USD: Concerns about an armed conflict are growing in Latin America – Commerzbank

On Sunday evening, one of the many conflicts currently involving the US President escalated with Colombia. A few weeks ago, the Colombian president's US visa was revoked. The main issue most recently has been US military operations, primarily directed against Venezuela, but which Colombia claims killed a Colombian fisherman over the weekend. In response to the ensuing criticism, Trump labelled his Colombian counterpart a 'drug lord', cancelled all foreign aid and threatened new tariffs. Concerns about US military intervention in the drug war are slowly growing in Latin America, as the consequences would likely be unforeseeable, Commerzbank's FX analyst Michael Pfister notes.

US/Colombia quarrel may escalate further

"The tariff problem is by no means resolved. In recent weeks, it has become increasingly clear that the US administration intends to continue using tariffs for various purposes. This is evident from reports that the EU has received a list of new demands that the US would like to include in the negotiated deal. However, it seems that trade issues are no longer the main reason here. Trump often makes no secret of the fact that tariffs are politically motivated – Brazil could certainly tell you about that right now."

"There is another lever that Trump can use to ensure compliance in many emerging markets, however: the US pays a significant amount of development aid to other countries, which can make up a large part of their budgets. In Colombia, for example, this aid accounts for almost half a percent of the state's annual expenditure, and the country is now having to do without it."

"It is difficult to say how things will proceed with Colombia. As in January, it is possible that Colombia will give in, enabling Trump to claim another victory. For the whole of Latin America, however, this once again highlights the risks posed by the White House. Some Latin American countries have therefore criticised US action, seeing it as dangerous interference in Colombian sovereignty. So far, the Colombian peso has weathered the storm quite well, given its relatively low dependence. However, recent months have taught us that the US president often goes one step further."