With large and persistent federal deficits and increasingly hostile trade relations with China, why is President Donald Trump using scarce federal resources and now private capital to support Argentina‘s economy? Is he doing so simply to support the political fortunes of Argentine President Javier Milei?
Argentina is not strategically important to the United States. Yes, the country is in the Western Hemisphere, but the distance from Washington, D.C., to Buenos Aires, the capital of Argentina, is greater than the distance between Washington, D.C., and Moscow, the capital of Russia. Argentina is indeed a faraway land. The correct policy would be to establish a detente with Brazil, the dominant economic and political power of South America. Brazil is strategically important to the U.S.
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Certainly, Trump is right to rhetorically support Milei, a free-market economist by trade. Milei is attempting to transform the Argentine economy from its past of hyperinflation and slow growth into one with low inflation, a stable currency, and prospects for sustained economic growth. But Trump is wrong to use federal government money and to stake his political prestige on what is almost certainly a quixotic misadventure.
Since the late 1940s, when Juan Peron, an obscure Argentine army colonel, rose to power, Argentina’s politics have lurched from state populism to free-market capitalism. The result has been an economic and social catastrophe. Argentina has a long history of defaulting on its debt, with nine defaults since 1816, including major defaults in 2001, 2014, and 2020. This cycle of defaults is linked to economic instability, including high inflation and over-reliance on volatile commodity exports.
Against this consistent history of debt defaults, the probability, given the fractured nature of Argentina’s politics and entrenched political corruption, is that Argentina will default yet again in the not-too-distant future. The U.S. is almost certainly throwing good money after bad in Argentina.
But support for Argentina also harms America’s agricultural sector, which is already caught in the trade crossfire between the U.S. and China. Soybean exports to China have collapsed. Before Trump’s trade war with China, the U.S. ran a trade surplus with China in the agricultural sector. Argentina is a major exporter of agricultural commodities. Argentina is benefiting from our trade war with China. American farmers are going bankrupt; yet, the Trump administration is giving U.S. dollars to Argentina. This is nonsensical.
In addition, China has a long-established military base in Patagonia, a large region in southern Argentina. Why is this administration helping a country that gives China a permanent military base in the Western Hemisphere? China can use this base to destabilize neighboring Chile, a very important trading partner of the U.S. Chile, which shares a 3,000-mile-long border with Argentina, is one of the world’s leading exporters of copper. Semiconductors, increasingly the fuel of the U.S. economy, are dependent on copper. The U.S. must have access to relatively inexpensive copper from Chile.
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To compound the policy mistake that the administration is making, Treasury Secretary Scott Bessent is arranging private sector support for Argentina. The administration is loaning Argentina $20 billion to support its currency and its sovereign debt. Now the private sector will put up an additional $20 billion. Forty billion dollars to support a currency may sound like a lot, but daily activity in global currency markets is measured in trillions of dollars. Bessent knows this. After all, he worked for George Soros when Soros broke the currency of the United Kingdom in 1992.
Trump is conditioning his support for Milei on the successful outcome of Argentina’s approaching midterm elections. Unfortunately, the outlook for these elections is poor. Voters in Buenos Aires, by far the most populous region of Argentina, just voted against Milei’s party. Trump should cut his losses on Argentina.
James Rogan is a former U.S. foreign service officer who has worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society. He can be followed on X and reached at [email protected].
