Donald Trump’s aggressive approach towards Latin America as he begins his second term raises concern about its economic impact.
The US and the southern neighbors may suffer negative consequences from his new policies. These include trade tariffs, and attempts to gain geopolitical power.
Alejandro Grisanti is an economist from the Dominican Republic and director of Ecoanalitica. He says that these policies are insecure.
He said, “We still do not know Trump’s real intentions towards Latin America”.
He added: “We think he is negotiating, however abrupt it might appear. His goal, we believe, is to reach agreements with countries of the region”.
US-China competition in Latin America
Ivezz expert explained to Ivezz the complex economic realities of Latin America as well as the current US policies against China to help better understand this brewing conflict.
It appears that the US has adopted a trade aggressive approach to dissuade Latin American companies from dealing with Chinese firms.
The outcome will differ depending on the country.
Venezuela may, for example, align itself more with China while El Salvador or Argentina could be inclined towards the Trump administration.
Grisanti says that in any one of the scenarios listed above, he predicts “a war between two giant commercial companies” in the area, reflecting both the US’s and China’s economic objectives.
The current global challenges were also addressed in a way that was nuanced, and without regard to country.
He highlighted changes to the Panama Canal operation, which included renegotiated agreements with Chinese companies.
Grisanti emphasized China’s involvement in Latin America and stated that each country will have a different response based on its political and economic goals.
Tariffs are a lever for economic growth
Trump’s plan to impose tariffs on Latin American nations that refuse to accept migrants deported is particularly alarming.
It is a way to put pressure on the economy and get people to cooperate with immigration.
The fallout of these tariffs can be disastrous.
Tariffs can also lead to trade wars, higher costs and therefore higher prices for American businesses, and for American consumers.
Trump has recently threatened to impose tariffs on Mexico and Colombia.
Even though both countries managed to successfully negotiate and avoid a tariff conflict for the moment, the looming threat of a war remains a source for anxiety for any nation in the region who does not comply with US demands.
Threats of tariffs are not an isolated event. Tariff retaliation may hurt US exports, if countries are against the policy.
This may increase economic dependency.
A rise in trade barriers could slow down growth, disrupt supply chains, and lead to higher inflation rates in the U.S.
Grisanti says that the US’s increased trade barriers and tariffs will have a significant impact on Latin America.
The President said these measures could put pressure on prices and inflation, leading to unexpectedly high levels of inflation in the United States. Core inflation rose from 3.1% when forecasted, up to 3.3%.
Grisanti predicted that the Federal Reserve will be less likely to reduce interest rates in order to combat inflation, and may even raise them.
The US dollar will likely be strengthened by the Federal Reserve’s refusal to lower or raise interest rates.
The devaluation in Latin America would be accelerated and the pressure placed on Latin America’s weakest economies will increase.
Panama Canal and its goods trading lines
Trump has made a number of prominent threats, including the return of the Panama Canal.
The majority of governments in the region responded with a mixture of rejection and surprise to these remarks.
Trump’s inflammatory remarks about the Panama Canal were more than an old claim. They could have disrupted important trade routes.
Panama, and possibly other players in the region, will be outraged by rumblings about a possible return of this important chokepoint. This could jeopardize decades-old maritime and trade agreements.
Destabilization of the Panama Canal would result in higher shipping costs and delays, which would have an impact on global supply chains.
The cost of transport for US companies that depend on these routes to import and export goods may increase.
Pablo Quintero is a political analyst who believes that Donald Trump’s statements about the Panama Canal could trigger an economic conflict.
He said: “This situation will bring economic and political challenges, but it may also lead to more Chinesse involvement in the region”.
Quintero believes that Trump’s statements are in violation of international law, including the Torrijos Carter Treaty.
He stressed that his new policy towards Latin America was a smart power one, which prioritized the national interests of the United States.
Quintero warned that the US could impose economic sanctions on Panama. He argued that Trump’s administration is primarily interested in maximizing its profits.
The most pressing issue facing Trump’s administration is migration
Grisanti, on the other hand emphasized the US’s clear immigration policy with their insistence that undocumented immigrants be aggressively deported.
He said that Latin American nations are under pressure to bring back their citizens and pay for the thousands of flights involved.
Grisanti, on the other hand, stressed that, in general, the impact of the US immigration policy will have a minimal effect, and only affect remittances, since there are approximately 11 million migrants who do not possess legal documents, while the deportation capacity from the United States remains low.
Grisanti estimates that only 3,000-5,000 undocumented immigrants have been sent back.
His prediction is that Latin America will feel the impact of any changes in consumer behavior and remittances quickly.
The economist said that it would take at least ten years to remove all undocumented immigrants from the US.
Venezuela as a separate regional case
The tensions between the US and Venezuela are a constant issue.
Chavismo has been labelled “anti-imperialist”, and his political position is in opposition to American leadership.
This led to economic sanctions being imposed against Venezuela in Donald Trump’s initial term.
The desired result, which was the removal of Nicolas Maduro as president, did not occur.
Venezuelan government increased pressure on its citizens, causing the humanitarian crisis to worsen, and Venezuela to become more aligned with nations that oppose the US such as Russia and China.
Quintero says that in this context Trump’s second-term policy toward Venezuela appears more focused on oil negotiation.
At the moment, America does not wish to go into war with Venezuela. It avoids any violent situations. Quintero says that there is a strong Republican lobby which is interested primarily in the continued export of Venezuelan Asphalt.
Analysts say that Trump is cautious in his approach towards Venezuela, and seeks to reach agreements with the oil industry, to keep the country away from China.
Quintero suggests further that Trump’s recent policy change towards southern nations is reflected in the renewal of Chevron licences.
Analysts claim that Trump’s policy aims to solve the Venezuelan immigration issue, and create a win-win situation.
Estimates of regional growth for 2025 in the context of geopolitical tensions
Econanalitica predicts that the economic growth rate in Latin America will remain between 2.5% and 3% in 2025, which indicates a weak performance.
The new pace of operation is insufficient to improve overall wellbeing.
Some smaller countries have experienced faster growth than others in the past 10-20 years.
Grisanti identified Panama as well as Dominican Republic, the Dominican Republic being expected to increase by at least 3% and Panama displaying strong signs of recovery.
Grisanti pointed out that Costa Rica, El Salvador and Panama, along with the Dominican Republic and Panama, have good growth prospects.
Experts predict that Guatemala will grow above the average rate, but not by as much as was expected.
The smaller economies, like Brazil and Mexico, are predicted to grow more quickly and dynamically.
Grisanti emphasized the unique case of Argentina where analysts predicted growth of over 5% because of a “rebound effects.”
The economy will recover significantly when it has been in decline.
This rebound could be a major comeback for Argentina, given its recent economic challenges. Argentina can now play a leading role on the Latin American scene, as it strives to achieve stability and progress.
It is evident that, regardless of the estimate, any action taken by Trump’s administration, be it political or economic in nature, will impact the growth prospects for the region, especially the FX and currency markets.
Can Trump’s Latin America policy backfire? This post may change as new information unfolds
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