Navigating Trade Turbulence: Why LATAM Companies Should Look to the EU Amid New US Tariffs

Introduction: Potential risks of new tariffs

The specter of new U.S. tariffs under a potential Trump administration looms large for Latin American (LATAM) exporters. While exact details remain unclear, history offers a stark warning: In 2018, Trump’s steel and aluminum tariffs cost Brazil alone $2.7 billion in annual exports, while Argentina’s aluminum sales to the U.S. plummeted by 35% (U.S. International Trade Commission). 

As rumors swirl about renewed protectionist policies targeting South America and Canada, LATAM companies face a critical choice: double down on volatile U.S. trade ties or pivot to safer, strategic markets like the European Union (EU).

With the U.S. accounting for nearly 22% of LATAM’s total exports (World Bank, 2023), dependency on this single market leaves the region dangerously exposed to protectionist policies. Historical precedents, such as the 2018 trade wars, demonstrate how tariffs can destabilize industries, inflate costs, and trigger retaliatory measures. As political rhetoric around "America First" policies intensifies, LATAM businesses must diversify their trade portfolios urgently. 

We'll explore the risks of new tariffs, underscore lessons from past disruptions, and position the European Union (EU) as a critical alternative for safeguarding growth.

Potential future impact on LATAM-US trade (statistics, industries affected)

The U.S. is a cornerstone of LATAM trade, with bilateral exchanges totaling $1.2 trillion annually (World Bank, 2023). Key industries face disproportionate risks:

• Agriculture: Approximately 30% of LATAM’s soybean, beef, and coffee exports are destined for the U.S. Tariffs could erode profit margins for farmers already struggling with climate volatility and supply chain costs.

• Manufacturing: Mexico’s auto parts sector, deeply integrated with U.S. supply chains, could see production costs rise by 15–20% (Bloomberg Economics, 2023), threatening competitiveness.

• Regional Economies: Countries like Brazil and Argentina, which rely on the U.S. for 22% of their total exports, face heightened vulnerability to trade shocks.

Past examples of tariffs and their effects

• Brazil: Lost $2.7 billion in annual steel exports, with soybean farmers facing retaliatory Chinese tariffs due to U.S.-China trade tensions (U.S. International Trade Commission).

• Argentina: Aluminum exports to the U.S. plummeted by 35%, exacerbating economic instability (IMF, 2019).

• Regional Trade Volumes: LATAM-U.S. trade fell by 12% within a year, with recovery delayed until 2021 (IMF). These disruptions underscore the fragility of over-reliance on a single market.

The EU as a strategic alternative

The EU presents a viable and stable market for LATAM exporters, bolstered by robust trade frameworks:

1. Trade Agreements: The pending EU-Mercosur Agreement will eliminate 93% of tariffs on LATAM goods, creating access to a $19 trillion integrated market (European Commission). Countries like Chile and Colombia have already benefited from bilateral deals, with Chilean wine exports to the EU growing by 25% since 2020 (UN Comtrade).

2. Sustainability Demand: The EU’s Green Deal prioritizes ethically sourced products, aligning with LATAM’s strengths in organic coffee, renewable energy materials, and eco-friendly agriculture. For instance, Brazilian coffee giant Grupo Pão de Açúcar expanded into 12 EU countries via partnerships, capitalizing on premium pricing for sustainable goods.

3. Tariff Reductions: The EU’s Generalized Scheme of Preferences (GSP+) grants duty-free access to 6,200 product lines for developing nations, offering LATAM exporters a competitive edge.

Conclusion

LATAM businesses cannot afford to remain tethered to the unpredictable U.S. market. Historical tariff impacts and looming policy risks necessitate urgent diversification. The EU’s stable trade environment, growing demand for sustainable goods, and favorable agreements provide a strategic buffer against disruptions. LATAM companies can mitigate risks, ensure continuity, and secure long-term growth by pivoting to European markets. The time to act is before new tariffs redefine the trade landscape.

• Mitigate Risk: Reduce exposure to U.S. protectionism.

• Capture Growth: Tap into the EU’s $17 trillion GDP and demand for ethical goods.

• Future-Proof Supply Chains: Align with the EU’s digital and green transitions.

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Sources: 

U.S. International Trade Commission, UN Comtrade, Bloomberg Economics, World Bank (2023), IMF, U.S. International Trade Commission, European Commission, UN Comtrade, Inter-American Development Bank, Brookings Institution, FAO, Natura &Co Annual Report.