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Michelle Campbell

Latin America’s Options as World Pivots to Protectionism

by Michelle Campbell | Dun & Bradstreet Editor

November 28, 2016 | No Comments »

At a time when antiglobalization rhetoric appears to be gaining international momentum, at least two of the leading nations in Latin America are adopting a more outward-looking vision. Both Argentina and Brazil have replaced their leftist presidents with center-right leaders within less than two years. Brazil’s Michel Temer, who took over after President Dilma Rousseff was impeached in August 2016, and Argentina’s President Mauricio Macri, who won a presidential runoff in late 2015, appear to have pivoted sharply from the protectionist positions of their predecessors.

Elsewhere in the world, however, the evidence of a backlash against globalization is glaring. The UK voted to leave the EU June 23. Then, Donald Trump unexpectedly won the US presidential election on November 8. Nationalistic parties in France, Spain, and Germany also seem to be gaining voter support, fueled by rising anti-immigration sentiment ahead of elections scheduled to be held in the next few years.

The ultimate impact of all this on Latin America is unclear. The Brexit outcome will likely remain up in the air for several months — even if UK Prime Minister Theresa May meets her deadline to invoke Article 50 by the end of Q1 2017 and begins the two-year negotiation process to leave the EU.

However, if Trump as president implements new protectionist policies, as promised during his campaign, the impact could be immediate, sizeable, and negative on Mexico and Central America and, to a lesser extent, South America.

Trump has yet to announce specific details regarding campaign promises to severely curb trade and immigration. However, he has outlined several agenda items that will directly affect the country’s Latin American neighbors, including the construction of a wall on the US-Mexican border, deportation of 11 million undocumented Mexicans currently living in the US, doing away with NAFTA, and slapping high tariffs on imports.

Whether Trump will implement all of his radical ideas is unclear — even with a Republican majority in the US House and Senate. In fact, it is entirely possible that a more moderate approach could be adopted by the incoming administration. Even so, the negative economic and diplomatic repercussions of the proposed actions will likely be marked.

A trade war aside, there are few options for Latin American countries to stop or reverse heavily protectionist US policies.

One option is for Latin America to accelerate its thrust for deeper trade and investment ties with extraregional partners. In this vein, at the October BRICS meeting, the five member nations (Brazil, Russia, India, China, and South Africa) agreed to increase trade among themselves to $500 billion over the next several years. Furthermore, the Chinese president’s visits to Ecuador, Peru, and Chile appear to be opening the door for China to potentially play a larger role in Latin American trade.

Yet, Latin America is still characterized by varying degrees of openness among economies. Despite its dominance in the region, Brazil was one of the most closed economies under previous president Rousseff. With center-right presidents in Argentina and Brazil, Mercosur — whose core members are Argentina, Brazil, Paraguay, Uruguay, and Venezuela — has been energized to bring new bilateral agreements to fruition. In this regard, Indian Prime Minister Narendra Modi and Brazil’s President Temer have agreed to push for an expansion of the existing India-Mercosur preferential trade agreement by 2018.

Uruguay, possibly the most outward-looking member of the group, is negotiating a free trade agreement with China. Following a visit by Uruguayan President Tabaré Vázquez to China, the two countries agreed to a China-Uruguay strategic partnership that they hope will culminate in a free trade agreement by 2018.

However, the challenge for Uruguay — allowing more competitively priced Chinese goods into its market — underscores a perennial problem within Mercosur: getting common agreement among its members.

Michelle Campbell is a Senior Economist on D&B’s Global Data, Insight & Analytics team. Based in the UK, she covers the Latin American region for D&B Macro Market Country Insight Products. In addition to her experience in the financial services sector, Campbell has worked as a visiting lecturer in the UK and in the Caribbean. Michelle holds a master of science degree in economics from the University of the West Indies in Trinidad.


Photo by Gage Skidmore, used here under a Creative Commons license.

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