The Shifting Sands of Global Trade: A New Landscape for Latin America

The protectionist policies enacted by the United States, under the leadership of President Donald trump, are creating a complex and multifaceted situation for Latin American economies. While the deceleration of global economic expansion, particularly in major players like the U.S., China, and the European Union (EU), casts a shadow over global commerce and consequently impacts Latin America, new avenues for trade are also emerging.

The rise of tariff barriers among these global giants presents a unique prospect. Latin American nations could possibly step in as alternative trade partners, capitalizing on comparatively lower customs duties. However,the region’s capacity to maintain a diverse portfolio of commercial relationships is being tested in an increasingly fragmented international arena. In this evolving geopolitical landscape, South America appears to be better positioned than Mexico and Central America to navigate these challenges, potentially maintaining a more neutral stance in global dynamics.

Economic Headwinds and Emerging Opportunities

The rapid escalation of trade tensions and heightened political uncertainty are undeniably dampening global economic activity.The International Monetary fund (IMF), in its April 2025 World Economic Outlook (WEO), projected a global growth rate of 2.8% for 2025, a downward revision from the 3.3% forecast in the January WEO Update. This year, the U.S. and China are expected to experience slower growth, with rates of 1.8% and 4% respectively,representing decreases of 0.9 and 0.6 percentage points compared to january projections. Similarly, the Eurozone’s GDP expansion is projected to slow to 0.8%,a 0.2 percentage point reduction.

Consequently,Latin America’s growth prospects are constrained by weaker external demand,particularly from a slowing Chinese economy. The downward trend in commodity prices further exacerbates the terms of trade for many South American nations. The IMF’s April WEO forecasts a 2% growth rate for Latin America and the Caribbean in 2025, a 0.5 percentage point decrease from the January estimate.

According to recent data from the World Bank, global trade growth has slowed to approximately 2.5% in 2024,a significant drop from the 4% average seen in the previous decade. This slowdown underscores the challenges faced by Latin American economies reliant on exports.

Navigating Tariffs: Winners and Losers

President Trump’s announcement of reciprocal customs duties on April 2 had varying impacts across Latin America and the Caribbean. With a few exceptions—Guyana, Venezuela, and Nicaragua—most countries in the region were initially subjected to a 10% duty due to the U.S. having a significant trade surplus with these nations.However, this situation has evolved.

Mexico, along with Canada, was initially excluded from the executive order on reciprocal duties due to existing tariff increases related to the fentanyl crisis and illegal immigration. This places Mexico in a relatively advantageous position,as exports compliant with the rules of origin under the United States-Mexico-Canada Agreement (USMCA) are exempt from these duties. The U.S. governance’s commitment to upholding the USMCA framework provides a degree of stability for North American trade. However, uncertainty looms as the USMCA is slated for its first formal review in July 2026.

On April 9, President Trump announced a temporary reprieve, applying a lower 10% duty rate for 90 days to all countries except China. This means that even Guyana, Venezuela, and Nicaragua are currently benefiting from the reduced rate until June. However, this 10% duty remains higher than the zero-tariff rates enjoyed by countries with existing free trade agreements with the U.S.,including Central American nations,the Dominican Republic,Colombia,Chile,and Peru.

The worldwide request of the duty, even at a reduced rate, creates a complex scenario for Latin American nations. While it may offer some short-term advantages by diverting trade away from countries facing higher tariffs, it also poses a challenge to those with existing free trade agreements, potentially eroding their competitive edge.

South america’s Strategic Advantage

Within this complex geopolitical and economic landscape, South America appears to be strategically positioned. Its ability to maintain a more neutral stance in global dynamics could prove advantageous in navigating the shifting trade winds. While Mexico and Central America are more closely tied to the U.S. economy, South American nations have the potential to diversify their trade relationships and capitalize on opportunities arising from the fragmentation of global trade.

However, the success of South America in leveraging these opportunities will depend on its ability to foster regional cooperation, improve infrastructure, and enhance its competitiveness in key sectors. Furthermore, navigating the political and economic uncertainties that characterize the region will be crucial for realizing its potential as a significant player in the evolving global trade landscape.

A Region at a Crossroads: Trade Wars and New Alliances

Latin America finds itself at a pivotal moment, navigating the complexities of global trade tensions and forging new alliances. The ongoing trade disputes between the United States and China, coupled with evolving trade agreements, present both opportunities and challenges for the region’s economies. While some nations grapple with geopolitical pressures,others are strategically positioning themselves to capitalize on the shifting landscape.

The US-China Trade Dynamic: A Double-Edged Sword

The trade war between the United States and China has created a complex environment for Latin American economies. On one hand,tariffs imposed by China on US goods,such as soybeans,have led to a surge in Brazilian exports to China,demonstrating the potential for trade diversion. Such as, Brazilian soybean exports to China have surpassed those of the United States following the implementation of Chinese tariffs. Though, this advantage could be short-lived if Washington and Beijing reach an agreement to reduce the american trade deficit, potentially impacting South american exports negatively.

Mexico’s Unique Position Under Scrutiny

The recent trade policies have created a notable distinction between Mexico and other Latin American nations with free trade agreements with the United States.While most countries now face a 10% duty on exports to the US, Mexico remains exempt for key products like avocados, peppers, and coffee. This exemption gives Mexican exporters a competitive edge over their regional counterparts. However, if the previously announced mutual duties were to be reintroduced, Latin american coffee exporters could gain a competitive advantage over countries like Vietnam, the world’s second-largest coffee exporter, which would face a significant 46% duty on shipments to the United States.

Diversification and Resource Wealth: Keys to Regional Growth

Amidst the uncertainty, Latin America has significant opportunities to diversify its exports and strengthen its role in global trade. The region boasts substantial reserves of critical resources,including 50% to 60% of the world’s lithium reserves,as well as essential minerals like copper and nickel,vital for clean technologies and the digital revolution. These resources position Latin America as a key player in the global transition towards lasting energy and technological advancement.

Leading the Way in Clean Energy

Latin America is also a leader in clean energy technologies, with nearly 30% of its energy derived from renewable sources. Hydroelectric power dominates in countries like Brazil, Colombia, and Paraguay, generating over 50% of their electricity. Furthermore, nations such as Brazil, Chile, Mexico, and Uruguay are making significant strides in wind and solar energy, while geothermal energy is expanding in volcanic regions like Costa Rica, El Salvador, and Mexico.

South America’s Strategic Neutrality and the EU-Mercosur Agreement

While Mexico and central American countries navigate the complexities of the US-China rivalry,some South American nations are strategically positioning themselves as crucial partners for all major economic powers. By maintaining a neutral stance, these countries aim to foster strong relationships with the United States, China, and Europe, while simultaneously increasing exports by replacing goods from these markets. This approach allows South America to benefit from the fragmentation of global trade.

The EU-Mercosur Deal: A Game Changer?

Commercial agreements are fundamental to this strategy,reducing barriers and enhancing export competitiveness.The successful conclusion of trade liberalization negotiations between the EU and Mercosur in December 2024 marks a significant milestone.once implemented, the EU will have free trade agreements with all thirty-three countries of Latin America and the Caribbean, with the exception of Bolivia, Cuba, and Venezuela. However,Bolivia,which recently joined Mercosur,is likely to be included in the Mercosur-EU agreement.

Commercial agreements are fundamental in this strategy because they reduce barriers and improve the competitiveness of exports.

China’s Growing Influence and Associated Risks

China’s influence in Latin America is already substantial, with trade between the Asian giant and the region soaring from $18 billion in 2002 to over $500 billion in 2024.The new port of Chancay in Peru,built by the Chinese state-owned company Cosco,is expected to significantly increase trade volumes and reduce travel times,further boosting trade with China,particularly for Peruvian and Brazilian products.

Navigating Dependence and Diversification

However, deepening ties with Beijing also entail risks for South American countries, including excessive dependence on raw material exports, which could hinder diversification and long-term growth.Moreover,greater integration into North American supply chains could pose additional challenges. It is crucial for Latin American nations to carefully manage these relationships to ensure sustainable and balanced economic growth.

A Region at a Crossroads: Latin America’s Strategic Importance

Latin America finds itself in a pivotal position as global trade dynamics undergo significant transformations. The region’s wealth of raw materials and strategic location make it an attractive target for investment and diverse commercial partnerships. Though, this also presents a challenge: maintaining neutrality amidst escalating geopolitical and economic fragmentation to foster continued positive trade relations with major players like China, the United States, and the European Union.

The Shadow of Protectionism: US Policy and its Impact on Latin America

Washington’s increasingly protectionist stance is prompting some Latin American nations to reconsider their relationships with Chinese companies. The future of commercial ties between the United States and countries like Colombia remains uncertain, particularly given Colombian President Gustavo Petro’s interest in potentially joining China’s ambitious Belt and Road Initiative.

This situation highlights the delicate balancing act Latin American countries must perform. They need to weigh the benefits of closer ties with China against the potential repercussions from the United States, a historically significant trading partner. According to the World Bank, trade between Latin America and China has increased tenfold in the last two decades, showcasing the growing economic interdependence.

Asia-Pacific Integration and Latin American Engagement

The Asia-Pacific region is witnessing rapid integration through large-scale agreements, largely driven by China’s substantial involvement. These developments are gradually influencing Latin America. Several countries, including Chile, Mexico, and Peru, have already joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade liberalization agreement that includes seven Asia-Pacific nations, Canada, and now the united Kingdom.

The CPTPP offers Latin American members access to a vast market and the potential for increased trade and investment. However, it also raises questions about the region’s overall trade strategy and its relationship with other major economic blocs.

Navigating the Geopolitical Landscape: A Call for Neutrality

The ability to maintain neutrality in this evolving global landscape will be crucial for Latin american countries. Successfully navigating these complex relationships will allow them to continue benefiting from trade with both China and the West. This requires a nuanced approach, balancing economic opportunities with geopolitical considerations.

Maintaining neutrality is not about indifference, but about strategic independence. It’s about ensuring that Latin America can chart its own course in a multipolar world.