Investment Strategy
Jul 18, 2025
A new wave of tariffs on Latin America: Can strategic trade initiatives shield the region?
While many touted Latin America as the great winner following President Trump's reciprocal tariff announcement on April 2nd's "Liberation Day”, recent news have contributed to a somewhat more negative view of the regional outlook in that regard. First, we learned of the US government’s intention to levy copper exports with a 50% tariff, adding to the existing 50% on steel and aluminum. Shortly after, President Trump authorized a 50% tariff on Brazilian goods in retribution for Brazil’s own levies on US imports as well as describing a “witch hunt” directed at former President Bolsonaro by President Lula’s administration. Finally, tariffs on Canada (35%) and the European Union and Mexico (30%) were announced subsequently while details for the renegotiation of USMCA are still unknown.
While the news initially shook the region, affecting both local currency and equities, the broader global markets remained largely steady. Investors have viewed the latest tariff headlines as more bark than bite, as they've become desensitized to the flurry of announcements. However, local investors remain concerned about the intentions behind the announcement. Let’s explore some of the regional dynamics of these tariffs.
Brazil’s reciprocity and Mexico’s negotiation propensity
In Brazil, the announcement of tariffs on imports to the US has been met with strong opposition from President Lula, who has vowed to respond using Brazil's recently approved Economic Reciprocity Law, which allows for proportional countermeasures in response to unilateral trade actions. This begs the question: how important is the trading relationship between these two countries?
The trade relationship between the United States and Brazil has been notably evolving. While Brazil ran a significant trade deficit with the U.S. over the last 15 years, this shifted to a surplus in 2024 and is now nearly balanced.
Brazil's trade balance with the US is roughly even
Brazil-US trade balance, trailing 12M $bn
Source: Min Desenvolvimento, Industria Comercio, Haver Analytics. Data as of June 30, 2025.
Brazil's total exports to the U.S. represent about 1.9% of the Latin American giant’s GDP and 12% of the country’s total exports, with 53% being manufactured goods, 28% agricultural goods, and the remainder from oil and derivatives. The most impacted companies are concentrated within the Industrials and Materials sectors. The twelve most affected categories of goods, which together account for roughly three-quarters of total exports to the U.S., include metallurgy (steel & aluminum), crude oil, chemicals, airplanes, coffee, refined fuel, wood, cellulose, juice, beef, construction equipment, and cement.1
China and the US are Brazil's top export partners
Brazil's top export partners, % of exports
Source: Comex Stat. Data for Jan 2025 - June 2025.
Brazil is also a large importer from China
Brazil's top import partners, % of imports
Source: Comex Stat. Data for Jan 2025 - June 2025.
Nonetheless, the Brazilian economy will likely face damage. Our economists from the Investment Bank estimate that every 10 percentage point increase in tariffs on Brazilian exports reduces GDP by 0.2% to 0.3%. If the full 50% is implemented (with uncertainty about whether this includes the existing 50% tariff on steel and aluminum), the total impact could be 0.8% to 1.2%. Our team's current GDP growth estimates for 2025 and 2026 remain at 2.3% and 1.2%, with more downside risks than before.
On the same vein, Mexico reacted similarly to the US’s tariff plan, and condemned it as “unfair treatment” from its northern neighbor. Despite this, President Sheinbaum expressed confidence that negotiations will permit reaching a deal before August 1st. All of the rates recently announced would, if completely passed through to the consumer, add about 0.4 percentage points to headline U.S. Personal Consumption Expenditures (PCE, or the US Federal Reserve’s preferred measure of inflation).2
What about copper? The impact on the metal market
The copper tariff places slightly more pressure on Latin American countries like Chile and Peru. Nonetheless, global investors are broadly skeptical about the 50% tariff hike staying put, as U.S. copper production capacity falls exceedingly short of its domestic consumption needs (the U.S. imports 45% of its copper). In fact, Chile, the largest copper source on the globe, supplies 65% of U.S. copper vs the U.S. only representing 15% of Chile's copper sales. Adding onto this, the U.S. is not a major user of the conductive metal, with the region representing only approximately 8% of global usage compared to China at 57%.3
Latin America currently holds a significant portion of global copper reserves
Countries with major reserves of copper, 2024
Source: UNCTAD. Data as of December 31, 2024.
Most of U.S. copper imports are from Latin America
Refined copper imports by country, % of total imports
Source: USGS. Data as of December 31, 2024.
In fact, China stands as the largest importer of copper by a significant margin and could benefit if U.S. tariffs lead to increased copper availability in the marketplace. While Peru maintains approximately 10% of the global copper reserves, it only sells 2% of its copper exports to the U.S., versus the 72% to China.4 Given that China and major commodity producing countries in South America, including recently impacted Brazil, Chile, and Peru, are already close trading partners, such a move by the United States may further strengthen their relationship.
Finally, the 50% tariff on copper imports can also be tied to Section 232, which suggests that USMCA-compliant copper may be treated differently or exempted(similar to aluminum and steel).
China still consumes the vast majority of copper
Copper demand balance by region, thousand metric tonnes
Source: Company reports, government and Industry data, CRU, Wood Mackenzie, BGRIMM, J.P. Morgan Commodities Research. Data as of July 14, 2025.
The path forward
Regarding the outlook for Latin America, we maintain a heightened level of caution about the region in 2025 based on the rapid developments so far. That being said, we have a more positive vision for the longer-term horizon based on the more strategic positioning of the countries.
Wondering about what this could mean for portfolios? While we continue to believe the effective tariff rate in the U.S. will settle between 10-15%, recent announcements raise the risk that the range could move to 15-20%. That said, given the uncertainty around tariff levels, duration, and potential retaliation from impacted partners, we emphasize the importance of regional and asset class diversification. This approach ensures resilience in an environment that remains volatile.
Reach out to your J.P. Morgan team now to discuss what this means for your portfolio and long-term financial goals.
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Important Information
New tariffs are shaking Latin America. Learn how these developments are affecting markets and investors in this dynamic trade landscape.
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