Trump and Latin America
Por: Carlos Aquino
Blogger de Alerta Económica
How will Trump’s economic policies influence Latin American countries?
The protectionist measures that the Trump administration is taking will affect Latin America but especially Mexico that depends more of the US market than other countries. Mexico export around 80% of all its products to US. Already Trump has said it will renegotiate the NAFTA, the trade agreement between Mexico, Canada and US. Some Central American countries also depend a lot in the US market, but as they are small countries and their exports are not so important for the US, it is possible they will not be affected much. In the case of countries like Peru and Chile, that with Mexico were together in the TPP with US, as the TPP is no longer feasible they could be affected but no so much because Peru and Chile have already a Free Trade Area agreement with US. Also Peru and Chile are not so dependent of the US market because more than one third of what they export goes to the Asian market, especially China. Peru for example only export 17% of its total goods to US while export 22% of its total goods to China.
Also there is a lot of investment of US and other countries, like Japan, going to Mexico to produce there and export the goods to the US market. With Trump protectionist policies that ask companies to invest in the US instead of abroad if they want to sell to the US market also some Latin American countries, but especially Mexico, will be affected. There will be less investment in these countries and more in the US. Some Japanese and United States companies already has decided not to invest in Mexico but in the US because Trump has asked them to do so.
But Trump also will take other measures as restrictions in the number of immigrants going to the US, and will began expelling illegal immigrants, many of whom are from Latin America. This will impact negatively in some countries, especially in Central America, that depend a lot on the money send by those immigrants to their home countries. For example last year Mexicans living in US sent to their country 26 billion dollars. Some Latin American countries, especially the small Central American ones and Haiti for example, depend a lot in the money sent by their citizens living in the US as a source of foreign exchange.
Also if Trump policies of spending more raise the interest rate for the dollar and this would appreciate the value of the US currency, then this action will affect countries and companies in Latin America that have taking loans in dollars. As the interest rate in US was very low in the last years many government and companies took loans in dollars but the interest rate will increase and they will be affected. Already the Federal Reserve said that this year probably it will raise twice the interest rate.
Are Latin American countries worried about the rising trend of trade protectionism?
Latin American countries are worried about protectionism arising not only in the US but also in Europe, where elections could bring populist governments that oppose globalization and open markets and could restrict trade and movement of people. The Brexit already is causing concern in some Latin American countries and they are afraid this same phenomena will happen in other countries in the European Union (like in France).
But not only United States and some European countries are becoming more protectionist. Also some Latin American countries themselves, like Brazil and Argentina, are very protectionist. For example these two countries have imposed a lot of restrictions, including antidumping duties, not only to China but also to other Latin American countries. These two countries are the more protectionist in the region.
How should these countries deal with this change?
Latin American countries should diversify their export markets and not depend much in the US. They should look for markets in Asia, where are the countries that growth more, with the largest populations and markets. For example with the demise of the TPP, Peru, Chile and Mexico should look for achieving trade agreements with more Asian countries. Peru and Chile already have agreements with some of them, but should look for more. Peru, Chile, together with Costa Rica have FTA with China for example, Mexico only has a FTA with Japan. The rest of Latin American countries should follow. Already Uruguay, that as part of MERCOSUR is very protectionist, has said that it will look for a trade agreement with China.
Another thing that Latin American countries could do is work together to trade more with Asia, to get more integrated with that region. One example is what the Pacific Alliance is doing. This group, of four countries, Mexico, Peru, Chile and Colombia, are taking steps to sell more goods to Asia, attract more investment from Asia, and bring more tourists from Asia, in a concerted way. Other Latin American countries should follow this example.
With the demise of the TPP, Mexico, Peru and Chile also should be looking for to participate in the scheme that the RCEP is proposing for achieving economic integration in the Asia Pacific region. As we know APEC economies are looking to establish the Free Trade Area of the Asia Pacific (FTAAP). TPP and RCEP were two roads to achieve that. With TPP gone the remaining is the RCEP. But the Regional Comprehensive Economic Partnership in not yet an agreement concluded.
Also what can be done is to work more in some schemes as the China CELAC Forum. This is a very interesting scheme but should be more active. China has shown a willingness to work with Latin American countries and has proposed several measures to increase its trade, investment and cooperation with the region, but it seems that in the part of Latin American countries there is not the same dynamism. Latin American countries should propose projects, for example in physical infrastructure, or manufacturing to attract the finance, expertise that Chinese companies and government are willing to offer.
At the end what is needed by Latin American countries is to look for new markets as said, look to Asia. And for this they need to strengthen their education system, their physical infrastructure to produce competitive goods to export to Asia. Besides this they need to know more Asia, how to do business with them. Especially they should focus in China. And also Latin American countries should try to work together, like the Pacific Alliance, but still differences persist among Latin American countries, some of them very protectionist (like MERCOSUR, Venezuela, Bolivia, Ecuador), closed to the opportunities that the globalization bring, closed still to the opportunities that markets in Asia bring. Many of them were happy to have access to the US or European markets but with those countries becoming protectionist they should focus in Asia, and China in particular. The opportunities are there, but they should prepare to take advantage of that.