Key Trends for 2019
In North America, Domestic Issues Are Front and Center
Now that they've put the finishing touches on the United States-Mexico-Canada Agreement (USMCA), the pact's three members will face less risk of trade upheaval in 2019. The divided political control of the U.S. Congress will be a key factor shaping President Donald Trump's policy agenda. Lawmakers will not significantly curtail the president's powers on foreign trade, especially related to the auto industry, given that White House actions will have less effect on the domestic vehicle sector. Still, the House of Representatives, led by the Democratic Party, won't cooperate with the administration's plans for foreign policy, military spending, immigration and tax reductions. Gridlock will hinder policymaking, meaning the White House will make little headway on immigration reform or tax cut plans.
A divided U.S. Congress reduces Trump's ability to taper foreign aid to Central American governments in response to illegal immigration from their countries.
Accordingly, Mexico's success in stemming the flow of people from Honduras, Guatemala and El Salvador to the United States will be crucial to the administration's immigration policy. To avoid a political confrontation with the United States, Mexican President Andres Manuel Lopez Obrador will not significantly alter his country's policy on countering illegal immigration or its domestic security policy against organized crime.
The United States, Canada and Mexico will continue to spar throughout 2019.
In Canada, Prime Minister Justin Trudeau's Liberal Party will face stiff competition from the opposition Conservative Party in October's federal elections. During the year, Trudeau will try to seal a trade agreement with China, although that will raise the ire of both Washington and the Canadian opposition, particularly as U.S., Canadian and Mexican lawmakers prepare to ratify the USMCA. Though that negotiation will irk Washington, it is largely powerless to prevent Ottawa and Beijing from pursuing the talks. For more about what changed and what remained the same in the NAFTA overhaul, see our most recent analysis.
AMLO Makes a Left Turn in Mexico's Domestic Affairs
Now that he has formally assumed power, Lopez Obrador — popularly known as AMLO — will turn his attention to implementing his populist domestic agenda in 2019. Lopez Obrador's coalition will strive to obtain the congressional support necessary to raise wages, adjust energy legislation and amend the constitution to hold more frequent binding referendums. But his proposed changes to energy legislation, such as local content increases, will make Mexican oil and natural gas less attractive to foreign companies.
Will AMLO's populist agenda help or hinder Mexico?
Even without constitutional reform on referendums, the president and political parties in Mexico will promote a spate of informal votes to demand government action on certain issues, such as public works projects and fuel prices. More frequent referendums will raise the risk that Mexican courts or the government will side with voters against the private sector on controversial issues that are approved in nonbinding plebiscites. Read our analysis for more about how plebiscites could bring disruptions to Mexico.
Mercosur Takes a Cautious Step Toward Free Trade
Brazil's government will negotiate with other member states in the Common Market of the South (Mercosur) to eliminate restrictions on bilateral trade and lower the bloc's common external tariffs. To enact its desired changes, Brazil will require a unanimous vote from the bloc's members.
Domestic political concerns among Mercosur's member states will once again influence the trading bloc's behavior in the coming year.
Argentina and Uruguay will be open to liberalizing the bloc's trade restrictions, but the prospect of a tight presidential election in Argentina will make President Mauricio Macri reluctant to agree to a deal. If Macri hesitates, negotiations are likely to stretch into 2020. And if a candidate from one of Argentina's populist Peronist parties beats Macri, he or she will favor more protectionist trade policies – which would put it on a collision course with Brazil. Read more about Mercosur and why the bloc won't suffer many effects from U.S. auto tariffs in our assessment.
In Its Fight for Survival, Venezuela's Government Irks Its Neighbors
Running on empty amid a dearth of oil revenue, Venezuela's government desperately needs cash anywhere it can find it. The country's plight will force Caracas to seek revenue from illicit avenues, such as the illegal mining of gold and other minerals, as well as shady financial transactions. The shift will give illegal miners incentives to expand their activities in eastern and southern Venezuela and into western Guyana and northern Brazil. But the spread of such activities into Brazil will attract the attention of the new presidential administration, giving Brasilia direct leverage over Venezuelan economic interests. To prevent a greater spillover of Venezuela's crisis, Brasilia will coordinate with Washington and the new government in Colombia to ramp up financial and political pressure on Caracas, possibly through sanctions or greater scrutiny on Venezuelan financial flows.
Cash-strapped Venezuela's ability to defend itself from internal threats, such as coup attempts or protests, will diminish throughout the year. Complicating matters, the shift away from oil revenue toward illicit funding will increase competition among Venezuela's political elites, who will jockey for their share of national wealth. The government will try to generate more cash to satisfy the elites by diverting some oil shipments to cash-paying customers instead of using the money to pay down its debts. This makes it likely that Caracas will fall behind on debt repayments to Russia and China. In response, these lenders will slow funding to Caracas, exacerbating Venezuela's oil production decline and contributing to greater conflict and competition among political elites intent on grabbing some of the government's rapidly shrinking revenue. Take a closer look at how Venezuela's illicit activities are angering neighboring Colombia, Guyana and Brazil.
Brazil's New Ruler Gets Ready to Overhaul Security and Investment
Jair Bolsonaro, who will assume Brazil's presidency on the first day of 2019, is preparing big changes to his country's policy on Chinese investment and domestic security. Bolsonaro's government will aim to manage or curb Chinese investment in strategic sectors, such as mining and energy infrastructure. The president will also begin courting congressional votes to implement security policies like lowering the age of criminal responsibility. But even if Brazil's new government fails to find the votes for security reforms, it will deploy the armed forces and police to curb criminal activity, which will have short-term security benefits in Rio de Janeiro and Sao Paulo. Read more about the strategies Brazil's incoming president will use to try to enact his agenda.
The Argentine President's Difficult Path to Re-Election
Argentine President Mauricio Macri will face an uphill battle if he is to win re-election in October 2019. Though he retains enough popularity to advance to a second round, he faces uncertain prospects for success in a runoff. Because Macri's public approval is tenuous, any further currency depreciation or unhappiness over inflation will open the possibility that a populist challenger will defeat him in a second round in November. See more about the challenges awaiting Macri in 2019.
- In Mexico and Brazil, new leaders will look for ways to fulfill campaign promises to root out corruption in their respective countries.
- A divided U.S. Congress will give the Democrats more leverage over the administration's agenda as the party will wield greater influence over federal funding and lawmaking.
- In Argentina, a populist opposition stands to gain the presidency due to Macri's political troubles.
- Bolivian President Evo Morales will stand for re-election, but that will likely incite protests that will disrupt trade and business activity.
Key Dates to Watch
- Jan. 1: Jair Bolsonaro will take office as Brazil's president.
- Jan. 3: The 116th U.S. Congress convenes.
- Feb. 3: El Salvador will hold elections.
- May 5: Panamanians will cast their ballots in general elections.
- June: Guatemala will go to the polls.
- Oct. 21: Canada will hold federal elections.
- Oct. 27: Bolivia will conduct presidential elections.
- Oct. 27: Uruguayans will elect a new president.
- Oct. 27: Argentina will stage the first round of federal elections for president and members of Congress.
- Nov. 24: Argentines will vote in a likely runoff election.