November 12, 2016

What Will a Trump Presidency Mean for Latin America and Bolivia?


Donald J. Trump has won the November 8, 2016 elections and will, in January 2017, be sworn-in as the 45th President of the United States. That, pretty much, has been a more than surprising outcome to people of all kinds, supporters, opponents and "the conflicted" in between. No one was sure how determined that mass of mostly white, older, less well-to-do along with the better offs and some angry women were. The reality is, the next US President will be Mr. Trump and everyone has to accept that fact and has to start making arrangements to live under his administration. After all, it was the result of yet another North American electoral process, where "the people" chose its next leadership.

While the question of leadership is already answered, that answer raises, at the same time, many more subsequent questions. In fact, the US is such an internationally-relevant country that these questions go beyond the national borders of the country. While North Americans will be asking themselves, things like, will Obamacare be repealed now? will the government build that wall along the Mexico border? will I benefit from the coming tax rebates? how many jobs will be created now and am I qualified for them? etc., countries around the world are asking themselves questions such as, will the US retreat from world affairs? will it protect its economy? will its approach to security follow the same lines it has been following so far? etc.

Along these lines, Latin American countries will be asking themselves the same questions. Above all, however, they are asking themselves: What to expect from a Trump presidency? However, before attempting to venture down this highly speculative question, at this point in time, it is necessary to get to know the next US President a bit better and what he brings to the office.

Who is Donald Trump?

Donald Trump is a business man, born, raised and living in New York City. His story is far from the familiar story of the American Dream, where a dish washer works his way up to millionaire. Mr. Trump started his business career in his family's real state company in the early 1970s. After graduating from business school (at Wharton's Real State program), he took over the company and became Chairman and President. He renamed it The Trump Organization, with the aim of turning it into a large conglomerate of many companies operating in various business areas, which he eventually succeeded in doing.

The core business has always been real state and construction, but Mr. Trump also ventured into hotel, golf course and casino management, professional sports, beauty pageants, and for profit higher education. He has also ventured in media and branding, successfully licensing his name and producing at least one successful television program.

Mr. Trump is largely perceived with in the US as a successful real state business man, because he owns property, not just in prime locations in New York city, but also in and around the country as well as in other parts of the world. Various sources mention Mr. Trump's skills as a good negotiator. Such a claim has been variously substantiated by various articles revisiting his dealings with New York city's bureaucratic instances at the time of getting construction permits, for example. He himself, has spoken of his ability to successfully use the law in his advantage through the tax code loop-holes, the bankruptcy process or even at the time of negotiating a deal in the many legal cases he has had to face. Above all, however, Mr. Trump's unfamiliarity or inexperience with public office has apparently qualified him as a candidate who is truly not part of the "political establishment" in Washington, DC.

Trump's political muscle

Mr. Trump has only won the necessary number of electoral college votes while narrowly loosing the popular vote by about 3 million votes, but his position will still be strong, at least for the first two years, due to the Republican Party winning the control (majority) of both the Senate and the House of Representatives. That gives him enough political muscle to start his administration.

Now, in the logic of American politics, the fact that a president begins with such a strength his presidency, is expected, according to some experts. An incumbent and its party are expected to win in both houses when an outgoing president has been in office for two terms. Presumably, the people want a change. This initial strength will be very useful for Mr. Trump. That means Mr. Trump has two years to realize as many campaign promises as he can, with help of his party's majority in Congress. After two years, and this is another particularity of American politics, the control of one or both houses tend to change hands. Mid-term elections happen half way a presidential term. These elections seeks to renew both houses of Congress in the middle of a presidential term.  

A caveat must however be noted in this case because Mr. Trump, during this first two years and depending on the issue, might face some opposition from within his own party, which is not a particularity of American politics. As we already know he has been a polarizing figure, and his party has not been immune to this dynamic. This is most likely however to manifest itself on promises to change the political establishment in Washington, DC., of which many Republican Party members are part of and happy with it.

His positions on issues relevant to Latin America.

Unfortunately for the region, Latin America has come out short in attention during the Trump campaign season. The only country south of the border that was mentioned with some regularity by Mr. Trump has been Mexico, and always in relation with trade and immigration. Hemispheric relations therefore have been a lingering mystery.

Now, President-elect Trump has expressed a number of things he wants to do in his first 100 days in office. Above all, he has made it clear he wants to put the interests of America first, which is nothing new for a candidate or a president to say. However, what gives the Trump presidency an unseen and disquieting quality is the likelihood that he intends to pursue his objectives with an uncompromising attitude towards national and world politics. That, almost dogmatic, regardless off, attitude he seems to have has been the source of concern for many governments around the world.

The Latin American governments have been expectant for the same reason. Much of what can be expected from a Trump administration, in the short run, will depend on Trump and in the long run will depend on who will be forming part of his cabinet, which is being reported will be populated by lobbyists and people close to the industries they will be in charge of. Relevant positions for the region would be: Secretary of State, Secretary of Defense, Secretary of Energy, National Security Advisor (s), Assistant Secretary of State for the Bureau of Western Hemispheric Affairs, Secretary of the Home Land Security and Secretary of Commerce.

Following is a list of a number of things he has said he wants to achieve as soon he takes office. They are not directly related with the region but they are bound to have effects on it. For example:

1. Renegotiation of NAFTA

The new Trump administration, within its first 100 days of work, will notify Canada and Mexico the US government's intention to renegotiate the treaty. The aims will be to get better terms for American workers and create more jobs for them. Such a move is, moreover, highly likely due to the support for this idea within the Republican Party itself.

This would be detrimental to the Mexican economy, most of all, because this country has been benefiting significantly from this deal. Alone the US trade deficit figure with Mexico for 2016 of around 45 billion gives an idea of how much Mexico benefits from NAFTA. Another benefit has been the fact that many American companies have been building factories in Mexican soil to produce at better conditions.

Detrimental would be the passing of restrictions for American companies to set up work on the other side of the southern border. The logical result would be an exodus of American companies and the resulting mass unemployment with its consequent drop in consumption. This will specially happen in Northern Mexico where several cities have been the source of "accessible" labor for many American Enterprises. A Trump administration also promised restrictions or, at the very least, an increase in the control measures to enter the US. This will similarly be detrimental for the exchange between Mexico and the US. Not just people will be affected, but goods that cross the border day by day.

Thinking further along these lines, if the Trump administration deports many (or all) of those undocumented Mexican (and most likely people from other countries) citizens, the result could mean a disruption in the Mexican job market, which could also mean that more unemployed people might find other opportunities to survive, such as joining many of the criminal networks already active in Northern Mexico. And if we think even further, some of those American companies have also set up work in some Central American countries. The expected result would be a retreat from those countries as well and the resulting impact on the local economy and society.

In addition, the US has signed free trade agreements known as FTAs with 11 Latin American countries: Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru. It has also been negotiating regional FTAs with pacific nations and the EU. However, Mr. Trump has said he wants to revise or "renegotiate" some of the FTAs the US has in good will already negotiated and is in the process of formalizing.

In a more positive light, maybe the reduced opportunities to enter the US market will force Mexico to turn its attention to the rest of the Latin American region even more than it has been doing until now. Perhaps, the trade with Brazil or Argentina or Chile will take up more importance. Certainly, trade with China will become crucial.

One question remains, what will happen with all those bilateral FTAs signed with those Latin American countries?

2. Withdrawal from the Trans-Pacific Partnership (TPP)

Another action taken within the first 100 days of a Trump administration will be the withdrawal from the TPP, which seeks to increase trade within all or most of the countries with Pacific coast lines. Various sources have estimated the TPP represents 1/3 of the world's trade. TPP members expected to gain access to one of the largest and wealthiest markets in the world. In that sense, the big prize would be the access to the US market. Within this treaty, the US negotiated the removal of tariffs on manufactured goods and agricultural products.

In South America, Chile, Mexico and Peru, signatory members, would undoubtedly benefit from this. Specially Chile and Peru, which are two nations that export a number of agricultural products such as fruits, grains and other so called power-foods. Chile, for example, has several free trade treaties signed (one with the EU), would lose important access for its fruits, its wines and its fish products. Peru is bound to feel the effects on its grain products such as quinoa, which has been booming since a couple of years and the US market has been the principal destination for such products. Along the same lines, but in smaller scale, Bolivia and Ecuador would also feel the restrictions on trade.

Trump's pledge to withdraw from TPP would mean, according to many experts, the death of the TPP. The advantage for Trump will be that the treaty has not yet been ratified by the US Congress, therefore, it is still an executive decision and it does not need a compromise between the Executive and the Legislative.

3. Lift restrictions on the production of shale, oil, natural gas and clean coal (50 trill.)

The lifting of restrictions on the production of oil and natural gas will have a more direct impact on the Latin American region, with potentially devastating effects for some countries dependent on the export of such products.

In the last years, the world has experienced a drop in oil and natural gas prices due to the US increasing its supply of oil -a result of fracking. One vivid example of the potential for devastation is the current state of Venezuela. As the price of oil in the international markets began to drop in 2013, so began the political problems for the Venezuelan government. Today, Venezuela is experiencing unprecedented inflation, food shortages and massive debt, even though it has the largest oil reserves in the region and it is the fifth largest oil supplier in the world.

Many Latin American countries are dependent (some heavily) on the production of one natural resource, with this I mean oil or natural gas. Many of these countries elaborate their budgets based on their earnings from these exports. Normally, a government will take an average price of oil and will budget its projects based on that price. This practice is also relevant for natural gas producing countries since its price is coupled to the price of oil. Under this threat are countries such as Ecuador and Bolivia, and to a lesser extent Brazil, Mexico, Argentina, Peru, and (already mentioned) Venezuela. These are countries which either export oil or natural gas and have been feeling the drop in international prices and are bound to feel once again the effects of an increase in US oil and natural gas production resulting from a Trump new policy.

4. Passing an Illegal Immigration Act

The passing of the planned Illegal Immigration Act, which noted will need the support of Congress and will be a much more debated issue, will have some related effects on the Latin American region. The bill will restrict immigration to the US and will seek to eliminate illegal immigration within the US. Among its objectives, there is the intention to stop federal funding for the so-called safe haven cities, which are cities that have expressed their intention not to persecute illegal immigrants. Those cities are prone now to lose federal funding if they keep this status. This will intensify the controls, arrests and ultimately the return of many illegal immigrants to their home countries.

Another effect that will intensify the return of Latin Americans to their home countries will be the provisions to deport illegal immigrants, and those that have committed federal offenses or multiple misdemeanors as well as punish with prison and then deport those who break the law. The US has already gone through a period of deporting "criminals" in the 1990s. Mass deportation of mostly young Salvadorians, Hondurans, and Guatemalans who were part of youth gangs known as Maras were deported. While these actions did have a generative impact on many US cities around the country because it reduced crime, the effect on the Central American countries was almost devastating. In El Salvador, they are still dealing with gang-related violence. While it is certainly possible that mass deportations do not become necessarily negative, the risk is there.

Considering a passing of such a law by a Trump government, the subsequent development might have two effects. First, a wave of returning people might strain the budgets of many countries, or at least their job markets. We have already seen this happening in Central American countries such as Honduras and El Salvador in the late 1990s. These countries experienced strains on their job markets and whatever social services they had in place. Second, many countries will feel the effects of this measure through the reduction on the remittances section in the respective balance sheet of a country, specially if the US government heavily taxes them as Trump plans to do. That is, immigrants (legal or illegal) have tended to send part or all of their wages back to their home countries to help their families and friends (most of the time) survive. Since the 1990, many countries such as Bolivia, Peru, Ecuador or El Salvador and Honduras or Guatemala have received significant amounts of foreign currencies from the US or, as in the example above, Euros from Spain. For not so few countries this amounts of money have meant palpable progress.

On the positive side, a wave of returns to home countries might mean a return of skilled labor and even of some highly skilled labor.

5. Inward looking foreign policy

Mr. Trump has not revealed much of his intentions on foreign policy, but his "America First" attitude towards foreign policy issues (as well as economic, political and social) has been a source of uncertainty in the world. Once again, thinking further ahead, it is very hard to imagine that with such attitude Mr. Trump will keep on supporting America's policy towards giving foreign aid to Colombia. Most observers look with some degree of concern recent developments on the peace process in that country, which could (and still can) have ended six decades of armed conflict. The most troubling part is the rejection through a referendum of the treaty itself. Those same observers argue that Colombia will need that aid specially now that the peace is fragile. The question remains, will Mr. Trump continue supporting the Colombian peace process and the subsequent development of the Colombian society?

There are two countries that have received some attention from Mr. Trump very late in the election: Venezuela and Cuba. While visiting Florida, Trump expressed solidarity for what he called "the oppressed people of Cuba and Venezuela". He actually twitted this in October this year (sorry I do not have the source). We only have questions on this. The logical questions are: what will he do with the advances in relations between the US and Cuba? Will the US embassy in Havana close again? Will he reestablish the blockade? Alas, he has already said he will reverse Obama's executive orders towards Cuba. What will he do to support the Venezuelan people? Will he increase the supply of oil to undermine the Venezuelan government? Will he eventually stop buying Venezuelan oil?

What can Bolivia expect from a Trump presidency?

As far as Bolivia is concerned, the country can expect very little attention from a Trump presidency. Ever since Evo Morales took office, the relationship between Bolivia and the US has been deteriorating to the point where there is not much bilateral relation, even USAID has left the country. However, given that political relations have reached its lowest mark, culturally and economically the relationship has remained alive and well.

Culturally, because there is a significant number of Bolivian expats living in the US. These people are the basis for cultural entanglement. Many Bolivians have either married American citizens or have had children in the US and therefore are inextricably linked with the US. A significant majority of these Bolivians travel between the two countries due to business, family, studies and culture. In economic terms, and by that I mean trade, the US, even after all the political asperities with the Bolivian government, remains the second or third most important trade partner.

In 2016, according to the Bolivian Institute for International Trade (IBCE, in Spanish), the US represented 16% of Bolivian exports and 10% of imports. The first place was taken by Brazil, and the following after the US by Argentina, both buy natural gas from Bolivia. However, as mentioned earlier, if the US increases its supply of oil and natural gas, it could have serious consequences for Bolivian economic growth. The current government basically depends on a relatively favorable natural gas price to finance what it calls the industrialization of the country.

At the moment, with the price of oil and natural gas back to acceptable levels (around 40 USD), the economy has started to grow again and to develop hopeful prospects for the coming years. The government has projected a 4 % rate of growth for the next years. But, if we remember the economic downturn in 2014 and 2015, due to the drop in raw materials prices, the Bolivian economy suffered a short shock with reduced projections of economic growth. Of course, every issue has its other side. If things turn for the worst, the current government will have one more reason to keep the US government as the enemy of the Bolivian people and therefore a reason to keep supporting the government.

It can be expected that this will not be different with a Trump presidency. It was similar with an Obama presidency, even though one might have thought among these two historical leaders there would have been more in common. The drug eradication issue will continue to be a way to exert some influence over the Bolivian government. After all, the US government has tied drug eradication to access of Bolivian goods to the American market. In addition, Mr. Trump demonstrated during his campaign his disregard for the Latin American region. Only Mexico merited a visit, but that could hardly be labeled as a diplomatic visit. Instead, it seemed more a show of strength and to make Mr. Trump look statesman. Good for his campaign.