We know that Latin America’s economic vulnerabilities go far deeper than tariffs and trade policy. The natural resource wealth of the region is astounding. Where it bites in many respects is trade openness, with exports averaging under 20% of GDP (excluding Mexico). This panicked export activity reveals a more profound economic shortcoming. These challenges are compounded by limited access to and exposure to the US market, vulnerability to fluctuations in commodity prices, and shifting demands from international partners, particularly China.
Recent analyses have shown that nearly all Latin American countries still run a trade deficit with the US. This imbalance presents key challenges to our economic stability. With growth much needed, authorities are finding it hard to balance the need with fragile public finances and increasing inflation. The impact of the region’s raw materials and energy exports on its economic landscape is striking. As a result, it is extremely vulnerable to falling commodity prices and global economic headwinds.
Mexico is an outlier in this regard due to its unique and ascendant trade relationship with the US. This uniquely beneficial partnership is made possible through deep economic integration. Almost 80% of all of Mexico’s exports are to the US making up about 27% of GDPs. Mexico’s agricultural sector is almost completely under corporate control, same as here. With a heavy focus on crops such as soybeans and sugar, Mexico would be better positioned to take over a portion of US exports in Chinese markets. Mexico has exemptions from the so-called “reciprocal” tariffs under the USMCA that Mexico negotiated with the U.S., which continues to strengthen that favorable position.
The other major countries in Latin America, such as Brazil, Colombia and Chile easily endure the worst economic crises in recent memory. These countries are preparing for another round of rate increases. They are welcoming to the opportunities of precarious public finances and persistent inflation. The sectoral nature of exports from Chile and Peru copper is the main part and still isn’t affected by tariffs. Ecuador and Colombia largely rely on oil exports, which are excluded from tariffs. Yet, at the same time, economic resilience in these countries remains open to question.
As global economic dynamics shift, Latin American countries must navigate a complex landscape characterized by limited maneuverability in fiscal policy. Domestic economic conditions and global market fluctuations will be important actors in this drama. Together, they will determine the future prospects for these countries.