What Trump will Latin America get?

Nov 17th 2016 |

It wasn't just reputed pollsters who called the USA election result wrong. In a poll held among 450 CFOs and treasurers at EuroFinance's conference on 'International Cash management, Treasury and Risk in Brazil' last week, 93% of participants predicted a Clinton victory.

How could they be so off the mark? The answer is probably 'wishful thinking'. In a country lacerated by uncertainty and political turmoil, a Clinton win represented a certain degree of continuity and predictability. A safer option. But it was not to be.

So what can we expect from Trump's administration? What will be the impact for Brazil and Latin America?

The day after the election an expert panel coordinated by Brad Haynes from Thomson Reuters discussed their views on the consequences.

For Marcio Zanetti, Country Leader, The Economist Intelligence Unit, “The US president-elect, Donald Trump, did not articulate a comprehensive foreign policy approach during his campaign, and beyond emphasis on building a wall on the Mexican-US border to staunch illegal immigration, he gave little detail about policies towards Latin America. Yet two of the main themes of Mr Trump's campaign, trade and immigration, are likely to dominate the hemispheric agenda and he may also revise his predecessor's conciliatory approach to Cuba. Mexico, for which the US is the main trading partner, will be hardest hit by Mr Trump's policy direction. South American countries will mainly be off his radar, but there is a risk of protectionist policies damaging some of the region's agricultural exports to the US.”

On a similar note, Dr.Oliver Stunkel, Coordenador do CPDOC e do MBA em Relações Internacionais, FGV-SP, remarked that, “Even though Brazil is largely off the radar of US foreign policy, there is a real possibility that it'll suffer most from a Trump Presidency. The reasons are twofold. First of all, a Trump victory would probably end US attempts to push for trade liberalization, a move that would strengthen the global trend of protectionism. That would undermine one of the key pillars of the Temer administration's economic strategy, namely, to catch up with the rest of the world and open up its economy. Secondly, the geopolitical instability generated by a Trump presidency is likely to lead to global economic volatility which would further undermine Brazil's attempts to recover".

Thomaz Favaro, Associate Director, Brazil & Southern Cone at Control Risks agreed, “Recent leadership changes in Brazil and Argentina have fostered an unprecedented move towards greater openness to foreign trade. The irony is that this policy shift comes at a time when much of the world is beginning to look the other way. Major trading partners such as the US and the EU have seen anti-trade rhetoric reach new decibels, and Trump’s victory on a protectionist platform is the ultimate proof of this trend. The main loser of the US election was free trade. That could spell trouble for Temer and Macri as they seek to improve access to global markets.”

That said, although a Trump victory might represent a threat to free trade, whether and how his campaign rhetoric will be enacted remains to be seen.

In the short term, funding costs might increase for Latin American borrowers in dollars but it is too soon to know what the impact will be in the long run.