Peninsular studies in the US has a rich and vibrant tradition stretching back to the 19th century. The only rivals for American Hispanism are Spain itself and perhaps the British Isles. I am proud to be part of this tradition. In more recent years, American hispanism has partly been eclipsed by Latin American studies, for obvious and justifiable reasons. The proximity of Latin America itself, and the historical ties (including historical conflicts) between the states and our Spanish speaking neighbors. The largest minority group (latinos) in the US, that is defined by the Spanish language itself.
So why do peninsular studies at all? There could be tipping point at which the study of peninsular literature and culture were seen as unnecessary or superfluous. The best argument I can come up with is that we kick ass. What a good university needs is people who can do good work in many fields of inquiry. If we have a vibrant tradition of kick-ass scholarship, we shouldn't give it up, just because someone comes along and says we should be doing something different instead.
Latin Americanism in the US is also excellent, but the presence of peninsular studies does not come at its expense. In fact, these fields are mutually beneficial to each other. An all Latin American department of Spanish would be less diverse, from an intellectual standpoint.
What would happen if the US were no longer at the forefront of peninsular studies? To me, personally, it would be a great loss, but I think it would also be a loss to American intellectual life. Maybe a small one, but a loss nonetheless.
I think a couple of people might agree with me: Lezama Lima, Borges, Eduardo Milán, Carlos Fuentes, Vargas Llosa, Juan Gelman, and Octavio Paz, for example.