By Dr. Rodrigo Caputo, Associate Professor of the Faculty of Economics, Universidad de Santiago de Chile (USACh)
Trade protectionism under US President Donald Trump’s first administration, particularly through increased tariffs, had major implications for global trade dynamics, economic growth and financial stability. As Trump begins his second term, analysts and institutions warn of heightened economic challenges for Latin America. The region, deeply integrated with the United States as well as China, is likely to face growing uncertainty regarding direct access to US markets and a potential decline in exports to China should Chinese industries experience higher tariffs when exporting to the US. This twofold impact could further destabilize Latin America’s economic growth and heighten financial volatility. Given the historical precedent set by Trump’s first administration, it is critical to analyze the extent to which his policies will exacerbate economic instability and how Latin American countries should prepare for these expected disruptions.
During Trump’s first administration (2017-21), the US imposed tariffs on a broad range of goods, including steel, aluminum, electronics and agricultural products. Latin America, with strong economic ties to both the US and China, was significantly affected by these changes. According to the “Latin America Outlook 2025” report (Economist Intelligence Unit [EIU], 2024), Mexico is particularly exposed to economic risks due to Trump’s second-term tariff threats, heightened trade tensions and potential renegotiation of the United States-Mexico-Canada Agreement (USMCA). Other export-oriented Latin American economies, particularly those without a US free-trade agreement (FTA), may face similar challenges as global trade patterns shift. At the end of January 2025, President Donald Trump vowed to impose tariffs on US copper and aluminum imports. This would result in higher costs for US consumers but also affect countries, such as Chile, that are major copper producers.
While Trump’s previous trade policies aimed at reducing the US trade deficit and increasing US growth, they largely resulted in trade distortions rather than achieving their intended goals. According to Krugman (2024), protectionist policies often fail to sustain reductions in trade deficits and can instead lead to inefficiencies in global trade. Analysts have observed that Trump’s trade policies contributed to supply-chain disruptions, particularly in industries reliant on integrated North American trade flows. In this context, the “Latin America Outlook 2025” report highlighted that Mexico’s would be especially vulnerable to trade-policy shifts under Trump’s second term due to the potential renegotiation of the USMCA and heightened tariffs. Increased production costs and supply-chain uncertainties could place further strains on the sector, affecting investment and employment across key manufacturing hubs.
The imposition of tariffs during Trump’s first term altered global trade patterns, compelling countries to seek alternative trading partners. For instance, China responded to United States-China trade tensions by increasing its imports of soybeans from Brazil and Argentina. While this benefited some Latin American exporters, it also made them more dependent on the Chinese market, introducing greater commodity-price volatility. Additionally, as Pierre-Olivier Gourinchas (chief economist of the International Monetary Fund [IMF]) pointed out, “An intensification of protectionist policies, for instance in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows and again disrupt supply chains” (Reuters, 2025). The International Food Policy Research Institute (IFPRI, 2025), on the other hand, has underscored that the trade barriers under Trump’s first administration disrupted traditional agricultural supply chains, particularly in grain exports. Hence, a prolonged trade war could create an adverse economic climate that discourages long-term investment and infrastructure development in emerging countries—particularly in Latin America.
Trump’s second term is expected to bring even more aggressive trade protectionist policies, further impacting Latin America’s economic stability. Additional tariffs could trigger retaliatory measures, exacerbating financial instability in emerging markets. China, a major trading partner for many Latin American countries, is likely to accelerate its trade-diversification strategy, shifting further away from US-aligned economies. This could have a lasting impact on Latin America’s role in global trade, and with investors opting for more stable markets, it could lead to capital flight, depreciating Latin American currencies and increasing inflationary risks. Highly volatile exchange rates could significantly reduce purchasing power in key economies, such as Argentina and Brazil, where inflation rates are already high, further complicating domestic fiscal policies.
Mexico is particularly vulnerable under Trump’s second term, facing new tariff threats, pressure to curb migration, restrictions on Chinese investments and efforts to narrow the US trade deficit. Trump has also signaled his intentions to renegotiate early on the USMCA, which is up for review in 2026. According to the “Latin America Outlook 2025” report, heightened uncertainty in US-Mexico relations is already weighing on investor sentiment, compounded by controversial constitutional reforms in Mexico. This situation could further destabilize manufacturing sectors that rely on integrated supply chains between the two nations. US tariffs on Mexican exports, especially in the automotive and agricultural sectors, would directly affect employment and economic activity in both countries, with Mexico bearing the heavier burden. Furthermore, potential labor restrictions and stricter immigration controls could impact the flow of workers across the border, further straining supply chains.
Other export-oriented Latin American economies face similar dynamics, particularly those without a US FTA. Countries such as Brazil, Argentina and Colombia may struggle to maintain stable trade relations with the US in the absence of preferential agreements. Additionally, Latin American countries that rely on remittances will likely be impacted by Trump’s aggressive deportation plans, significantly depressing remittance flows over the long term. Countries such as El Salvador, Honduras and Guatemala, where remittances constitute a substantial portion of gross domestic product (GDP), could see declines in foreign-currency inflows, affecting household consumption.
Despite these risks, investment opportunities remain in infrastructure development as Latin American policymakers work to address long-standing weaknesses in the business environment. The “Latin America Outlook 2025” report noted that China would continue to be a major financier of infrastructure projects in the region, with two-thirds of Latin American countries participating in the Belt and Road Initiative (BRI). The Port of Chancay in Peru, set to become a key hub for China-South America trade, is expected to drive infrastructure expansion across neighboring countries. However, increased Chinese investment will likely become a point of contention under the Trump Administration as the US adopts a tougher stance on Chinese involvement in Latin America.
Another area of concern is the critical-minerals sector, particularly lithium, copper and rare-earth elements essential for electric vehicle (EV) production. China has been increasing its direct investments in green technologies and mineral extraction in Argentina, Bolivia, Chile, Brazil and Mexico. However, Trump’s return to office is expected to weaken US climate commitments, reducing or eliminating EV subsidies, which could lower demand for critical minerals. Countries in the lithium triangle—Argentina, Bolivia and Chile—must adapt to shifting global demand for electric vehicles and develop contingency plans to maintain investment flows.
Broader financial risks are also emerging, with the Trump Administration’s policies expected to strengthen the US dollar, increasing financing costs for Latin American countries. Sovereign bond issuances will become more challenging as countries struggle to fund fiscal deficits and manage debt-servicing requirements. However, the“Latin America Outlook 2025” report predicted that interest rates in the US and other OECD (Organisation for Economic Co-operation and Development) countries will decline in 2025, potentially easing global financing conditions and supporting economic growth in Latin America. Countries with strong fiscal policies, such as Chile, could leverage bond markets to sustain infrastructure investments, while weaker economies, such as Argentina, may struggle to secure external financing without the IMF’s (International Monetary Fund’s) intervention. This divergence in fiscal stability will create varying degrees of resilience across Latin American economies.