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Mexico will be the biggest loser from North American Free Trade Agreement (Nafta) renegotiations, with a host of other Latin American countries set to suffer negatively from US President Donald Trump’s trade and economic nationalism.

Renegotiations over the 22-year old trade deal between Canada, Mexico and the US are set to commence in mid-August, with trade credit insurer Coface saying that Mexico is likely to be the initial target of Trump’s protectionist policies.

This is based on the expectation that Trump will immediately target countries with which the US has a strong trade deficit. With this assumption, a Coface report says, “Mexico’s position is particularly sensitive”.

This is a widely-held view: ING Bank says that Mexico’s trade is 20 times more dependent on the US than vice-versa.

Coface notes that more than 80% of Mexico’s exports are sent to the US today, representing 24.4% of Mexico’s GDP. With this, the country becomes the Latin American economy with the largest trade surplus with the US: compared to the rest of the world, its surplus in 2016 is exceeded only by China, Japan and Germany.

To bridge this gap, the Trump administration has already proposed the implementation of a 20% import tax on products from Mexico (which would then pay for the much-hyped border wall), while Trump has threatened to dismantle Nafta, the 22-year-old trade treaty between the US, Canada and Mexico, if he doesn’t get the terms he wants.

The uncertainty around the future of Nafta has already taken its toll on Mexico. In 2016, the peso depreciated by 19% against the US dollar, and Coface notes it could devalue by more than 25% if Nafta was to come to an end.

While Trump has agreed “not to terminate Nafta at this time”, the US will certainly do what it can to restrict the amount of imported material in goods that qualify under the agreement, and eliminate a controversial dispute settlement mechanism, which will leave Mexico the most vulnerable in the upcoming negotiations and for future protectionist measures.

 

The other losers

Along with Mexico, Coface identifies Costa Rica, El Salvador and Honduras as the three countries in Latin America that are the most exposed to protectionist measures imposed by the US administration. Aside from Nafta renegotiations, ‘Trumponomics’, as Trump’s form of economic policy has been branded, promotes economic and trade nationalism, and trade reciprocity.

Not only do these economies have a high level of trade exposure to the US, but their GDPs are more dependent on those exports than other nations in the region. Therefore, they can expect to suffer from the direction Trump’s policy is taking.

Honduras is most vulnerable to US protectionism. 42.5% of its total exports go to the US, and these account for as much as 31.7% of the country’s GDP. Meanwhile, 47.2% of El Salvador’s exports go to the US, which accounts for 25.1% of total GDP.

Although Costa Rican exports will be hard hit by US trade measures, the country’s GDP is less vulnerable. While the Costa Rica’s exports to the US make up 42.5% of total exports, this comprises only 6.6% of GDP.

The authors state that US will potentially place tariffs on the import of manufactured products, which is bad news for El Salvador, Honduras and Mexico, which have heavy dependence on these exports.

Coface’s analysis found that within the region, only two others countries, Ecuador and Colombia, reported trade surpluses with the US in 2016 and therefore could eventually expect to be targeted by the US administration. However, it says, “this may not be a primary focus for the US, given the irregular and weak contribution of these countries to the US’s total trade deficit.”

 

…and the winners

These conclusions stand in contrast to other economies in the region.

The respective exports of Peru, Chile, Brazil and Argentina to the US make up, on average, 2.5% of their GDP. What’s more, they mainly export primary goods to US, which are less likely to be affected by protectionist measures.

The report also notes that Trumponomics could even have a positive net effect on trade balances for some countries, such as Chile and Peru.

“If Trump succeeds in his projects to boost infrastructure, this could improve international copper prices,” the report reads. “Chile and Peru are in a good position to benefit from this. They are, respectively, the first and third largest copper producers in the world and geographically closer to the USA than China, the second largest producer.”

In fact, as previously reported by GTR, Trump’s promise to limit Chinese imports as well as increase infrastructure spending has already sent metal prices on an upward trajectory. The IMF has forecast that the metal’s average price in 2017 will rise with 17.2% compared to last year, which will be of benefit to exporters.