Trade conflicts and new US tariffs, compounded by a decelerating global economy, could reduce Latin American economic growth by 0.3 percentage points in 2025 and 0.4 percentage points in 2026, with recovery delayed until 2028, Moody's Analytics warned in a recent report.

"The opening salvos of the global trade war have already been exchanged, and while Latin America has narrowly stepped out of the firing line, difficult days are ahead," the agency said.

"While we expect Latin America to ultimately avoid recession under our baseline forecast, further tariff escalation could nudge the region into a broader downturn."

Mexico faces the greatest risk due to its deep economic ties with the US and reliance on remittances.

Moody's expects US tariffs on Mexican imports to rise to 10% in coming months, likely remaining until early 2026, with Mexican retaliation expected.

Unsurprisingly, immigration remains a key point of contention: "These [migrants'] inflows will remain a focal point of the Trump administration and are a potential wild card in US tariff policy. With inflows of undocumented migrants unlikely to fade as fast as Trump would like, the stage is set for higher tariffs on Mexico."

Brazil confronts separate challenges as tensions rise over its promotion of non-dollar trade within the expanded BRICS group, which now includes Egypt, Ethiopia, Indonesia, Iran, and the UAE alongside original members Russia, India, China, and South Africa.

Brazil recently backtracked, with officials stating they will not pursue a common BRICS currency during this year's presidency of the bloc, focusing instead on facilitating trade in local currencies.

Yet, while President Lula da Silva has moderated his stance on a fully-fledged common currency, he maintains that BRICS nations have "the right to discuss establishing forms of trade that do not make us fully dependent” on the dollar.

The US is considering increased tariffs on Brazilian ethanol, while steel and aluminium duties set for March will affect both Brazil and Mexico.

Moody's notes the direct impact may be limited as steel comprises less than 1% of Mexican exports and under 5% for Brazil. However, Mexico directs almost 90% of its steel exports to the US, while Brazil sends just under 50%.

"More concerning for the Brazilian economy will be the broader-based slowdown of the Chinese and global economies,” the report said.

Brazil boasts the whole market basket of commodities, from industrial metals to agricultural products and even oil, with iron ore and metals exports accounting for around 15% of Brazil's total exports alone.

Unlike during the 2018-2019 trade tensions under Trump's first term, when Latin American nations managed to offset slower global growth through increased commodity exports to China and Asia, the region now has fewer alternatives while Beijing faces its own economic slowdown.

Meanwhile, in a potential blow to the region's agricultural exports, Chinese dietary changes have settled in and, with them, demand for grains, while Chile and Peru face weakening Chinese property markets.

In a severe scenario where US tariffs on Mexican and Brazilian imports reach 20% and Chinese import tariffs hit 40%, Moody's warns the region could face a full-blown recession.

Mexico would bear the heaviest impact due to US exposure, while Brazil would still suffer more from Chinese economic contraction.

Chile's concentrated commodity exposure makes it particularly vulnerable, with projections showing three consecutive quarters of GDP contraction.

Trump repeatedly warned BRICS countries not to challenge the primacy of the "mighty dollar," threatening 100% tariffs on the offenders, but potential dedolarrisation is still a long way off.  As Moody's recalls, the China Investment Information Platform, touted as an alternative to Western-led global payments, still relies heavily on SWIFT infrastructure.

On top of that, Federal Reserve data shows minimal advancement in global yuan usage across trade, debt issuance, international banking claims, and reserves, with most BRICS nations continuing to invoice predominantly in US dollars.