Trump Wins: What It Means for Latin America

U.S. elections are close to culminating, with a strong victory of former President Donald Trump over Vice President Kamala Harris, projected at around 312 electoral votes. At the same time, Republicans secured their majority in the Senate and are contesting the House of Representatives.

At first glance, these results do not ignore the most obvious reactions including a global appreciation of the dollar, a bear steepening of the U.S. sovereign curve and an impact for emerging economies related to possible trade tariffs and higher fiscal deficits.

Having said this, let's think about what could be positive for the Latin American context and related asset classes. Trump's administration’s priority is to favor a reindustrialization of the national economy. Given a stable birth rate, the need for blue collar workers will continue to favor a migratory flow that could be more selective in its form but should not be much harsher. In parallel, a higher level of rates will force Latin American economies to be fiscally disciplined, given a scenario of higher sovereign core rates. The first major signal has been given by Brazil, regarding its efforts to cut spending. In turn, the early review of the USMCA will force Mexico to slow down its institutional reform agenda.

From the political side, the American red tide could be a relevant catalyst for the upcoming presidential elections in the region. The recent municipal elections in Brazil and Chile set the stage for the return of center-right - market friendly oriented - parties to presidential seats. For Mexico, it's an important check-and-balance against Sheinbaum’s administration, especially for the MORENA's supermajority in the Congress. In contrast, nations dominated by extreme left-wing regimes such as Venezuela and Cuba are in critical economic times. In this context, one of the countries that will benefit the most from this victory is Argentina. The nation has surprised with a fiscal and inflationary adjustment above expectations, and it is expected to count on Trump's support when negotiating for new resources from the IMF. The ideological closeness with Milei, added to the relevance of the Antarctic platform for the United States, are significant elements.

Additionally, the macro trends that have dominated 2024, such as the absence of geopolitical events and a growing nearshoring - not only in Mexico, but also in other smaller countries such as Costa Rica and the Dominican Republic - favor the region over other emerging peers. In conclusion, despite a more challenging environment towards emerging markets and Europe, it is important not to lose sight of Latin America as a region that could provide more opportunities on the horizon, particularly given its attractive valuations.