Milei-Trump: How the New Bilateral Relationship with the U.S. Could Boost Trade and Investment in Argentina

by | Jan 19, 2025 | FDI Latin America

Strengthening Economic Ties with the U.S.

 With the arrival of Donald Trump at the White House, Argentine President Javier Milei seeks to consolidate the economic relationship and sign a free trade agreement with the United States, Argentina’s third-largest trading partner behind Brazil and China. The U.S. is also the leading foreign direct investor in the country, with a stock of USD 30 billion. Trade with the U.S. averages USD 12 billion annually, though the trade balance is structurally in deficit. As of November 2024, exports to the U.S. accounted for 8% of Argentina’s total exports, while imports represented 10.3%.

Historical Trade Balance Trends

“The trade balance has historically been in deficit, with only five periods of surplus between 1990 and 2023. The recent average reflects a deficit of nearly USD 3 billion. However, in the first 11 months of 2024, there was a positive result of USD 148 million, following 18 years of deficit, driven by a 16% increase in exports and a 30% contraction in imports due to price corrections and domestic recession,” noted a report by the consultancy Abeceb.

Key Export Sectors Driving Growth

Oil exports to the U.S. have been bolstered by the development of Vaca Muerta, a key driver in strengthening Argentina’s energy supply position. Advanced drilling technology inspired by shale models has enhanced efficiency and competitiveness in energy sales. Additionally, Argentina exports significant amounts of metals, including silver, gold, aluminum, and steel, valued at USD 1.305 billion, primarily to meet the growing demands of the U.S. technology, automotive, aerospace, and jewelry industries.

The food and beverage sector also plays a fundamental role in trade between the two nations, representing 17% of total exports with a value of USD 989.2 million. Key products include meat, honey, lemons, and wines, with the U.S. serving as the primary market for high-end Argentine wine. These sectors highlight the growing opportunities for investment in Argentina.

The Role of Imports in Bilateral Trade

On the import side, Argentina primarily purchases industrial inputs such as coal, chemicals, LNG, and diesel for energy generation. These products accounted for 29.4% of total imports, reaching USD 1.62 billion in the first 11 months of 2024. Other notable imports include parts for the metalworking industry, consumer electronics, oil and gas machinery, fertilizers, and agrochemicals.

Hydrocarbons and Chemicals Leading Export Categories

The hydrocarbon and chemical industries lead Argentina’s exports to the U.S., with crude oil, gasoline, and organic and inorganic chemical products collectively making up 36% of total sales. By November 2024, these exports were valued at USD 2.084 billion. These advancements signal the potential for increased U.S. investment in Argentina’s energy and industrial sectors.

Prospects for a Free Trade Agreement

Against this backdrop, President Milei plans to attend Trump’s presidential inauguration on January 20, following previous engagements. Milei has announced his intention to pursue a free trade agreement with Washington. However, experts note that achieving such an agreement, particularly within the framework of Mercosur, is complex.

During the 65th Mercosur Summit, Milei described the bloc as “an obstacle to Argentina’s progress” and “a prison.” In 2016, the U.S. and Argentina signed a Trade and Investment Framework Agreement (TIFA) as the primary mechanism for discussing trade and investment issues. The fourth TIFA meeting in June 2024 focused on diversifying regional supply chains for sustainable, long-term growth in critical sectors like minerals. Some stakeholders emphasized the importance of reauthorizing the Generalized System of Preferences (GSP) program, which provides tariff-free treatment for certain U.S. imports from Argentina and other developing countries.

Challenges to Trade Negotiations

Another potential avenue is the Americas Act, a proposed expansion of the United States-Mexico-Canada Agreement (USMCA). However, international analyst Esteban Actis highlighted a key challenge: “The Trade Promotion Authority (TPA), which enables Congress to grant the executive branch the power to negotiate trade agreements, expired in 2021. Without the TPA, the Executive cannot initiate or finalize trade agreements. While Trump’s majority in both chambers may facilitate its renewal, his focus is expected to be on renegotiating the USMCA in 2026.”

U.S. Investments in Key Sectors

The U.S. remains Argentina’s top foreign investor, with a stock of USD 30 billion, accounting for more than 18% of total foreign direct investment. Approximately one-third of this amount is concentrated in crude oil and natural gas extraction (USD 9.278 billion), followed by manufacturing (USD 6.327 billion), telecommunications services (USD 3.229 billion), and automotive trade (USD 2.515 billion). These figures underscore the importance of fostering an environment conducive to more significant investment in Argentina.

Legislative Efforts to Boost Trade and Investment

In December 2024, the U.S. Congress published a report noting potential legislative actions to facilitate greater trade and investment in Argentina. The report highlighted Argentina’s opportunities in agriculture, mining, and energy. Still, it acknowledged challenges like economic instability, high inflation, and interventionist policies like currency controls, export taxes, import restrictions, and labor regulations.

Market-Oriented Reforms Under Milei’s Administration

Despite these hurdles, Congress recognized Milei’s market-oriented reforms, including the Regime of Incentives for Large Investments (RIGI), aimed at eliminating interventionist policies and stabilizing the economy. Analysts predict that RIGI could attract significant investments, particularly in provinces adopting the promotion framework, though its overall impact may be limited if capital and currency controls persist.

Conclusion: A New Era for U.S.-Argentina Relations

This evolving bilateral relationship underscores the importance of U.S. trade and investment in Argentina for sustainable economic development. Enhanced collaboration between the two nations could unlock significant opportunities, particularly in energy, agriculture, and technology. With strong political will and strategic reforms, Argentina can position itself as a more attractive destination for U.S. businesses and investors.