12 Nov What a Second Trump Administration Could Mean for Latin America
By Victorino Bernal & Fernando Mendez
On November 6, 2024, Donald Trump was declared president-elect of the United States. During his previous term from January 2017 to January 2021, Donald Trump’s economic policy toward Latin America was shaped by several key themes and initiatives, including a renegotiation of trade agreements, immigration policy, “America First” foreign aid policy, and energy independence. The former president also aimed to reduce China’s influence on the region. A second term from President Trump looks to be a continuation of his previous run that will see a combination of his national rhetoric with practical foreign policy initiatives that will drive the region during the next four years.
In his first term, President Trump focused on renegotiating trade agreements throughout the region, most notably NAFTA, which was replaced with the United States-Mexico-Canada Agreement (USMCA) to reduce trade deficits and incentivize American manufacturing. It prioritized bilateral trade agreements and pushed for policies that favored American businesses echoing President Calvin Coolidge’s famous “the business of America is business.” A second term for the Trump Administration could prompt more beneficial bilateral trade deals to “friendly” countries. It remains to been seen how President Trump will deal with fellow right-wing presidents, such as Nayib Bukele of El Salvador and Javier Milei of Argentina. While these bilateral trade deals have mixed views, they could potentially better address each country’s unique situations. The administration has staunchly supported increasing tariffs on foreign goods entering the US. While this may cause pressure on some economies, Mexico and some Central American nations are likely to feel the most impact given their heavy dependence on trade with the US.
The Trump administration emphasized a more transactional approach to foreign aid, proposing to cut certain aid programs and insisting that countries take more responsibility for regional stability. This “America first” approach included initiatives designed to encourage private sector investment in countries in the region, particularly through the creation of jobs and economic opportunities to stem migration. The administration worked with organizations like United States Agency for International Development (USAID) and the private sector to promote economic development in Guatemala, Honduras and El Salvador. One of the key initiatives in the region sought to encourage American companies to invest in sectors like agriculture and infrastructure. The goal was to improve economic opportunities in the region, addressing the root causes of migration by enhancing local economies and providing better livelihoods, reducing the pressures prompting northward migration. Many experts argue that issues like gang violence, poverty, and political instability in Central America remained significant drivers of migration and that U.S. policies alone could not resolve these problems. The next Trump administration may continue to use foreign aid as a bargaining chip in certain Central American countries to encourage the implementation of measures aimed at stemming the flow of migrants and asylum seekers.
During the campaign trail, Trump called for the deportation of all undocumented US residents, estimated in 2022 by the Department of Homeland Security to be 11 million people within Arizona, Nevada and New Mexico. There are substantial roadblocks to overcome to execute this campaign promise due to the complexities of due process and the required cooperation from the countries of origin. The effects of such actions may also be counterproductive to labor markets in Latin America, which prompted emigration to the US in the first place. This action may also cause compounding negatives consequences by reducing in-bound remittances to Latin America, which comprise a significant portion of the GDP for many countries in the region.
The Trump administration took a hardline stance against Cuba, rolling back some diplomatic openness that was made during the Obama administration and imposing sanctions aimed at limiting economic engagement. In Venezuela, the administration supported opposition leader Juan Guaidó and imposed sanctions on the Maduro regime, seeking to isolate it economically while supporting efforts to promote democracy. The Trump administration’s hardline stance against both regimes failed to produce material changes to date, but we can expect these stances to continue during the next term.
The administration aimed to promote US energy independence and supported partnerships in energy production with countries in Latin America, particularly oil rich nations like Brazil and Colombia. Trump aimed at promoting private sector investments into energy infrastructure through the “America Crece” initiative. This program allowed the US government to use different mechanisms to create a proper environment conducive to investment and creating practices that are transparent and following international best practices. Actions taken included diplomatic engagements, technical assistance and exchanges, and tools to enhance projects, such as feasibility studies. While this was scrapped under the Biden administration, it is possible President Trump aims to bring back a form of this initiative to boost growth in the energy sector in the region. We expect a second Trump administration to continue to strengthen US energy independence via further partnerships and as part of bilateral treaties with these countries.
Growing concern about China’s influence in Latin America drove the Trump administration to counter Chinese investments and strengthen ties with Latin American countries as part of a broader strategy to maintain influence in the region. China remains the region’s largest trading partner with over $300B in trade, but there has been a recent decline in investments and M&A activity. Trump’s second term could promote genuine competition for trade in the region, offering a real alternative to Chinese capital. This potential bidding war could create further opportunities and investments for Latin America.
Overall, Trump’s economic policies towards Latin America were characterized by a blend of protectionist trade measures, attempts to reshape bilateral relations, and a focus on immigration and security concerns. It is expected that these measures will continue to be reinforced over the next four years. Trump allies may expect preferential treatment in the region. His relationship with Argentina’s President Javier Milei will be a good litmus test for what we can expect from a second Trump administration as it relates to the treatment of his allies.