Indian Council of World Affairs

Abstract: On 2 April 2025, President Donald Trump proclaimed “Liberation Day” and announced a series of reciprocal tariffs on all imports to the US. This paper will study how Latin American economies have responded to this development and how they might pivot to mitigate the impact of the US’ changing trade policies.

Introduction

President Donald Trump’s tariff policy was part of his broader nationalist and populist economic vision. He stated that access to the American market is a “privilege”, and hence, his foreign policy would be aimed at reducing trade deficits, restoring US industrial supremacy and confronting adversaries like China.^[i] Tariffs are generally easier to enact than sanctions and have become a tool for the Trump administration to gain concessions and begin trade negotiations. His administration has raised import duties on steel and aluminium, automotive parts, agricultural goods and crude oil, often targeting adversarial regimes or leveraging them as tools for negotiations. Tariffs aimed to protect US interests have had mixed effects on Latin America, creating long-term uncertainties and shaping strategic realignments in the region’s trade policies. This paper will outline how US tariffs have affected the major Latin American economies, both economically and politically.

The Trump Administration and Tariffs on Latin America

President Trump’s tariffs have had a wide-ranging impact on Latin American economies, particularly those heavily dependent on exports to the United States. These trade barriers have disrupted regional supply chains, strained diplomatic relations and prompted shifts in policies.

Economic Impact

President Trump’s fluctuating tariff policy has caused widespread economic uncertainty and concern across Latin America. The region’s economies are heavily dependent on exports to the US, particularly in sectors, such as steel, aluminium, agriculture and manufacturing. Key transmission channels, such as trade, foreign direct investment and remittances would be primarily affected by the US tariffs. Many Latin American countries are major exporters; hence, a decline in global trade and economic activity would likely lead to declining commodity prices, reducing both export earnings and fiscal revenues.^[ii] The economic consequences of President Trump’s tariff measures have been unevenly distributed across Latin America. While some countries have faced sharp disruptions due to their deep integration with the US market, others have experienced moderate effects. This section examines the country-specific economic impacts on Mexico, Brazil, Argentina, Chile and Peru, highlighting the common pressures and distinct responses shaped by their respective trade and diplomatic strategies.

Mexico

Amongst the countries, Mexico stands out as the most directly affected. As a key economic partner under the United States–Mexico–Canada Agreement (USMCA), Mexico’s export-driven economy is deeply integrated with US supply chains, particularly in the automotive and manufacturing sectors.

On 4 June 2025, President Trump announced that the US would double its tariffs on steel and aluminium imports from Mexico. The White House has justified this move on national security grounds, arguing that the increased tariffs are necessary to counteract the import of low-priced steel and aluminium, protect US industry, and ensure sufficient domestic production capacity for defence needs.^[iii] The potential economic impact on Mexico is substantial. Steel and aluminium are essential for Mexico’s automotive, construction, and electronics industries, all of which are heavily reliant on exports to the United States. Mexico’s exports to the US represented approximately 84% of its total global exports in 2024, amounting to over $510 billion.^[iv] Mexican exports to the US have already declined by 2.7% in April 2025 for the first time in over a year, as Trump’s broader tariff regime began affecting sectors beyond steel and aluminium.^[v]

President Trump imposed a 25% universal tariff on Mexican goods, though exemptions under the USMCA partially offset the impact on certain exports. While more than half of Mexico’s exports qualify under USMCA, meeting compliance requirements remains complex and time-consuming. This is because frequent and unclear US tariff changes have created confusion at the border, delaying shipments and disrupting production for Mexican companies. As a result, many firms are reconsidering their supply chains, with some exploring relocation or automation to offset rising costs.^[vi] Mexico’s Economy Secretary Marcelo Ebrard stated that the government is working with companies to ensure that exports align with USMCA rules. Mexico’s automotive industry, which exports over three million vehicles annually, primarily to the US, remains particularly vulnerable. Any substantial renegotiation of USMCA will likely have to wait until the 2026 review.

The Mexican government has responded strongly to these tariffs. President Claudia Sheinbaum described the measures as “unjust, unsustainable, and without legal grounds”, noting that Mexico imports more steel and aluminium than it exports and that the invocation of national security is inconsistent with the cooperative nature of the US–Mexico relations.^[vii] President Sheinbaum warned that the tariffs would inevitably lead to higher prices and economic disruption in both countries. Simultaneously, the government has announced that it will impose retaliatory tariffs if negotiations fail and is considering challenging the US actions under the USMCA’s dispute resolution mechanisms. Foreign Minister Marcelo Ebrard emphasised that the US enjoys a trade surplus in steel with Mexico and argued that the tariffs lack economic justification.^[viii] Economists warn that further escalation, especially retaliatory tariffs, could trigger a recession in Mexico while also raising inflationary pressures and causing supply chain disruptions in the US and Canada.

Brazil

Similarly, Brazil and Argentina previously faced the baseline 10% tariffs and limited economic impacts because of their trade surplus with the US. However, President Trump’s decision to impose 50% tariffs on steel and aluminium has shocked the economies of these two countries.

For Brazil, President Trump’s tariffs have been particularly alarming, as it is the second-largest exporter of steel to the US, shipping four million tonnes of the metal in 2024.^[ix] The steel industry is a major employer in Brazil, particularly in industrial states such as Minas Gerais and São Paulo. Brazil’s steel industry is a labour-intensive sector, which employs around 121,000 people in the country, including direct and indirect jobs.^[x] A substantial reduction in exports due to the tariff would likely result in lower production volumes, potential factory slowdowns or shutdowns and job losses. This would compound domestic economic difficulties, especially as Brazil continues to grapple with fragile growth and inflationary pressures.

In response to the tariffs, Brazil’s Congress passed the “Economic Reciprocity Law”, granting the executive the power to respond through measures, such as suspending concessions or trade agreements.^[xi] However, President Lula da Silva, for the moment, stated a preference for negotiation over retaliation and said that Brazil would focus on improved relations instead of a trade war.^[xii]

Argentina

Argentina, meanwhile, has responded with cautious pragmatism. Its aluminium and steel industries are similarly concerned about export losses to the US and a surge in cheaper Chinese imports.^[xiii] During President Trump’s last presidential term, Argentina negotiated a strict yearly limit of 180,000 tonnes of steel products, including 150,000 oil pipelines.^[xiv] After the implementation of the latest tariffs, these negotiations stand null and void, furthering anxiety in Argentina’s steel industry. Argentina’s hydrocarbon sector, on the other hand, a significant contributor to exports, remains exempt from the new tariffs, slightly cushioning the blow.^[xv]

Argentinian President Javier Milei is focusing on diplomatic negotiations with the US to find mutually acceptable solutions. His government is seeking a trade deal to reduce tariffs on close to 50 products in Argentine exports, primarily in agriculture and fisheries.

On the other hand, Chile’s and Peru’s economies remain relatively unaffected by the current tariffs. They face a 10% baseline tariff, while their primary export to the US, copper, remains exempt due to existing Free Trade Agreements. This exemption offers a significant relief to their economies amidst major disruptions.^[xvi]

Political Impact

President Trump’s tariffs intersect with broader geopolitical tensions, especially around immigration. Beyond trade, they have become a tool for advancing US political goals in the region, including migration and diplomacy. This section examines how Mexico, Colombia and Venezuela have been affected politically and how each has responded based on its unique challenges and strategic interests.

Mexico

Since returning to office, President Trump has reinstated the Migrant Protection Protocols^[xvii] and declared a border emergency, increasing pressure on Mexico to further strengthen its border enforcement and cooperation on migration control.^[xviii] In early 2025, President Sheinbaum agreed to deploy 10,000 National Guard troops to reinforce southern border security; in return, the US paused the newly imposed tariffs.^[xix] The Mexican government has also requested that the US maintain legal pathways that allow migrants to move to the US.

While Mexico has borne the brunt of tariff-linked migration demands, Colombia’s experience illustrates the effects of political disagreements on economic relations. Colombia has largely remained outside President Trump’s tariffs due to its existing Free Trade Agreements (FTAs) with the US. While its primary export, oil, remains exempt, and it faces minimal direct economic harm from President Trump’s tariffs, it is increasingly exposed to geopolitical and trade volatility. Earlier in 2025, tensions between the US and Colombia escalated when President Gustavo Petro denied US military deportation flights permission to land. President Trump retaliated with increased tariffs on all Colombian goods. Although diplomatic negotiations de-escalated the situation, it showed that the US is willing to use tariffs as a mode of political coercion.^[xx]

Venezuela

US relations with Venezuela remain tense. While most goods directly imported from Venezuela only face the baseline 10% tariffs, the political disagreements between President Maduro and President Trump have escalated. Stating that President Maduro’s regime poses an unusual and extraordinary threat to the national security of the US, President Trump imposed secondary tariffs on all goods from any country that imports Venezuelan oil, whether directly from Venezuela or indirectly through third parties.^[xxi] The US has stated its intention to use economic leverage to protect its interests by undermining President Maduro’s “corrupt regime” and imposing consequences on its supporters.

Venezuela has criticised President Trump’s tariffs, claiming that they violate international trade rules. In response to this, Venezuela is likely to seek to increase black-market oil sales, especially to China, at discounted prices, although these are unlikely to offset revenue losses. This could effect migration dynamics between the two countries as well, as the Venezuelan government may become more willing to comply with US demands for the repatriation of its nationals residing in the United States. This is because economic pressure could push Venezuela to cooperate on migration issues in hopes of easing tensions.

Conclusion

President Trump’s fluctuating tariff policies have left key industries operating across Latin America scrambling to comply with shifting regulations and facing uncertainty about their future. Latin American governments are reassessing their economic dependencies and exploring diversification strategies, whether through deeper intra-regional trade, strengthened ties with Asia or more aggressive legal and diplomatic recourse through existing trade frameworks. However, these are long-term shifts, and in the immediate term, the region remains vulnerable to sudden policy changes from Washington. On a positive note for the region, the current uncertainties could lead to more regional unity in Latin American countries. At the recent meeting of the 33-member Community of Latin American and Caribbean States (CELAC) – 2025, President Lula da Silva urged a united front against President Trump’s economic measures.^[xxii]

The developments around tariffs could lead to a lasting shift in US–Latin America relations. While the long-term impact of the trade tensions on bilateral relations between the US and Latin American countries remains uncertain, it is likely to increase inter-regional relations amongst Latin American states.

*****

*Aditi Mishra, Research Intern, Indian Council of World Affairs, New Delhi
Disclaimer: Views expressed are personal. 

Endnote

[i] “Fact Sheet: President Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China.” The White House, February 2, 2025. https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/#:~:text=Access%20to%20the%20American%20market,only%2024%25%20of%20U.S.%20GDP.

[ii] S&P Global Market Intelligence. “How US Tariffs Could Impact Latin America.” S&P Global Market Intelligence, May 2025. Accessed June 14, 2025. https://www.spglobal.com/market-intelligence/en/news-insights/research/how-us-tariffs-could-impact-latin-america.

[iii] The White House. “Adjusting Imports of Aluminum and Steel into the United States.” Presidential Actions, Proclamations, June 3, 2025. Accessed June 10, 2025. https://www.whitehouse.gov/presidential-actions/2025/06/adjusting-imports-of-aluminum-and-steel-into-the-united-states/.

[iv] The Hindu. “Trump’s Tariffs Could Hit Canada, Mexico Hard, While China Appears to Be Prepared.” The Hindu, accessed June 10, 2025. https://www.thehindu.com/news/international/trumps-tariffs-could-hit-canada-mexico-hard-while-china-appears-to-be-prepared/article69174942.ece.

[v] MND Staff. “Despite Tariffs, Mexico Maintains Significant Trade Surplus with the US.” Mexico News Daily, June 6, 2025. Accessed June 10, 2025. https://mexiconewsdaily.com/business/mexico-us-trade-surplus-exports-drop/.

[vi] Perlmutter, Lillian. “Tariff Uncertainties Have Companies in Mexico on Their Toes.” Al Jazeera, April 3, 2025. https://www.aljazeera.com/economy/2025/4/2/tariff-uncertainties-have-companies-in-mexico-on-their-toes.

[vii] Presidencia de la República. “No estamos de acuerdo, es injusto e insostenible: Presidenta sobre incremento al 50 % en aranceles al acero y al aluminio por parte de EUA.” Gobierno de México, June 4, 2025. https://www.gob.mx/presidencia/prensa/no-estamos-de-acuerdo-es-injusto-e-insostenible-presidenta-sobre-incremento-al-50-en-aranceles-al-acero-y-al-aluminio-por-parte-de-eua. (translated with Google translate)

[viii] MND Staff. “Despite Tariffs, Mexico Maintains Significant Trade Surplus with the US.” Mexico News Daily, June 6, 2025. Accessed June 10, 2025. https://mexiconewsdaily.com/business/mexico-us-trade-surplus-exports-drop/.

[ix] "Brazil Congress Approves Law to Counter Trump Tariffs." The Hindu, June 23, 2025. Accessed June 23, 2025. https://www.thehindu.com/news/international/brazil-congress-approves-law-to-counter-trump-tariffs/article69406677.ece.

[x] Konchinski, Vinicius. “Trump’s Metal Tariffs May Impact Brazil, Leading to Lower Prices and Higher Unemployment.” Brasil de Fato, February 13, 2025. https://www.brasildefato.com.br/2025/02/13/trump-s-metal-tariffs-could-affect-brazil-with-falling-prices-and-unemployment/.

[xi] Presidency of the Republic of Brazil (Planalto). “Brazil Enacts Economic Reciprocity Law.” Gov.br, April 15, 2025. https://www.gov.br/planalto/en/latest-news/2025/04/brazil-enacts-economic-reciprocity-law. (Translated with Google Translate).

[xii] Marcela Ayres and Rodrigo Campos. “Brazil to Be Reciprocal on Tariffs but Will Try Negotiating First, Lula Says.” Reuters, April 9, 2025. https://www.reuters.com/world/americas/brazil-be-reciprocal-tariffs-will-try-negotiating-first-lula-says-2025-04-09/Marcela Ayres and Rodrigo Campos. “Brazil to Be Reciprocal on Tariffs but Will Try Negotiating First, Lula Says.” Reuters, April 9, 2025. https://www.reuters.com/world/americas/brazil-be-reciprocal-tariffs-will-try-negotiating-first-lula-says-2025-04-09/.

[xiii] Duggal, Hanna, and Marium Ali. “Who Sells the Most Steel and Aluminium to the US and

Who Is Facing Tariffs?” Al Jazeera, February 11, 2025.

https://www.aljazeera.com/news/2025/2/11/who-sells-the-most-steel-and-aluminium-to-the-

Us-and-who-is-facing-tariffs.

[xiv] Ibid.

[xv] “How US Tariffs Could Impact Latin America.” S&P Global Market Intelligence. Accessed

June 1, 2025. https://www.spglobal.com/market-intelligence/en/news-insights/research/how-

us-tariffs-could-impact-latin-america.

[xvi] S&P Global Market Intelligence. “How US Tariffs Could Impact Latin America.” S&P Global Market Intelligence, May 2025. Accessed June 10, 2025. https://www.spglobal.com/market-intelligence/en/news-insights/research/how-us-tariffs-could-impact-latin-america.

[xvii] The Migration Protection Protocols (MPP), introduced by the Trump administration in 2019, required asylum seekers arriving at the US–Mexico border to remain in Mexico while their immigration cases were processed in US courts.

[xviii] Economic Times. “How Trump’s Tariffs on China, Canada and Mexico Will Ripple Through US Economy.” Economic Times, February 1, 2025. Accessed June 10, 2025. https://economictimes.indiatimes.com/news/international/global-trends/us-news-donald-trump-tariffs-canada-china-mexico-impact-on-us-economy-trade-war-and-inflation-how-trumps-tariffs-on-china-canada-and-mexico-will-ripple-us-economy/articleshow/118705439.cms.

[xix] Martín Janetsky. “Mexico Deploys the First of 10,000 National Guard Troops to U.S. Border.” Associated Press, February 4, 2025. https://www.apnews.com/article/national-guard-mexico-border-ciudad-juarez-sheinbaum-b26e9d359f4f17b60925bd3935d169d3.

[xx] US, Colombia reach deal on deportations; tariff, sanctions put on hold | reuters. Accessed June 1, 2025. https://www.reuters.com/world/americas/colombias-petro-will-not-allow-us-planes-return-migrants-2025-01-26/.

[xxi] “Fact Sheet: President Donald J. Trump Imposes Tariffs on Countries Importing Venezuelan Oil –].” The White House, March 25, 2025. https://www.whitehouse.gov/fact-sheets/2025/03/fact-sheet-president-donald-j-trump-imposes-tariffs-on-countries-importing-venezuelan-oil/.

[xxii] “Lula: ‘Latin America and the Caribbean Must Redefine Their Place in the New Global Order.’” Lula: “Latin America and the Caribbean must redefine their place in the new global order.” - Planalto. Accessed June 1, 2025. https://www.gov.br/planalto%29%3A/en/latest-

news/2025/04/lula-latin-america-and-the-caribbean-must-redefine-their-place-in-the-new-Global-order.