Analysis - Economic uncertainty for South America after Donald Trump's victory
The global geopolitical landscape continues to transform, and Donald Trump's victory as the new President of the United States in 2024 introduces a new chapter of challenges and opportunities for the business sector. Research by Ignacio De Angelis, Vice-Dean of the Business Area of the Faculty of Social and Legal Sciences at the Universidad Internacional de Valencia (VIU), part of Planeta Formación y Universidades, analyses the implications of this juncture for strategic sectors such as technology, energy and defence.
The impact of Donald Trump's mandate in South America
The re-election of Donald Trump as President of the United States could trigger a series of economic and geopolitical challenges for South American nations, especially Colombia, Peru, Ecuador and Chile.
The announced tightening of protectionist policies, with the possible imposition of across-the-board tariffs that could reach 20 per cent, threatens to erode the competitiveness of these countries' exports in the US market. This measure could weaken existing free trade agreements between the US and Colombia, Chile and Peru, putting at risk key sectors of their economies that depend on these export promotion agreements.
What is certain is that, in parallel, these countries have forged association agreements with the European Union and also with China, aimed at trade liberalisation and infrastructure investment, which may bring new opportunities in the current context.
Geopolitical disputes and South America's relationship with China
Trump's re-election could exacerbate geopolitical disputes in Latin America, forcing governments to take sharp positions. The ability of regional leaders to manage these tensions could translate into opportunities for local companies, especially considering the European Union's renewed interest in the region, focused on areas such as energy and digital transformation.
In this sense, this scenario could generate diplomatic friction, as the US could exert pressure for these countries to limit their cooperation with China but not with the EU. Competition between the two powers for influence in Latin America will force governments to carefully balance their international relations, avoiding conflicts and ensuring economic and political benefits for their nations.
In terms of relations with China, Chile has a pioneering free trade agreement in the region, although it has remained cautious about the entry of Chinese capital into critical infrastructure, focusing more on technology sectors.
Peru, for its part, also has a trade agreement with China; however, the growing presence of Chinese investment in its ports (and the recent inauguration of the mega-port of Chancay) has generated tensions that could escalate in the face of the US position. Ecuador, for its part, immersed in an economic and financial crisis, has followed this trend by recently (in 2023) signing a free trade agreement with China. The new context will surely shape the direction of this partnership in the context of a deeply weakened and indebted economy.
Trump, the volatile economy and business in South America
Volatility in financial markets could intensify, causing exchange rate fluctuations and destabilising regional economies. A global tariff escalation could raise inflation in the United States, prompting the Federal Reserve to slow interest rate cuts, strengthening the dollar against other currencies. This scenario has already shown its effects; following Trump's victory, the Colombian peso suffered a significant devaluation, reaching highs not seen in two years.
To navigate this uncertain environment, companies in Colombia, Peru, Ecuador and Chile will need to implement strategies that diversify their markets and reduce dependence on trade with the United States. A pragmatic geopolitical approach will allow administrations to reap sector-specific benefits, opening up opportunities to strengthen relationships with other global players and consolidate ties with existing partners.
Investment in innovation and technology becomes imperative for companies to improve their competitiveness and efficiency by strengthening their social systems of innovation and production.
In the medium term, the adoption of emerging production and energy technologies and the training of the labour force in digital skills will be decisive in facing the challenges of the new context, although it will be difficult to establish a framework conducive to structural transformation and the reduction of dependence on the processing and export of natural resources.
