Impact of U.S. Elections on Latin America

By Rodrigo Campos

Latin America is anxiously counting down to Nov. 5, when U.S. voters will choose between continuity under Vice President Kamala Harris or a return to Donald Trump's policies that previously caused volatility in the region's largest markets.

Economic Implications

Trade, tariffs, and monetary policy's impact on global interest rates are critical factors. Washington's economic confrontation with China could particularly affect Mexico and favor Brazil in a tit-for-tat scenario.

A Trump win could shake the region, potentially squeezing some currencies and central banks, while countries closely tied to commodities or trading with China might remain largely unaffected. Meanwhile, Harris' plan suggests maintaining existing tariffs on China, differing from Trump's proposal to raise tariffs to around 60%.

Trade Deals and Future Scenarios

China’s presence will also influence the U.S.-Mexico-Canada trade deal (USMCA), set for revision in 2026. Trump hinted at imposing a 200% tariff on vehicles from Mexico, raising concerns about the implications for Mexican asset prices.

Carlos de Sousa from Vontobel warns that a trade war with China during a Trump presidency could lead to higher volatility in Mexico’s asset prices.

Lazard notes that a universal 10% tariff could be leveraged to monitor how countries avoid tariffs, affecting policy initiatives like migration. However, some South American nations, such as Chile, could be less impacted due to their unique exports.

Potential Outcomes

If Kamala Harris wins, the situation might stabilize with lower tariff risk and potentially improved conditions for emerging market assets. Conversely, under Trump, some commodities-exporting countries in South America might thrive despite tighter financial conditions leading to higher deficits and inflation.

Broader Regional Effects

Argentina's President Javier Milei, who aligns with Trump, may find an ally in U.S. policy, potentially benefiting from renewed support for loan programs through the International Monetary Fund. Trump's approach, characterized as higher decibel and personal, might yield favorable conditions for Milei.

In conclusion, the outcome of the upcoming U.S. elections holds considerable significance for Latin America's economic landscape, with varying implications based on the administration's approach to trade and monetary policy.