researcher said that other suppliers like Peru, Chile and Colombia would likely have time to adjust supplies and boost exports to the U.S, while maize and soybean producers in Brazil, Argentina and Paraguay could export their crops to Mexico if that country retaliates with tariffs on U.S. agricultural exports.

"For Mexico, a trade war will be devastating since over 90% of her agricultural exports go to the U.S.," said Glauber. "For the rest of LAC, assuming that they escape being targeted by the U.S., they could gain marginally in U.S. markets vis-a-vis Mexico (and Canada)."

Tariffs could push Latin American countries away from the US sphere of influence For years, Latin American countries have sought to diversify their trading partnerships, and since the turn of the century, China has become a major player in the region, even overtaking the U.S. as the largest investor in South America.

For some analysts, Trump's tariff threats could further push Latin American countries into the arms of U.S. competitors. Since Trump's re-election in November, Latin American countries have struck new trade deals and strengthened ties with the European Union, China, and the Association of Southeast Asian Nations.

The EU announced in December it had reached an agreement with founding MERCOSUR trade bloc members Argentina, Brazil, Paraguay and Uruguay. The negotiations, which began in 1999, took on new urgency following Trump's re-election campaign, in which he threatened to impose tariffs on a number of economies globally. In January, the EU also said it had strengthened trade relations with Mexico in order to "boost an already thriving relationship," according to the European Commission.

While China has established strong trading ties with South American countries like Brazil and Peru, some researchers fear that Trump's tariffs could weaken alliances with its strongest regional partners, including Mexico and Colombia.

"Protectionist policies like these tariffs don't just strain economies – they weaken alliances," Diego Marroquin Bittar, a scholar at the Woodrow Wilson Center, wrote in response to Trump's tariff threats against Colombia.

According to Marroquin Bittar, China is the clear benefactor of weakened alliances in the region. "Every time the U.S. weakens its commitments, it creates an opportunity for Beijing to fill the void," he added.

In return for short-term gains, the researcher argues, these types of protectionist methods could actually harm the competitiveness of the Americas in the long run.

However, it's not currently expected that trade relations will crumble overnight, especially with countries like Colombia and Mexico, who have free trade agreements with the U.S.

"The United States is our main trading partner because of the size of the market and the opportunities that have opened up thanks to the trade agreement which facilitates business in both directions," María Claudia Lacouture, President of the American Chamber of Commerce in Colombia, told The Latin Times. "Export diversification is necessary in all countries and that is what Colombia has been working on for years."

Shutting off the trade valve with a market the size of the U.S. wouldn't happen overnight. According to Lacotoure, 70% of products Colombia imports from the U.S. are vital to national industry and not produced within Colombia, so they'd need to seek other providers outside the U.S. market, and finding a market(s) for Colombian exports to replace one the size of the U.S. would require years of effort.

The business representative hopes cooler heads will prevail and calls on business networks in both countries to help re-establish trust. She added that the "issues should be addressed by diplomatic teams, with the support of the business sector, Congress and other actors, who can contribute to finding consensus solutions regardless of the ideologies" of each country.

Alfie Pannell of Latin America Reports contributed to this report

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