Tariffs and Their Possible Influence on Illicit Trade in LATAM
Updated: 7 days ago
On April 2, the President of the United States, Donald Trump, announced the implementation of a new reciprocal tariff policy aimed at all of the country's trade partners. This measure establishes, in principle, a universal tariff rate of 10% on all imports, with the exception of China, which he punished with a tariff reaching 125%. In addition, the policy provides for differentiated tariffs on strategic products such as pharmaceuticals, microprocessors, aluminum, steel and automobiles. Additional levies on copper and lumber are also currently under investigation. For now, the universal rate is in a partial 90-day truce – excluding China – due to pressure from businesspeople, investors and members of the Republican Party itself in the face of the threat of a possible recession. However, it is expected that, once the grace period ends, the measure will come fully into force, possibly with the addition of new products and countries subject to specific tariffs.
This trade policy has generated a climate of growing uncertainty in the markets, mainly because of the impact the new tariff rates will have on the prices of imported products.
This trade policy has generated a climate of growing uncertainty in the markets, mainly because of the impact the new tariff rates will have on the prices of imported products. When costs rise at any link in the supply chain, companies are forced to pass those increases on to the final consumer in order to keep their operations viable. This dynamic, however, has adverse effects on consumption habits, since it discourages the purchase of legal products and fuels demand for smuggled or counterfeit goods, which are usually offered at lower prices. This trend distorts competition, weakens the protection of intellectual property and puts the safety and rights of the final consumer at risk.
Illicit trade, moreover, shows a markedly opportunistic character by taking advantage of regulatory exemptions to evade customs controls and tariffs, as is currently happening with the United States and China. Data from the Federal Reserve Bank of New York indicated that official imports from China to the United States fell from 21.6% in 2018 to 13.4% in 2024. However, figures from the Chinese government reported a decline of only 2.5% for the same period. This discrepancy suggests that many Chinese products were entering through a tariff provision known as the de minimis, which allows duty-free entry of packages valued at US$800 or less. This type of provision is systematically exploited by networks of smugglers and counterfeiters to evade tariffs, inspections and regulatory controls. In an increasingly adverse and volatile trade environment, these illicit practices find the mechanisms to adapt strategically to changes in international trade policies.
In an increasingly adverse and volatile trade environment, these illicit practices find the mechanisms to adapt strategically to changes in international trade policies.
On the other hand, the initial imposition of tariffs made it clear whom the United States considers its main trade rivals, exposing the underlying geopolitical tensions. China, the European Union, Vietnam, Taiwan and Thailand were hit hard by these measures, reaching rates above 30% before the decision to maintain a 90-day truce. These measures not only affected bilateral trade, but also significantly strained diplomatic relations, marking a shift toward a more confrontational foreign policy. These frictions not only threaten to erode bilateral relations, but could also hinder international cooperation in areas such as intellectual property protection, the fight against smuggling and the fight against counterfeiting. Unilateral decisions of this nature tend to generate adverse responses from the governments involved, who, given the deterioration of the political-trade climate, may relegate these issues to the background of their national agendas, thus weakening the public-private alliances and the transnational collaboration mechanisms needed to confront illicit trade.
Although Latin America has not been one of the main targets of the tariffs imposed by the Trump administration, the region remains highly vulnerable due to its strong trade dependence on the United States, its main economic partner.
Although Latin America has not been one of the main targets of the tariffs imposed by the Trump administration, the region remains highly vulnerable due to its strong trade dependence on the United States, its main economic partner. According to data from the Economic Commission for Latin America and the Caribbean (ECLAC), in 2023 regional exports to the U.S. reached US$611 billion, while imports from that country totaled US$846 billion. This close trade relationship could pose risks to the fiscal stability of Latin American countries, translating into inflation, product shortages and price increases. This, added to institutional fragility and the weakness of Latin American States, increases the risk of the proliferation of smuggling, counterfeiting and other forms of illicit trade. This dynamic could affect multiple productive sectors, but especially the strategic products mentioned, such as those from the pharmaceutical and mining industries. This may have repercussions on market share, companies' reputation and consumer safety.
From Strategos BIP, we reaffirm our commitment to the fight against illicit trade in Latin America. Through our experience and service portfolio, we carry out exhaustive monitoring of regulatory and public policy measures that impact illicit trade, with the aim of supporting companies in protecting their products, their workers and their presence in the region.
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