Milei Charms Trump as U.S.-Argentina Tariffs Loom

When he arrived in Washington in late February with troubling U.S. tariffs looming, Argentine President Javier Milei gave the impression to be in good place to realize favorable commerce phrases from U.S. President Donald Trump.

Milei had taken workplace in December 2023 as Argentina struggled with recession and rising inflation, and he promptly adopted by means of on his vow to shrink the federal government. He decreased the federal workforce by 10 p.c, eliminating almost 40,000 posts, and reduce the variety of ministries from 19 to eight. Inside a yr, he had led to Argentina’s first price range surplus since January 2011 and robust approval ratings, plus a surge of hope concerning the financial system.

From a peak of almost 300 p.c, annual inflation is now underneath one hundred pc, its lowest in almost 5 years, thanks partly to Milei’s gradual depreciation of the peso. Underneath a new initiative to spice up overseas funding, Milei turned a large commerce deficit right into a file surplus of almost $19 billion. Even poverty—which final yr approached 53 p.c, the very best determine in twenty years—is again underneath 40 percent, in accordance with two current experiences.

Add all of it up, and it’s no shock that the World Financial institution foresees 5 p.c GDP development by means of the top of the yr.

Even earlier than this financial upturn, Trump World held Milei in excessive regard. In early 2024, he delivered a speech on the right-wing Conservative Political Motion Convention (CPAC) close to Washington, D.C. Months later, after Trump received reelection, he called Milei his “favourite president” earlier than internet hosting him at each his Mar-a-Lago resort and his inauguration.

All of this may increasingly have led Milei to anticipate particular therapy from Trump. Talking at this yr’s CPAC in February, the Argentine chief restated his need for a U.S.-Argentina free commerce deal. That’s unlikely anytime quickly, in accordance with commerce analysts, although a particular Argentine exemption may very well be within the playing cards.

“A real free commerce settlement requires intensive session and finally a congressional vote, so most have a tendency to take years,” stated Brad Setser, a senior fellow on the Council on International Relations who labored within the Obama White Home. “Realistically, the near-term prospects are over a a lot narrower deal, one the place Argentina is basically exempted from the rise in tariffs.”

Milei did safe a short sit-down with Trump whereas in Washington—in addition to a White Home invite for the close to future—however he earned no commerce favors.

“There’s a sturdy relationship growing between the Argentine chief and Trump, however the query is what would possibly that produce for Argentina,” stated Benjamin Gedan, the director of the Latin America program on the Wilson Heart.

We don’t but have a solution, however that will quickly change. In early March, Trump once more praised Milei and expressed a willingness to think about all commerce choices with Argentina. As well as, talks for a brand new Worldwide Financial Fund (IMF) mortgage program for Argentina appear to be within the closing levels, doubtlessly enabling Argentina to chill out its off-putting forex controls after its subsequent midterm elections, scheduled for October.

IMF chief Kristalina Georgieva has praised Argentina’s “exceptional transformation,” and after assembly Milei in February, she noted the 2 sides’ progress towards a brand new mortgage, which may very well be as excessive as $20 billion.

A brand new IMF mortgage and a U.S. commerce exemption may put Argentina on the trail to financial stability. Regardless of the current optimistic momentum, many stay on edge in a rustic with a historical past of financial turbulence. With unemployment up, wages stagnating, and lots of meals kitchens shuttered, porteños—residents of Argentina’s capital—have been gathering in Buenos Aires’s huge Plaza de Mayo to specific frustration with sharply decreased social expenditures.

Milei can also be going through a fraud probe for his promotion of a cryptocurrency “meme coin”—which misplaced almost all its worth in just a few hours—in addition to charges of undermining judicial independence after late February appointments of Supreme Court docket justices by presidential decree.

Seemingly in want of a political enhance forward of elections in October, Milei has appeared to parrot his U.S. counterpart in current weeks in an try to curry favor. In his speech on the World Financial Discussion board in Davos, Switzerland, Milei denounced Trump’s pet peeve, “wokeism.” He pulled Argentina out of the World Well being Group and is alleged to be mulling leaving the Paris local weather deal, each strikes additionally made by Trump. And he promoted that short-lived crypto meme coin, echoing the U.S. president’s $TRUMP. After Trump barred transgender girls and ladies from taking part in on girls’s sports activities groups, Milei banned gender-affirming look after minors.

If this marketing campaign falls brief, U.S. tariffs may put an finish to Milei’s precarious financial momentum. America is Argentina’s third-largest export market, after Brazil and China, and the highest export vacation spot for Argentinian aluminum. Aluar, considered one of South America’s prime producers, despatched some 40 p.c of its exports to america final yr, value $530 million.

In its assertion on new 25 p.c tariffs on all metal and aluminum imports to america, which went into impact on March 12, the White Home said that Argentina lacks knowledge transparency and exports metal to america “at unsustainable portions.”

Then there’s reciprocation, or Trump’s plan to match any import duties different international locations apply to U.S. items. In Latin America, solely Venezuela is extra protectionist than Argentina, which locations a median tax of 13.5 p.c on imported items, in comparison with america’ common of three.5 p.c.

Trump set a precedent for Argentina commerce favors throughout his first time period. In Might 2018, after weeks of talks, Trump agreed to exempt Argentina from his metal and aluminum tariffs. Many credited then-President Mauricio Macri’s ties to Trump for that quota deal—and for the IMF’s largest-ever mortgage, $57 billion, authorized that yr.

If this Trump administration have been to grant an analogous exemption, it will align with its rising commerce conflict with China. A handful of Latin American international locations—together with Nicaragua, Honduras, and most not too long ago Colombia—have appeared to lean toward China in recent times, growing commerce and altering their positions on key points, equivalent to recognition of Taiwan.

Argentina has hinted at an analogous shift. After vowing to finish commerce with China and rejecting membership within the BRICS bloc upon taking workplace, Milei has altered his stance.

Final June, Argentina renewed a $5 billion forex swap with China. A couple of months later, Milei described China as a “very fascinating commerce associate.” Along with massive lithium investments, Beijing-backed projects in Argentina embody a port terminal and energy plant in Tierra del Fuego, an $8.3 billion nuclear energy plant, and light-rail trains linked to the Bridge and Highway Initiative. A brand new shipyard and port funding in Santa Cruz province may be next.

Writing in Americas Quarterly final month, Brenda Estefan—a professor at Mexico Metropolis’s IPADE Enterprise Faculty—described Brazil as “largely a misplaced trigger for Washington, because it has considerably deepened its ties with Beijing.” The White Home would presumably desire to not lose South America’s second-largest financial system as effectively.

Given their burgeoning friendship, Milei appears prone to provide Trump a carrot. The U.S. president has, prior to now, sought to construct a Trump tower in Buenos Aires—which may very well be one space of dialogue. With U.S. tariffs on Canada and Mexico, in addition to China, coming into impact, Argentina would possibly provide to step into the product void, together with by providing meat, grain, and oil. Some 60 p.c of U.S. oil imports come from Canada, whereas oil output at Argentina’s huge Vaca Muerta reserves has quadrupled over the previous 5 years.

Lithium, a key uncooked materials for the batteries utilized in laptops and electrical automobiles, is one other space of potential cooperation. With world demand set to extend thirtyfold from 2021 to 2040, lithium extraction is booming in Argentina, with the federal government concentrating on a fivefold leap in output by 2027 to succeed in a rank of second in world manufacturing. One overseas agency with a large funding is China’s Ganfeng Lithium, which provides Tesla.

Elon Musk—the Tesla CEO and the pinnacle of the newly created U.S. Division of Authorities Effectivity, has called Milei a “mannequin for the remainder of the world” and described his cuts to laws and regulation as “superior.”

Whereas at CPAC final month, Milei gifted Musk a gilded chainsaw, a reference to the duo’s shared strategy to authorities spending.

Washington has been working to wean itself from Chinese language lithium. Underneath the Biden administration final yr, Argentina and america agreed to deepen cooperation on key minerals, together with lithium. And after taking workplace, Milei said Musk and U.S. corporations have been “extraordinarily ” in Argentina’s lithium. Final month, his authorities lifted tariffs on imported electrical automobiles.

Nonetheless, Milei might have hit on his surest path to tariff evasion in his CPAC speech, when he supplied Argentina as the primary nation to affix Trump’s reciprocal commerce plan.

“What Milei is saying to the U.S. is, ‘If I cut back my tariffs, I assume you’ll cut back your tariffs,’” stated Marcelo Elizondo, an Argentine commerce analyst. “Now that Argentina has a extra secure financial system, this type of association with the U.S. is feasible, perhaps even probably. Trump wish to present he has an ally in Latin America.”

One hurdle may very well be Mercosur, the South American widespread market through which full members—Argentina, Brazil, Paraguay, Uruguay, and Bolivia—are dedicated to aligned tariff insurance policies. Argentina would solely be capable of match proposed U.S. tariff reductions if it have been to realize a Mercosur waiver or exception.

But when Mercosur have been to show him down, the Argentine president has acknowledged that he would have yet one more card to play to win U.S. commerce favors.

“Milei could be very dedicated to this objective,” Elizondo added. “He’ll do something to get it completed, together with even leaving Mercosur.”