What Would Trump's Tariff Proposals Mean for U.S. Trade with Latin America?

During his campaign, Trump first promoted a 10 percent universal tariff on goods coming to the United States from every foreign country. He later suggested this number could increase to 20 percent. 

While tariffs can be imposed for a variety of political and economic reasons, they are commonly set to increase the cost of importing goods and incentivize their domestic production. The company importing foreign goods pays the tariff, which can mean an increase in prices for consumers of these imported goods. According to the Peterson Institute for International Economics, Trump's proposed tariffs could cost the average American household anywhere from $1,700 to over $2,600 annually, depending on what the tariff ends up being. 

In 2023, goods imported into the United States from the Western Hemisphere totaled over $1 trillion. While Canada and Mexico represent the two largest shares of this amount, the majority of the hemisphere's countries also have trade relations with the United States of over $1 billion. The United States is the largest trading partner of several countries in Latin America.

In 2023, Mexico surpassed China as the main source of imports for the United States. The country currently stands as the United States’ largest overall trade partner. According to the Wilson Center, nearly five million jobs in the United States are dependent on trade with Mexico. 

On November 4, less than 24 hours before election day, Trump held a rally in North Carolina, where he spoke directly about Mexican President Claudia Sheinbaum. “I'm going to inform her, on day one or sooner, that if they don't stop this onslaught of criminals and drugs coming into our country, I'm going to immediately impose a 25 percent tariff on everything they send into the United States of America,” he said, a threat he announced—on November 25—will become an executive order on his first day in office.

The next day, November 26, Sheinbaum responded to Trump's threats at a press conference, sharing a letter she was sending the president. “President Trump, it is not with threats or tariffs that the migration phenomenon or drug consumption in the United States will be addressed. Cooperation and reciprocal understanding are required to address these great challenges,” she wrote in the letter, “To one tariff, another will come in response and so on until we put common businesses at risk.” 

Sheinbaum mentioned General Motors, Stellanis, and Ford Motors Company as successful businesses present in Mexico for many years. Vehicles, automotive parts, and trucks were the three largest imports from Mexico by value in 2023, as the automotive industry is a key component of Mexico-U.S. trade relationship. During his campaign, Trump proposed a 100 percent tariff—or even higher—on cars coming across the border from Mexico, which would violate USMCA and could become central to the treaty's renegotiation, slated for 2026. 

The automotive industry in Mexico accounts for about 5 percent of the country's GDP and produces 3.5 million cars a year, with over 75 percent of those exported going into the United States. The industry was a major focus of the negotiation of USMCA, which went into force in 2020. Under the agreement, 75 percent of the value of cars must be made within North America to qualify for zero tariffs, which has encouraged integrated supply chains across the three countries. 

Trump’s current proposed tariffs on Mexico echo threats from his first term in office. In 2019, Trump threatened to impose a 5 percent tariff on all goods imported from Mexico due to the inflow of migrants from the Mexican border. He also threatened that they would increase, up to 10 percent or 25 percent, “until the illegal immigration problem is remedied.” After reaching an agreement with Mexican authorities on immigration enforcement, Trump “indefinitely suspended” the tariff before it was set to be implemented. 

Trump's announcement about the 25 percent tariffs also included Canada. Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland and the Minister of Public Safety Dominic LeBlanc issued a joint statement following Trump's announcement, calling Canada's relationship with the United States “balanced and mutually beneficial, particularly for American workers.” It also highlighted Canada's significance for the United States' energy supply. “Last year 60 percent of U.S. crude oil imports originated in Canada,” the statement read, detailing that Canada will continue discussions with the Trump administration. 

On November 26, Canadian Prime Minister Justin Trudeau told reporters he “had a good call” with Trump. “This is a relationship that we know takes a certain amount of working on, and that's what we'll do,” Trudeau said. He had raised concerns before about the amount of Chinese investment into Mexico, suggesting a potential side deal with the United States. “Ideally, we do that as a united North American market, but pending decisions and choices that Mexico has made, we may have to look at other options,” he said. 

Trump's proposed tariffs could impact the six free trade agreements the United States has in effect with 11 Latin American countries. These trade deals are USMCA, the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), and free trade agreements with Chile, Colombia, Panama, and Peru. While the details of each agreement vary, they all generally reduce or eliminate tariffs on qualified goods. “For the United States, the main goal of trade agreements is to reduce barriers to U.S. exports, protect U.S. interests competing abroad, and enhance the rule of law in the FTA partner country or countries,” lists the United States' International Trade Administration website. 

In 1993, the year before the North American Free Trade Agreement (NAFTA, the trade deal that USMCA replaced in 2020) came into force, trade in goods between Mexico and the United States totaled $81 billion. In 2023, this amount stood at $797 billion. While other factors were also at play over this 30-year period, NAFTA—and later USMCA—was key in the rise of trade between the three countries. 

The direct effect of free trade agreements is difficult to parse out and exclusively attribute, but for most other countries in the region, the current volume of trade of goods is significantly higher than before each agreement's implementation. For instance, for Chile, the growth in trade with the United States from the year before the free trade agreement, 2003, compared to 2023, was 435 percent. 

Besides free trade agreements, the United States also has six Trade and Investment Framework Agreements (TIFAs) in effect with 20 countries in the region: Argentina, Brazil, Ecuador, Paraguay, Uruguay, and the member states of the Caribbean Community. Each of these framework agreements is different and their names vary, but they all have the same purpose of increasing cooperation, trade, and investment. 

During his first term, Trump imposed several rounds of tariffs, mostly on goods coming from China, as the two countries were engaged in a trade war throughout his presidency. However, he also placed certain tariffs on imports from other countries. 

In 2018, Trump imposed tariffs on all solar panels and washing machines produced outside the United States, as a measure to counter Chinese products produced outside of China. While tariffs on Chinese solar manufacturers were already in place before Trump's administration, “China moved production elsewhere and evaded U.S. relief, while maintaining capacity,” according to the U.S. Trade Representative. 

A couple of months later, Trump placed a 25 percent tariff on steel and 10 percent on aluminum coming into the United States from most countries, including Canada and Mexico. The two countries responded with retaliatory tariffs on certain U.S. imports. Canada's tariffs were applied on steel, aluminum, and other products from the United States. Mexico's tariffs also included steel products, as well as certain food items. All measures were eliminated in 2019. 

President Joe Biden kept in place most tariffs imposed by Trump on China and, according to the Tax Foundation, Biden's administration has collected more revenue from these tariffs than was collected under Trump. Biden also increased tariffs on $18 billion worth of goods from China, including electric vehicles, steel, aluminum, batteries, and semiconductors.