The return of Donald Trump: Implications for Latin America’s business and financial sectors

Geopolitical pressures and U.S.-China rivalry

Economic Realignment. Under the new Trump administration, the U.S. is likely to intensify efforts to counter China’s growing influence in Latin America. Countries heavily dependent on Chinese investment, such as Peru – with significant projects like the Chancay Port financed by China – may face pressure to reduce economic ties with Beijing. However, the U.S. might not be equipped to match China’s level of investment and trade in the region. Businesses should monitor developments in U.S. foreign policy that could lead to shifts in investment flows and consider strategies to navigate between competing superpowers.

Trade Dynamics. The U.S. may encourage Latin American nations to become alternative suppliers in critical supply chains, especially in sectors where the U.S. seeks to reduce reliance on China. This presents opportunities for industries involved in the production of intermediate goods and raw materials essential to U.S. manufacturing. Companies could benefit from increased U.S. demand but should also anticipate stricter scrutiny under trade agreements like the USMCA, particularly concerning compliance with anti-China provisions.

Trade policies and tariff threats

Higher U.S. Tariffs on Chinese Products. A 60% tariff on Chinese goods (as proposed by Trump during his campaign) could have a ripple effect on global markets. For Latin America, increased global inflation and a stronger U.S. dollar could suppress commodity prices, adversely affecting countries that rely heavily on commodity exports. Latin American exporters might fill gaps in the U.S. market left by reduced Chinese imports; however, they should be cautious of potential tariffs on industrial exports if protectionist measures broaden. Companies in the commodity sectors should consider hedging and other strategies to mitigate risks associated with price swings.

Effect on Commodity Prices. A stronger U.S. dollar and tighter monetary policy could depress prices for commodities like oil, copper, and soybeans. Countries like Brazil and Argentina, where commodities constitute a significant portion of exports, might experience reduced export revenues. While there may be temporary boosts from redirected demand – such as China seeking alternative suppliers due to U.S. tariffs – price volatility could offset these gains. Export-oriented businesses should assess their exposure to commodity price fluctuations and explore opportunities to diversify their markets.

Strategic alliances and political polarization

Deepened Business Alliances and Challenges. The political landscape in Latin America could become more polarized under a Trump presidency, affecting business alliances and investment climates across the region. Governments like those in Argentina under Javier Milei and El Salvador under Nayib Bukele may forge closer ties with the U.S., enhancing the environment for private-sector investments. For instance, Argentina, under business-friendly leadership, could see increased interest in its energy sector, especially in exploiting the Vaca Muerta shale formation. The country’s reserves of critical minerals like lithium also position it as a strategic partner in the U.S.’s pursuit of supply chain security for essential technologies. Stability and pro-business policies in these countries could attract U.S. businesses.

Challenges for Left-leaning Governments. Conversely, countries with left-leaning governments, such as Colombia and Chile, may experience strained relations with the U.S., potentially leading to reduced aid, increased trade barriers, and heightened regulatory challenges for U.S.-related investments. Companies operating in these countries should monitor political developments closely, assess risks related to policy shifts, and develop contingency plans to mitigate potential adverse effects on their operations. The polarization may result in a fragmented regional approach to U.S. relations, influencing where and how businesses choose to invest.

Immigration and labor market impacts

Remittance Tax and Migration Policies. Trump’s proposed 10% tax on remittances would reduce remittances to Latin America, likely decreasing the disposable income of families reliant on these funds, dampening consumption-driven growth in countries like Mexico, El Salvador, and Haiti. The region receives around US$150 billion annually in remittances. Financial institutions involved in remittance services should prepare for decreased transaction volumes in the medium-to-long term.

Labor Market Strain. U.S. businesses, particularly in agriculture and construction, might face labor shortages due to stricter immigration enforcement and potential deportations. U.S. businesses reliant on migrant labor may need to adjust their workforce strategies.

Energy and infrastructure

A focus by the Trump administration on deregulation and energy independence could lead to (i) increased exports, as Latin American countries rich in oil and gas resources, such as Brazil, Argentina, and Mexico, might see heightened demand for their energy resources, and (ii) investment inflows, as U.S. companies may invest more in Latin American energy projects, seeking to secure supply chains and capitalize on deregulation. Energy companies should position themselves to attract foreign investment by highlighting stability, resource availability, and favorable regulatory environments.

Banking and finance

The fiscal policies of a Trump administration (e.g., tax cuts and potential widening of the deficit) could result in prolonged high-interest rates in the U.S., which in turn may increase borrowing costs of dollar-denominated debt, impacting profitability and investment capacity. Countries like Brazil and Argentina, which already face high levels of debt, could see corporate defaults rise as financing becomes more expensive. Additionally, higher yields on U.S. assets might attract capital away from emerging markets, leading to currency depreciation and inflationary pressures. Financial institutions and corporations should evaluate their exposure to interest rate risks.

Drug trade and security concerns

Compliance Burdens and Operational Challenges. Enhanced anti-narcotics enforcement could impose stricter regulations on logistics and transportation companies in regions like Mexico and Colombia. Businesses may need to implement more rigorous compliance programs to avoid penalties. Companies should consider investing in compliance infrastructure and training to navigate increased regulatory scrutiny.

Opportunities for Defense Contractors. Increased focus on organized crime in Central America could lead to government contracts for surveillance, cybersecurity, and defense services. U.S. firms specializing in security technologies may find new markets in the region. Defense and security companies should explore partnerships and market entry strategies to capitalize on emerging opportunities. Defense and security companies should explore partnerships and market entry strategies to capitalize on emerging opportunities.