SANTIAGO – A year into US President Donald Trump’s second term, his trade threats have proved more restrained in practice than the sweeping tariff war many initially anticipated. Instead, his administration has used high import duties as a negotiating tactic, as demonstrated by the many delays and exemptions. While the average effective tariff rate on US imports has increased sharply, from 1.5% in 2022 to 17% in 2025, the impact of Trump’s “Liberation Day” tariff announcement last April has been more subdued than expected.

The economies of Latin America and the Caribbean (LAC) have fared relatively well so far, with their exports to the US facing an average effective tariff of roughly 10%. This may reflect the region’s long-standing commercial links with the United States, which remains LAC’s most important trade partner: Nearly 44% of LAC’s total exports in 2023 went to the US, which was the source of roughly 31% of its total imports that year.

But beneath these averages lie stark differences in trade exposure and export composition. Mexico and countries in Central America and the Caribbean are more exposed to the US market than their South American counterparts. While LAC exports to the US are heavily weighted toward agricultural goods, food products, and primary commodities, Mexico accounts for most of the manufactured exports from the region – particularly vehicles and auto parts – owing to its deep industrial integration with the US.

The average effective US tariff rate for LAC, which pales in comparison to the roughly 20% duty imposed on Southeast Asia’s major manufacturing economies, understates the diversity of outcomes across the region. LAC countries have been subject to widely different tariff regimes, ranging from broadly defined “reciprocal” rates, typically in the 10-15% range, to highly targeted measures affecting specific countries and products.

The highest average effective tariffs apply to Brazil (roughly 33%, although at one point it faced tariffs of up to 50% on select exports), Uruguay (20%), and Nicaragua (18%). Mexico, by contrast, has faced a much lower average effective tariff, around 8%, because more than 85% of its exports are compliant with the US-Mexico-Canada Agreement and thus exempt from the 25% tariff announced in March 2025 (although the agreement will be reviewed this year). Several South American countries have similarly faced below-average tariffs, owing to the large share of their exports – such as copper cathodes, tin, and oil – that fall under exemptions.

It quickly became clear that Trump regards tariffs as an effective tool of coercion. Late last year, the administration removed tariffs on some exports from Argentina, Ecuador, Guatemala, and El Salvador under bilateral framework agreements that give US companies greater market access. But the concessions that the US has sought to extract from its trade partners have consistently extended beyond the commercial realm and into other domains, including drug control, geopolitical alignment, and sensitive domestic political developments.

For example, in March 2025, Trump declared that the US could impose a 25% tariff on imports from any country that purchased Venezuelan oil, to be implemented at the discretion of the Secretary of State. The administration later announced 50% tariffs – among the highest it has imposed – on a range of Brazilian exports explicitly for political reasons: Trump wanted to pressure the country to stop the prosecution of former President Jair Bolsonaro. Congressional action and subsequent negotiations substantially watered down the tariffs, with relief granted on several agricultural products.

Trump’s pattern of unilateral action followed by bilateral bargaining, in which tariff policy is used as leverage, reflects a global shift toward weaponizing economic tools to pursue broader geopolitical objectives. The uneven effects of this approach, with industries such as auto parts, steel, aluminum, coffee, and agricultural products facing the brunt of the pressure, have prompted strategic responses and trade reconfiguration throughout the LAC region. Legal challenges to Trump’s tariffs, which the US Supreme Court is expected to rule on in the coming months, have added another layer of uncertainty.

 That uncertainty has reduced foreign direct investment in LAC, with FDI project announcements falling sharply in the first half of 2025 – especially in sectors that rely on exports to the US. At the same time, while exports to the US were temporarily boosted when US firms front-loaded purchases ahead of anticipated tariff hikes, trade flows are adjusting to the new reality. Moreover, LAC’s relatively lower effective tariffs have created opportunities for trade diversion from Southeast Asian economies in sectors such as clothing, medical devices, and agro-industry.

 The Trump administration’s trade war has not been as damaging for LAC as feared. But the sustained uncertainty has had profound implications for investment, sourcing decisions, and long-term trade relationships. Most of the region’s economies, with limited scope to confront or retaliate against the United States, have begun seeking stability elsewhere through diversification.

 The case for diversification – in terms of both extra-regional and intraregional trade – has never been stronger. The new European Union-Mercosur free trade deal underscores the potential gains from deeper integration with reliable partners. Now, LAC countries must look to each other and friendly markets outside the region to continue building a buffer against an increasingly unpredictable US trade policy and uncertain global conditions for trade.

 Eugenia Andreasen is Assistant Professor of Economics at the University of Chile.

 Copyright: Project Syndicate, 2026.
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