Latin America and The New Tariff Landscape

The Chancay Port in Peru

By Christopher Hernandez & Fernando Mendez

On April 2, 2025, the U.S. Administration announced the imposition of “reciprocal tariffs” across the globe to level the playing field in trade with other countries. World economies were thrust into disarray and confusion as global supply chains were disrupted, with this new reality compelling countries to adjust to these newly imposed tariffs. Latin America had lower tariffs compared to the rest of the world. While most countries in the region were levied a tariff baseline of 10%, other countries, such as Switzerland and China, were imposed with tariffs of 31% and 34%, respectively, ostensibly due to excessive US trade deficits with those countries. Notably, these tariffs have been paused for 90 days until July 9. As of May 12th, the tariffs imposed on China have been reduced to 30% for 90 days after having been raised to 145% after retaliation from the Chinese government. These tariffs are in addition to the 25% tariff on auto parts and the 25% tariff on all aluminum & steel products globally. 

Proposed Tariff Rates in Latin America

Country	Rate
Mexico*	25%
Nicaragua	18%
Venezuela	15%
Rest of LatAm	10%

*Tariff applies to products not subject to the US-Mexico-Canada Trade Agreement

While the U.S. Administration has implemented a blanket 10% tariff on most countries, Mexico was levied a 25% tariff on products that are not compliant with the US-Mexico-Canada Trade Agreement (USMCA) requirements. Some of the requirements for compliant goods call for a portion of a finished product “to be made with inputs and labor from either the US, Canada, or Mexico”. Companies must plan strategically for changes in supply chains based in Mexico. In 2024, Mexico exported $839B worth of goods to the US and imported $505B from the United States. This significant reliance on the US market should encourage companies to pursue greater compliance with USMCA to bypass the 25% tariff on non-compliant goods.  We have started to see some of the consequences of these tariffs. Valeo, a French auto-part supplier, has undertaken the necessary steps to ensure that 90% of the products produced in Mexico are USMCA compliant. Hyundai has also announced a shift in auto production from Mexico to the US.

These tariffs will likely not result in less trade between Latin America and the US as Latin America, unlike many other countries, has the benefit of only receiving the baseline 10%. This could present an opportunity for Latin American goods to further penetrate the US market at a lower cost as compared to goods from China, Vietnam, Japan, and the EU, which were hit with 30%, 46%, 24%, and 20% tariffs, respectively. While there have been recent announcements about potential deals emerging, these lower tariffs can present an optimistic economic outlook on the region.

Following the imposition of the tariffs, Brazilian equities (MSCI Brazil) received $87M in inflows for the week ending April 25th, the largest weekly gain since December 2023.

Equity investors appear bullish on the region. The Bovespa Index is up 13.62% and iShares Latin America 40 is up 21.31% on the year when compared to the 0.64% drop in the S&P 500, as of 05/12/25. The Central Bank of Brazil raised their key rate half a point to 14.75%, a two-decade high reflecting rising inflation, opening the door to debt restructuring to adapt to the lending environment.

Proposed Tariff Rates by Country

Country	Rate
China*	34%
Vietnam	46%
Thailand	36%
Taiwan	32%
Switzerland	31%
India	26%
South Korea	25%
Japan	24%
Malaysia	24%
EU	20%
LatAm Avg.	12%

*Rate has changed from original 34% after retaliation and subsequent agreement from Chinese gov.

The U.S. administration is reportedly close to finalizing new trade agreements with India, Japan, and the UK, which could signal the path forward as an alternative for countries in Latin America willing to negotiate more favorable terms with the U.S. In fact, Argentina’s Javier Milei has been an outspoken supporter of Trump. The relationship between the two leaders can lead to a more beneficial trade agreement for Argentina. It is also likely that US companies with a foothold in Latin America will pressure the US government for some relief. This scenario presents a potential blueprint for other countries willing to follow suit. Argentina could receive a large capital inflow from companies seeking to relocate their production or storage facilities for goods destined to the US, thereby establishing a more efficient supply chain.

If the US proceeds with the tariffs and rejects the notion of mutually beneficial bilateral trade agreements with certain countries in Latin America, China could strengthen its presence in the region. The US remains ahead of China as Latin America’s largest trading partner on an aggregate basis, primarily due to Mexico’s substantial reliance on the US market, which accounted for 73.6% of total trade with Latin America and the Caribbean in 2023. Since 2005, however, China has loaned Latin American and Caribbean governments over $120B. This increased foothold in the region enhances China’s ability to divert trade away from the US through free trade agreements, as it has with Chile, Costa Rica, Ecuador, Nicaragua, and Peru.

Latin American countries could also explore alternative avenues to offset the potential loss of trade with the US. With the recent inauguration of the Chancay Multipurpose Port Terminal in Peru, a 4-dock mega port (with an expansion plan for 15 docks) built for larger commercial vessels to improve shipping between South America and the Pacific, trade with other regions has never been more accessible. For example, from 2010 to 2023, Brazilian exports have increased dramatically to markets other than the US. In fact, after the retaliatory tariffs announced between the US and China, Brazil now stands to gain ground as the top soybean exporter to China. Since the initial trade war back in 2017, the US has remained stagnant while Brazil’s soy exports to China have grown 44% from 2.5  to 3.6B bushels. This demonstrates that Latin America is integrating more with the rest of the world and does not have to depend on the US exclusively as its largest trade partner. The region could come together to explore other routes for exports between themselves and with other parts of the world. For example, a new deal between Mercosur (the South American trade bloc) and the EU was negotiated late last year, and the newly announced global tariffs could clear the way for renewed talks for increased trade between the regions.

Brazil Trade Growth % by Country (2010-2023)

Country	Growth
Vietnam	616%
Singapore	391%
Poland	278%
China	237%
Turkey	194%
Malaysia	183%
Thailand	142%
United States	62%

The hanging threat of a tariff war looms, but it appears as though Latin America will be watching closing from a relatively positive vantage point with multiple potential options. If the U.S. becomes too expensive of a destination, globalization has allowed Latin American countries the flexibility to look at other destinations to export their goods. Latin American governments should nonetheless be more open to initiating trade discussions with the United States, a scenario that could lead to more agreeable trade terms. Under any scenario, today’s volatile environment warrants that management teams be prepared, vigilant and current on all tariff proposals and changes to best advise their clients.