Han Dieperink: The surprising winner of Trump's trade war
Han Dieperink: The surprising winner of Trump's trade war
This column was originally written in Dutch. This is an English translation.
By Han Dieperink, written in a personal capacity
While Europe and Asia are concerned about American import tariffs, something remarkable is happening in Latin America. The continent that for years was seen as politically unstable and economically weak is developing into an unexpected safe haven for investors. President Trump is reviving a two-hundred-year-old principle, but in a modern economic form.
In 1823, American President James Monroe warned all European powers to stay out of Latin America. According to him, this area was exclusively American territory. Now Trump is applying this old doctrine to world trade. While he confronts the rest of the world with tariffs of 10% or higher, Latin America remains conspicuously untouched. Important raw materials such as copper, lithium and silver can even enter America without any tax.
Political shifts determine economic success
The American strategy is crystal clear. Right-wing leaders are welcomed with open arms in Washington, while left-wing presidents have a hard time. The contrast could not be greater. Argentinian President Javier Milei is hailed as a hero and receives financial support. His landslide victory in yesterday's Argentinian parliamentary elections confirms his popularity and strengthens his position to continue with economic reforms. With this win, Milei can accelerate his pro-market agenda, which Washington can only applaud.
His Colombian counterpart Gustavo Petro, on the other hand, is being labelled a “drug lord” by Trump and threatened with the cessation of all aid. This American pressure is working. Last week, pro-business candidate Rodrigo Paz won the elections in Bolivia with a convincing majority. After twenty years of socialism, the country is now choosing a completely different course, inspired by Milei's success in neighbouring Argentina.
The Milei effect is spreading
Milei's victory yesterday sent shockwaves throughout Latin America. His libertarian approach, initially seen as too radical, is gaining credibility now that Argentine inflation is falling and the economy is showing signs of recovery. La Paz in Bolivia promises to take a similar course: welcoming foreign investors and finally developing the country's enormous lithium reserves.
Bolivia has the largest lithium reserves in the world, but remained poor while neighbouring Argentina and Chile became rich from the same raw material. Now that Milei has shown that market-oriented reforms work, other countries are also daring to take the plunge. Yesterday's success gives Milei extra political capital to push through his dollarisation plans, which could affect the entire region.
Venezuela feels the heat
Left-wing Venezuela is experiencing the downside of the American strategy. For the first time in thirty years, America is sending extra warships to the Caribbean. Tensions are running so high that President Maduro is desperately trying to calm things down. He wrote a personal letter to Trump promising to prove that Venezuela is not smuggling drugs into America.
Trump's response was telling: “Maduro wants to do everything he can to avoid problems.” Paradoxically, this American pressure creates clarity for investors. Countries that cooperate with Washington are protected and rewarded, while those that stand in the way will have a difficult time. This predictability is worth its weight in gold on financial markets, which usually struggle with Latin American political instability.
Bonds as a gold mine
Interesting opportunities are now opening up for investors. Latin American government bonds currently offer historically high real yields. In Brazil, interest rates are well above inflation, which is a world away from Europe, where savers sometimes have to pay to deposit their money with the government. Argentine bonds are benefiting particularly from Milei's election victory, with sharp price rises on international markets.
Financial markets are starting to take a more nuanced view of the region. Whereas in the past all Latin American countries were lumped together, investors now distinguish between reliable countries such as Uruguay and Panama on the one hand, and riskier candidates on the other. Thanks to Milei's reforms, Argentina is moving into the former category.
A wave of elections
The political cards will be reshuffled in the coming months. Within twenty months, important countries such as Chile, Peru, Colombia and Brazil will go to the polls. If these countries follow Bolivia's example and shift to the right, the entire economic landscape of the continent will change. Milei's convincing victory yesterday makes a domino effect more likely.
A striking trend supports this development. Wealthy Latin Americans, who traditionally shipped their assets to America, are starting to bring their money back. They see that the dollar is weakening and are gaining confidence in the future of their own countries. This capital could further fuel economic growth, especially in Argentina, where Milei's election success is further strengthening confidence.
The New Reality
Trump's trade war is creating clear winners and losers. Surprisingly, Latin America is on the winning side. The combination of American protection, a political shift to the right and attractive returns makes the region an interesting investment destination. Milei's election victory yesterday underlines this trend and is likely to accelerate the transformation.
For Dutch investors looking to diversify their portfolios, Latin American bonds deserve serious consideration. Local currency bonds in particular offer an attractive mix of high returns and relative safety thanks to the American umbrella. In a world full of trade conflicts and geopolitical tension, America's old backyard is proving to be a surprisingly safe haven, with Argentina under Milei as the new frontrunner.