The arrival of Donald Trump, a double-edged sword for the Argentine economy

Monday, January 20 Donald Trump will assume the presidency of the United States for the second time and with this it will open a new stage in the relationship between that country and Argentina. For analysts, this change will bring advantages for Javier Milei’s government, but It is not free from adding complications to the recovery of the local economy.

For the consulting firm Equilibra, Trump’s victory is a double-edged sword for Argentina. On the one hand, they highlight Javier Milei’s good harmony with Trump and with Elon Musk, his main advisor. “It is difficult to specify what advantages the Milei administration will obtain from such affinity, but the chances of reaching an agreement with the IMF favorable to the government’s position increase; that the imposition of tariffs affects our country to a lesser extent; that greater investments arrive from American firms (including those of Musk’s holding company) and/or investment funds (close to Trump); and, financial assistance, in case of need and urgency.”

When detailing the risks, they mention that since Trump’s victory, “a deterioration of the international context relevant to Argentina.” And they specify that the increase in tariffs promised by Trump for imports entering his country revives the fear of an acceleration of inflation and the campaign promise of strong tax cuts generated expectations that there will be a greater fiscal deficit in that country.

Faced with this, since Trump’s victory, the Federal Reserve cut the reductions in reference interest rates planned for 2025 from 4 to 2 and the interest rate on 10-year American Treasury Bonds rose 50 basis points. “This translated into strengthening of the dollar and weakness of emerging currencies (Brazil in the lead) and commodities.”

With this scenario “exogenous factors relevant to our economy are becoming misaligned“I hope that Trump’s threat of a new trade war does not materialize and that it rains on time in the agricultural core area.”

For Lorenzo Sigaut Gravina, director of Equilibra, the government has an ace up its sleeve in this close relationship with Trump and Musk that can be key in the negotiation with the Monetary Fund. “Having Trump as an ally significantly increases the chances of an agreement that comes with fresh funds and more explicit support that after the elections, or at some point, they begin to lift exchange restrictions.”

“Good personal harmony between Trump and Milei is very important. The most likely thing is that the first thing that will appear will be support from organizations like the IMF,” agrees Marcelo Elizondo, specialist in international business.

Another favorable side that Elizondo sees is that North American investments are encouraged in strategic areas such as mining, energy, Artificial Intelligence and the knowledge economy.

Regarding the increase in tariffs that Trump promises, Elizondo points out that if they move forward with that “it will go more against those countries that are not on the same political page, and then “Argentina may have the benefit of being less harmed.”

And he adds that one of the advantages that Milei has is that “today Trump has few allies in Latin America, because traditional allies like Chile and Colombia have a different political color. So Milei can be a preferential ally.”

The United States is the main foreign investor in Argentina, with US$30 billion and a participation that exceeds 18% of the total. It is also our third trading partner, behind Brazil and China, with an exchange of US$12 billiona balance that is structurally in deficit for our country, according to a report released by the consulting firm Abeceb before Trump’s upcoming inauguration.

For the consulting firm Qualy, there are chances that exports to the United States will grow. ““Argentina has some participation – although low – among the products most demanded by the United States from the rest of the world.” This list includes primary and agro-industrial products such as beef, shrimp, prawns, wines, pears, apples, some cheeses, tobacco and olives.

Qualy identifies another batch of Argentine products currently exported little to the US that could “gain ground” in case they put more barriers to China: certain medicines, auto parts, glass containers, parts of capital goods or animal feed.