Latin America concerned about Trump’s political interference

It is still unclear where the US customs policy toward the region will ultimately lead. The future of the EU’s free trade agreements with Latin America also remains open.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

Until recently, many governments in Latin America hoped that they would suffer less from US tariff increases than other regions around the world.

On the one hand, the US has trade surpluses with South America’s five most important economies. The exception is Mexico, with which the US has a large deficit. However, the region’s second-largest economy is linked to the US and Canada through a free trade agreement. The USMCA – the former NAFTA agreement – was renegotiated during Trump’s first term and adopted in 2018.

In fact, the tariff increases on exports from Latin America to the US were less severe than feared. For many countries, the 10 percent import duty that has been in place since April 1 continues to apply.

This affects most Central American countries, which are heavily dependent on the US. However, commodity exporters such as Peru and Chile also benefit from the fact that copper exports (ore, cathodes) to the US remain exempt from tariffs, which was only announced retrospectively.

The situation in Brazil and Mexico, on the other hand, remains completely open. This is significant for the double continent: Mexico’s economic power has surpassed Canada’s for the first time this year, making it the third-largest economy in the Americas after the US and Brazil.

Mexico has provisionally avoided the 30 percent tariff announced for August 1, 2025. The US has granted a deadline until the end of October to negotiate a more far-reaching agreement. Since March 4, 2025, the US government has imposed 25 percent tariffs on Mexican imports that are not covered by the USMCA agreement. This affects about half of Mexican exports to the US. Products that comply with USMCA rules (such as passenger cars) have so far been exempt from the tariffs.

Mexican President Claudia Sheinbaum has so far succeeded in pursuing a de-escalation strategy towards Trump. She sent 10,000 soldiers to monitor the border and stepped up measures against fentanyl smuggling on Mexico’s northern border. However, it remains to be seen how Trump will decide in Mexico’s case. The country has close ties to the US: 80 percent of its exports go north. Many US companies manufacture in Mexico. For example, Trump punished Canada, also a signatory to the USMCA agreement, with a 35 percent tariff, primarily because of its planned recognition of a Palestinian state.

In the case of Brazil, Trump has also linked his threat of record tariffs to political demands: The country must immediately drop the proceedings against former President Jair Bolsonaro for his possible involvement in a coup d’état. The Brazilian government refused to comply with this demand. As a result, the US imposed a record 50 percent tariff on Brazilian imports. At the same time, however, the government exempted almost half of Brazilian imports from the increase. Almost all of Brazil’s most important export items are now only taxed at 10 percent, including Embraer aircraft, oil, orange juice, and steel products. Other important export products such as coffee, beef, ethanol, and cellulose are now subject to 50 percent tariffs.

According to forecasts, the immediate damage to the region will be less than expected. The UN Economic Commission for Latin America and the Caribbean (CEPAL) expects the region’s economies to grow by 2.2 percent, slightly higher than forecast in April. However, the IMF lowered its growth forecast for Latin America and the Caribbean for this year from 2.4 percent to 2.0 percent. The fund warns of “downside risks from trade uncertainty, tariffs, volatility in supply chains and commodity prices.” According to Moody’s, a drastic increase in US tariffs (to around 20 percent, for example) could threaten a recession in Latin America, from which the region would not recover until 2028. An escalation of political disputes between Washington and Brazil, Mexico, or Colombia could occur at any moment.

It is difficult to assess how US tariff policy will affect the competitiveness of Latin American exports to third markets: Asian countries have opened their markets to US products. Something similar could happen in China’s negotiations with the US. Latin American products could then find it more difficult to compete in these markets. The same applies to investments that are now being diverted to the US in light of the new conditions there – possibly at the expense of direct investment in Latin America.

It is also unclear how US tariff policy will affect the EU’s bilateral free trade agreements with Latin America. This concerns both existing and newly negotiated agreements with Chile and Mexico, as well as the agreement between the EU and Mercosur, which is to be concluded this year. Although the EU industry and companies in Latin America are likely to show greater interest in facilitating mutual market access, the EU has now made commitments to the US on energy imports and investments that the Latin American countries hope will be mirrored.

Furthermore, the principle of most-favored-nation treatment continues to apply in external relations between the EU and its partner countries in Latin America: if the EU unilaterally grants the US better customs conditions (e.g., lower tariffs on cars, agricultural products, machinery) without a free trade agreement, then the WTO’s most-favored-nation obligation applies. In this case, Mercosur countries or other partner countries in Latin America could also demand the same tariff concessions.

On the other hand, Latin American industrial and consumer goods companies fear that global corporations could try to divert their exports blocked in the US to other regions – growing Latin America would be an interesting market.