By Rodrigo Campos

NEW YORK (Reuters) – The possibility of former President Donald Trump winning the presidential election again in November has investors bracing for a variety of scenarios, with America’s backyard high on the list of markets to watch.

The Trump administration has maintained tense relations with much of Latin America, including over the distribution of COVID-19 vaccines and when the U.S. government withheld key financial aid in exchange for stricter migration policies in Central America.

Here are some flashpoints identified by investors predicting how a possible second Trump administration could impact the region:

GOOD NEIGHBOR

Mexico has long been a weathervane for US policy and its impact on broader emerging markets, but this time domestic factors could make the situation more complicated.

Trump’s victory in the 2016 election caused the peso to fall almost 8% in a week.

This time, however, the peso has already lost 6% after a edged fall in June, when the ruling party came close to winning a supermajority in the country’s elections and markets began to worry about constitutional changes and weakening checks and balances.

Analysts expect trade to be at the top of the U.S.-Mexico agenda. Trump led a revamp of the U.S.-Mexico-Canada trade agreement (USMCA), and a planned review is two years away. The next U.S. president has a chance to confirm whether his country will remain in it.

“Trump is very unlikely to withdraw from the USMCA, but he may threaten to do so to force higher tariffs and more investment in the US manufacturing sector,” said Hasnain Malik, head of equity research at Tellimer in Dubai.

“With Mexico, the broader relationship will be less comfortable, and Trump’s focus on border control could potentially hurt long-term remittance growth.”

The peso is expected to be volatile ahead of the US election as investors apply it to hedge or double down on the likelihood of Biden being re-elected.

PERSONAL RELATIONS

Two of Latin America’s most flamboyant right-wing populists — President Nayib Bukele of El Salvador and President Javier Milei of Argentina — appeared with Trump at February’s Conservative Political Action Conference, the largest gathering of conservative activists and politicians in the U.S. Both countries are seeking financial support from the Washington-based International Monetary Fund (IMF).

In 2018, Trump openly backed then-Argentine President Mauricio Macri in his bid for IMF money, which grew into a massive $44 billion program. Milei, a public Trump supporter, is expected to ask for the recent cash when the current program ends in December — if not sooner.

El Salvador’s Bukele is also expected to reengage with the IMF after the U.S. election, with the goal of getting a recent program. El Salvador’s offer in April of a bond that would boost returns if the country received neither a recent IMF program nor a significant credit rating upgrade in the next 18 months was seen by analysts as a bet by Bukele that Trump would win the White House and stand up for him at the IMF.

“(Bukele) is very much aligned with the Republicans,” said Thys Louw, portfolio manager at Ninety One, adding that El Salvador is also trying to find recent financing elsewhere.

“We hope that as soon as the Trump administration comes in, they will put pressure on the IMF and the IMF will be much more lenient towards them.”

VENEZUELA SANCTIONS OUTLOOK

How Venezuela’s presidential election on July 28 plays out will likely determine whether the country has any chance of rejoining the international community. Trump tightened sanctions on the South American oil producer in his last term; Biden has tried to rebuild ties to ensure a fair election.

The next US president will likely decide whether a major debt restructuring (Venezuela owes at least $60 billion in Treasury bonds alone) will go through, as it would require a recent bond issuance, which is currently prohibited due to US sanctions.

“Venezuela is one of those countries that is likely to see change under the Trump administration,” said Bradley Wickens, CEO of Broad Reach Investment Management, adding that Venezuelan bonds trading at very low prices could be tempting for investors amid a détente between Washington and Caracas.

“I’m not sure that will continue under Trump.”

Relations with Cuba and Nicaragua, where authoritarian governments prevail, are expected to deteriorate further under Trump.

ESCALATION OF THE TRADE WAR WITH CHINA

The obstacles and additional costs to trade with China imposed by the Trump administration have been maintained by Biden, who has further hardened policies towards Beijing.

Some analysts expect that if the trade war with China intensifies, Beijing could decide to devalue its currency to make its exports more competitive. Such a move could hit goods exporters in Latin America, where Brazil, Argentina, Mexico and Chile are Beijing’s biggest regional trading partners.