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Trump’s Protectionist Threat to Latin America

The economic impacts of Donald Trump’s trade dispute with China have so far been limited, but the countries of Latin America are nonetheless paying an early price. For a region where many economies are already constrained by weakened fiscal positions, the additional uncertainty caused by rising protectionism is especially unwelcome.

WASHINGTON, DC – Despite many dire predictions, the ongoing trade dispute between the United States and China has not resulted in a global economic downturn. With South Korea, Brazil, Australia, and Argentina permanently exempted from US tariffs on steel and aluminum, and with certain measures applied only to final goods and primary products, the impact of rising Sino-American trade tensions has so far been limited.

But that does not mean the tilt toward protectionism has been harmless. On the contrary, US President Donald Trump’s posturing has increased economic uncertainty, contributed to stock market corrections, and added volatility to capital markets. For countries in Latin America, in particular, these and other perils are fueling concern that more severe economic pain is in store.

From Argentina to Mexico, the threat of a trade war between the world’s two largest economies has raised risk premia and led to measurable declines in investment. Projected interest-rate hikes in the US are also boosting uncertainty in Latin America, where countries with large borrowing requirements are particularly vulnerable to disruptions in capital markets.

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