Is South America flying under Washington’s radar?
Trump has “only” imposed the reciprocal minimum tariff of 10 percent on almost all South American countries. What is the reason for this and what consequences could it have for the region?
by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung
South America breathes a sigh of relief. On his “Liberation Day”, Donald Trump has only imposed the lowest import tariffs on South American countries as part of his tariff increase offensive. With the exception of Venezuela, imports from all countries will “only” be increased by ten percent.
This does not include the tariff increases already implemented for steel and aluminum. The import duties of 25% announced a few weeks ago also apply to Mexico with immediate effect.
We can only speculate as to why South America is getting off relatively lightly compared to the emerging economies of South East Asia. A look at the trade balances helps: the USA achieves trade surpluses with all of South America’s major economies. There is therefore no rational reason to impose import tariffs on South American exports if you want to reduce foreign trade deficits – as Trump clearly does – and view them negatively.
The situation is different with Mexico. The country, which is linked to the USA and Canada initially through NAFTA and from 2020 through the successor agreement USMCA (United States-Mexico-Canada Agreement), has the largest trade surplus with the USA after China.
However, this does not mean that South America will be spared Trump’s retaliatory policy in the future due to its trade deficits with the US – it is still too early for that and Trump is too unpredictable.
Nevertheless, the US president’s unexpectedly relaxed attitude towards South America could indicate that Trump considers the southern part of the American continent to be part of the USA in the sense of the Monroe Doctrine.
Around 200 years ago, the USA declared that it controlled Latin America and would not tolerate any foreign powers there.
After the end of the Cold War, the Monroe Doctrine was forgotten. However, even during the first Trump administration, close associates such as security advisor John Bolton and CIA Director and later Secretary of State Mike Pompeo declared that the Monroe Doctrine applied again.
However, punishing South America with high tariffs would drive the region into the arms of other trading partners – and China in particular. The growing Chinese investments in mining, power grids, telecommunications and infrastructure are being watched critically in Washington.
Mauricio Claver-Carone, Special Representative of the US State Department for Latin America, proposed imposing a 60 percent tariff on products entering the US via the Chinese-financed port of Chancay in Peru.
However, it remains to be seen what impact the increased US tariffs will have on the global economy and thus indirectly on foreign trade in South America.
South American and Mexican agricultural producers, for example, are hoping that East Asian countries and China will increase their food imports from South America, as they could also impose tariffs on agricultural exports from the USA.
During the first Trump administration, Latin American farmers were able to significantly increase their exports to Asia.
Another positive factor could be that Latin American companies are now expanding their value chains from Mexico to Argentina. Until now, the Mexican economy in South America has been seen as a region that focuses primarily on North America and neglects its southern neighbors. This could now change.
On the other hand, Latin American industrial and consumer goods companies fear that Asian competitors could now try to divert their exports blocked in the USA to other regions – the growing Latin America would be an ideal domestic market with a population similar to that of Southeast Asia.
