Image Source: CNN.
This is explainer is based upon a longer forthcoming report, which will be linked here upon publication.
1. What are free trade agreements (FTAs) and which countries have them with the U.S.?
Free trade agreements allow countries to build more prosperous economies through the reduction of trade barriers (such as tariffs) on exports, imports, and foreign direct investment. Over the past three decades, countries in the Americas have recognized this by negotiating a series of FTAs with the United States. But in recent years, the impetus to negotiate these agreements has slowed, and it is possible that in the coming years, it may even see a retracement.
The economic crises in the emerging markets (EM) of the late 1990s left many observers skeptical of multilateral agreements, and by the early 2000s, multilateral trade talks had proven difficult, and the FTAA became politically untenable. The Great Recession of 2007-09 triggered a political backlash toward further economic liberalization, slowing the globalization momentum, and ultimately contributing to the election of Donald Trump in 2016.
Trump’s election saw the U.S., Canada, and Mexico renegotiate NAFTA and replace it with the U.S.-Mexico-Canada Agreement (USMCA), signed in 2018. Despite the lack of progress on any new free trade zones, the U.S. retains trade agreements with Chile, Peru, Panama, and Colombia in addition to the USMCA and CAFTA-DR members.
2. What is the economic impact of FTAs for the U.S. and its Latin American trading partners? How have these agreements affected GDP, employment, and wages?
In their early stages, FTAs like NAFTA and CAFTA-DR helped stimulate output, accelerate GDP growth, and diversify export portfolios for the United States and Latin America. For some sectors, especially in manufacturing and agriculture, tapping into foreign markets translated directly into job growth and enhanced profitability, particularly in industries where heightened competition spurred efficiency improvements. Overall, this early period of liberalization laid the groundwork for deeper economic integration and set benchmarks for future agreements.
Yet as FTAs became more widespread, it also became clear that the benefits of liberalization were not shared evenly. In Latin America, large exporting firms generally profited, but smaller enterprises and workers without advanced skills sometimes found it harder to adjust. Critics noted that early FTAs focused heavily on opening markets and protecting investors while paying insufficient attention to labor standards, environmental safeguards, or the specific developmental needs of local economies.
In response, newer agreements began to incorporate more comprehensive rules and disciplines, reflecting lessons learned from earlier accords. The renegotiation of NAFTA into the USMCA typified this shift by including stronger labor provisions, clearer environmental obligations, and mechanisms to support small and medium-sized enterprises – though there is mixed evidence regarding these clauses’ efficacy. Other modern FTAs have followed suit, embedding commitments to protect intellectual property, uphold workers’ rights, encourage responsible investment, and promote environmentally sustainable practices. These reforms represent an ongoing evolution in the U.S.-Latin American trade architecture.
3. How has U.S. trade with the region shifted in the 21st century?
Over time, U.S. excitement for globalization encountered resistance. Domestically, certain industries and communities felt left behind, sparking a rise in protectionist sentiment and skepticism toward sweeping trade pacts. In parallel, Latin American reactions to globalization proliferated and diversified: some countries embraced more heterodox economic models, giving prominence to state intervention and pushing back against the U.S.-led free market consensus, while others remained committed to trade liberalization but broadened their partnerships, seeking ties beyond their historic dependence on the United States.
Amid these shifts, China’s rapid ascent as a global economic powerhouse introduced a new and challenging dimension to U.S. relations with the region. This reorientation forced the United States to rethink its strategic approach, culminating in more confrontational policies. These policies reflected growing anxiety that the U.S.-China trade relationship, once heralded as a path to mutual prosperity, had instead fueled job losses, wage stagnation, and social discontent at home, while emboldening a geopolitical rival abroad.
By the close of the 2010s, the broad faith in unrestrained globalization had diminished, and the Trump administration embodied this shift. U.S. trade policy became more defensive and value-laden, insisting that any relationship – regional or global – serve clear economic and strategic interests, protect American workers, and curb the influence of authoritarian regimes seen as abusing open markets. In this more sober era, U.S. trade with Latin America and the Caribbean would no longer be defined solely by tariff elimination, but also by a newfound willingness to confront economic imbalances, ideological discord, and the expanding influence of a powerful, state-controlled economy that refused to play by the old rules.
4. Where does Trump stand on free trade? How do his opinions differ from past U.S. policy toward the region?
Tariffs have a warm spot in Donald Trump’s heart as they provide him with considerable political leverage in dealing with both rivals and friends that have large trade surpluses with the U.S. In this, Trump is not a free trader, but a firm believer in protectionism since at least the 1980s. For Trump, trade is a zero-sum game with winners and losers and the main challenger to the U.S. is China. Both NAFTA and the FTA with South Korea were renegotiated during Trump 1.0. In the same light, he refused to sign the Trans-Pacific Partnership (TPP) and imposed tariffs on several goods, such as solar panels, washing machines, steel (a 25 percent tariff), and aluminum (10 percent).
Trump’s tariff policies in his first term were generally absorbed without considerable disruption to the U.S. consumer as they were targeted to certain sectors. However, there was considerable disruption in agriculture, which was hit by Chinese retaliation in opting to buy more Argentine and Brazilian goods rather than continue to rely on U.S. products. Retailers for goods made of imported steel and aluminum also felt pricing pressure, though much of that pain was instead passed onto consumers.
Trump’s new administration has a much clearer tariff mission and the impact could be much more disruptive, both at home and abroad. Three factors dominate the pending trade regime. First, the proposed new tariffs on China, the 25 percent hike on Canada and Mexico, and the threatened 10-20 percent tariffs across the board for the rest of the world are a threat that precedes negotiations; what is being demanded is most likely not what will eventually come into place. Second, tariffs are intended to raise revenues for the U.S. federal government that will serve to allow deregulation and tax cuts for both individuals and corporations. Third, tariffs have a bipartisan domestic constituency. From Biden to Trump, tariffs reflect a desire to raise the worker (by bringing home jobs) over the consumer (which has long dominated the U.S. economy).
Trump’s new trade policy is going to be more focused on advancing U.S. national interests, which encompasses stronger economic growth, more industry and jobs in the homeland, trade surpluses, and a more marked decoupling of U.S.-Chinese economic linkages.
5. What legal and diplomatic challenges could arise from renegotiating or withdrawing from FTAs with Latin American countries? What processes are involved, and what might be the international response?
U.S. FTAs allow one signatory country to terminate the agreement unilaterally. It is therefore theoretically possible for a single U.S. administration to terminate as many FTAs as it likes.
Domestically, however, the right to abrogate FTAs is likely to be more contentious. U.S. FTAs have historically, by norm rather than by law, been implemented as congressional-executive agreements in spite of the Executive’s sole constitutional authority over international relations, and legal precedent suggesting the president alone has the right to negotiate FTAs. The Trade Act of 1974 also gives presidents the right to proclaim an immediate end to FTA obligations after formal termination of such an agreement, suggesting a president could bypass Congress in implementing laws that enable preferential trade with partner countries. Despite these precedents, the Constitution gives Congress the right to regulate foreign commerce, something opposition lawmakers would almost certainly seize on to legally challenge any unapproved FTA termination.
Until an FTA is overturned, however, there is little certainty in how such a contentious domestic legal process would unfold. To date, no U.S. FTA has been terminated. Fortunately for the incoming Trump administration, the Republican Party controls the Presidency and both chambers of Congress and enjoys a conservative-leaning Supreme Court (6-3), meaning Democratic opposition will likely be neutered through legislative minorities.
So, with the president’s capacity for unilateral termination likely to go unscathed, the results of the incoming administration’s free-trade hostility will likely be dependent upon the response of Latin American nations themselves. While deepening regional integration was floated within Latin American policy circles after Trump’s first election in 2016, the region’s countries were unable to overcome their differences and stand together, despite a left-wing tide that had assured like-minded executives controlled a majority of negotiating countries. Today, the region has further polarized, and growing center-right and right-wing movements in Chile, Argentina, and Brazil are likely to block any trade decisions that would antagonize the U.S., which remains the region’s most important commercial partner. More likely, instead, would be a regional turn to Europe, Asia, and most of all, China.
China’s Belt and Road Initiative (BRI), its own global investment, infrastructure, and trade program, was arguably the biggest beneficiary of American withdrawal from the TPP. The program had no member countries in Latin America or the Caribbean when Trump entered office in 2017. By the end of his term, 19 countries had joined, and today 22 are members of the BRI, which positioned itself as the only logical alternative to U.S. financial interest in the region.
Though yet untested, the second Trump administration will likely have the ability to unilaterally end any FTA it so desires. Domestic checks and balances appear unlikely to rein in the administration, and Latin America’s polarized political class seems less likely than ever to commit to deeper regional integration and collaboration. Instead, foreign partners in Europe and Asia would be key beneficiaries of any U.S. withdrawal from the region. With right-left polarization amongst the region’s politicians, and growing U.S.-China competition among its economies, Latin America’s most likely response to any U.S. trade actions will be further intra-regional conflict and division.
