The possibility of former President Donald Trump winning back the White House in November has investors preparing for various scenarios, with “America’s backyard” high on the list of markets to look out for. The Trump administration had terse relations with much of Latin America, including during the distribution of COVID-19 vaccines and when the U.S. government withheld key financial aid in exchange for stricter migration policies in Central America.
Mexico has long been an emerging markets weather vane for U.S. policy and its impact on wider emerging markets. Trump’s 2016 election win sent the peso down nearly 8% in a week. But this time around, the peso is already down 6% this year after slumping in June when the ruling party in the country’s election closed in on a super-majority, with markets fearing constitutional changes and diminished checks and balances. On U.S.-Mexico relations, trade is expected to top the agenda, according to analysts. Trump spearheaded the revamp of the U.S.-Mexico-Canada (USMCA) trade deal and a scheduled review is two years away. The next U.S. president gets a chance to confirm whether his country will stay in it. “Trump is very unlikely to exit USMCA, but he might threaten to do so in order to extract higher tariffs and more inward investment in U.S. manufacturing,” said Hasnain Malik, head of equity research at Tellimer in Dubai.
Two of Latin America’s most flamboyant right-wing populists – El Salvador’s President Nayib Bukele and Argentina’s President Javier Milei – featured with Trump in February’s Conservative Political Action Conference, which is the largest meeting of U.S. conservative activists and politicians. Both countries are looking for financial support from the Washington-based International Monetary Fund (IMF). Back in 2018, Trump outspokenly supported Argentina’s then-president Mauricio Macri in his push for IMF money, which developed into a massive $44 billion program. Milei, a public Trump-backer, is widely expected to ask for fresh cash once the current program ends in December – if not before. El Salvador’s Bukele is also expected to reengage with the IMF after the U.S. election with the aim of getting a new program.
An El Salvador offer in April of a bond that would bump up returns if the country failed to get either a new IMF program or a significant credit rating lift in the next 18 months was seen by analysts as a Bukele bet on Trump winning the White House and putting in a good word for him at the IMF. Relationships with Cuba and Nicaragua, both led by authoritarian governments, are also expected to strain further under a Trump administration.
The way Venezuela’s July 28 presidential election will unfold could likely determine whether it has any prospect of rejoining the international community. In his previous term, Trump ratcheted up sanctions against the South American oil producer; Biden has tried to reestablish ties with a view of guaranteeing fair elections. The next U.S. president will likely determine whether a massive debt restructuring – Venezuela owes at least $60 billion on sovereign bonds alone – will come to pass, as it requires new bond issuance, currently barred by U.S. sanctions.
China trade war escalation is another factor to watch out for. Hurdles and added costs to trade with China imposed during the Trump administration were kept in place by Biden, who has further ratcheted up the heat on Beijing. Some analysts expect if the trade war with China intensifies, Beijing might opt to devalue its currency to make exports more competitive. Such a move could be felt by commodity exporters in Latin America, with Brazil, Argentina, Mexico, and Chile among Beijing’s largest regional trade partners.
The impact of a possible second Trump administration on Latin American markets is complex and multifaceted. From trade relations with Mexico to personal relationships with Latin American leaders and the implications on countries like Venezuela and China, investors are keeping a close eye on the potential outcomes. The volatile nature of the region’s economies makes it crucial for investors to stay informed and adapt to changing circumstances in order to protect their investments.