At first glance, Latin America and the Caribbean appear to be the big winners after U.S. President Donald Trump’s announcement of wide-ranging tariffs last week. With very few exceptions, nearly every country in the hemisphere escaped with only the baseline 10 percent levy. Mexico was not even mentioned among the global list of countries facing new tariffs. Further, most non-food commodities, including oil and copper, are exempted from the import duties. This means many of South America’s exports to the U.S. will still enter tariff-free.
Contrast those rates targeting the Western Hemisphere with the 20 percent tariff on goods from the European Union and even higher tariffs on most of Asia, and the short-term result should be a boost for Latin America. From a relative standpoint, the region improved its trading position with the U.S. compared to most of the rest of the world.
That bias in favor of the Western Hemisphere is how markets initially read the news. After the announcement on Wednesday evening and into Thursday, U.S. and global equities crashed. By contrast, the Mexican peso strengthened, and Exchange Traded Funds, or ETFs, related to equities in most of the region’s largest countries—including Brazil and Colombia—initially gained ground and later held value better than those in other regions. A global trade war means economic losses for nearly everyone, but to the extent that some countries do better than others, the market’s conventional wisdom is that Latin America is well-positioned.
If faced with the question of why the Trump administration balanced things out this way, defenders of Trump’s foreign policies will likely attempt to spin it as strategic brilliance. In this alternate universe, the way the tariffs favor the Western Hemisphere is part of a carefully considered pivot away from Asia and Europe to build a hemispheric economic alliance that can dominate the 21st century.
Unfortunately, the tariff policy favoring U.S. neighbors to the South was more dumb luck than smart strategy, and the lack of a well-considered plan from the Trump administration is one of several problems the hemisphere now faces as Trump’s trade war moves into its next phase. Researchers online quickly pointed out that Trump’s so-called retaliatory tariffs were not actually responding to a precise measure of other countries’ tariffs, nontariff barriers and currency manipulation, as the administration claimed. Instead, the U.S. tariffs were generated from a simple formula that reflects the U.S. trade deficit with a country divided by total imports from that country, rather than how open or restrictive other countries are. That’s why Brazil and Argentina, with high trade restrictions and currency controls, did better than Israel—10 percent each, compared to 17 percent—despite the fact that Israel has a free trade agreement with the U.S. and is a close ally.
If Latin America ends up a winner in this trade war, it will be despite Trump’s policies, not because of them.
So the blanket 10 percent tariff across nearly all of Latin America and the Caribbean is more accidental than by design. That has created some diplomatic and logical inconsistencies. Countries with free trade agreements, such as most of Central America, Colombia, Chile and Peru, are being treated the same as countries of the Mercosur trade bloc, like Argentina and Brazil, which have never gotten around to negotiating free trade deals with the U.S. and have significant protections in place against U.S. goods. Additionally, Trump made little distinction between his antagonists and his allies, with Brazilian President Luiz Inacio Lula da Silva and Colombian President Gustavo Petro, both leftists, getting the same treatment as Argentine President Javier Milei, a far-right libertarian, and Salvadoran President Nayib Bukele, an authoritarian who has emerged as a close partner for Trump’s mass deportation scheme.
There are also absurdities. Ecuador is among the countries for which tariffs are partially justified due to claims of currency manipulation, despite the fact that it has used the U.S. dollar as its local currency for over two decades. The island of Martinique and the territory of French Guyana were hit with lower tariff rates than France, even though they are French overseas territories. All of these issues suggest that not much thought went into this 10 percent base rate for Latin America and the Caribbean. And that hints at more disputes to come as the Trump administration begins to see the effects of its trade policies.
In addition, the tariffs Trump has already imposed targeting autos, steel and aluminum operate separately from the country-focused tariffs and suggest more sector-specific tariffs could be in the works. And Trump’s other threatened tariffs targeting the region continue to loom on the horizon, creating an atmosphere of uncertainty that could prevent countries from taking advantage of the relatively lower tariff rates.
In the weeks after returning to the White House, for instance, Trump threatened enormous tariffs on Colombia in response to Petro’s refusal to allow a U.S. military plane carrying deported Colombian citizens to land. It’s not hard to imagine circumstances under which that threat is revived in the future. One of Trump’s top regional advisers, Mauricio Claver Carone, also suggested slapping high tariffs on all goods that move through the Chinese-operated Port of Chancay in Peru as well as any other port controlled by China. And Trump has now threatened countries with “secondary tariffs”—a riff on the concept of secondary sanctions—if they engage in oil trade with Venezuela. His administration is also considering applying various rules of origin that would mean that goods including parts from Asia that pass through lower-tariff Latin American countries could face higher levies.
Amid all these other issues and uncertainties, that 10 percent base tariff looks a lot less reassuring.
If Latin America ends up a winner in this trade war, it will be despite Trump’s policies, not because of them. Europe has moved closer to a free trade deal with Mexico and is debating ratifying one with Mercosur. Meanwhile, China has shifted toward buying more commodities from Latin America. The hemisphere will improve its position amid Trump’s trade war not by taking advantage of its relatively lower tariffs with the U.S., but rather by using trade with the rest of the world to fill the gap that the U.S. leaves behind.
Whether or not the region does well in the coming year or enters a mild recession due to this trade war, Latin America and the Caribbean will reduce its interdependence with the U.S. and deepen its intra-regional ties as well as its trade linkages with the rest of the world. The old adage about the Western Hemisphere’s interconnected economies had it that if the U.S. sneezed, Latin America would catch pneumonia. But those interconnections are no longer shackles, and Trump’s tariffs may weaken them even more. So if the U.S. voluntarily jumps off a cliff, Latin America doesn’t have to jump along with it—and in all likelihood won’t.
James Bosworth is the founder of Hxagon, a firm that does political risk analysis and bespoke research in emerging and frontier markets, as well as a global fellow at the Wilson Center’s Latin America Program. He has two decades of experience analyzing politics, economics and security in Latin America and the Caribbean.