The region is undergoing a historic political shift

The new conservative to right-wing populist governments are ideologically closer to the U.S. than their left-wing predecessors. At the same time, they are unlikely to want to do without Europe as a player between Washington and Beijing.

by Alexander Busch, Latin America correspondent for Handelsblatt and NZZ

The elections in Colombia and Peru have confirmed a political trend that has been emerging for several years. In Colombia, conservative criminal defense attorney Abelardo de la Espriella narrowly won the presidential runoff against his left-wing opponent.

In Peru, the election results have not yet been officially confirmed. However, there is little doubt about the outcome of the election. As things stand, Keiko Fujimori is likely to assume the presidency. The daughter of former President Alberto Fujimori has thus made it to the top of the political system on her fourth attempt.

Both candidates were successful because they pledged a tough stance against organized crime during the campaign. At the same time, they promised to roll back state influence and promote private investment.

In this regard, Fujimori and de la Espriella’s platforms resemble those of numerous successful candidates in recent years. Of the last 15 presidential elections in Latin America, twelve were won by candidates associated with the conservative or right-wing political camp.

Only in Brazil and Mexico—the region’s two largest economies—are governments to the left of the political center still in power. Uruguay and Guatemala are also in this category. But even in Brazil, a right-wing candidate could be elected in the elections four months from now.

Latin America is thus once again experiencing a profound shift in the political cycle. After the so-called “pink tide” of left-wing and left-nationalist governments had shaped the region since the early 2000s, conservative and right-wing populist forces now dominate the political landscape.

This development also reflects societal changes. For years, polls have shown a growing prevalence of conservative values in many countries across the region, particularly among younger voters. This trend has been reinforced by the growing political and social influence of evangelical churches.

The spectrum of the new governments ranges from economically liberal to strongly populist initiatives. What they have in common is skepticism toward an overreaching state and a demand for greater public safety.

Argentine President Javier Milei is primarily pursuing economic policy goals. He aims to reduce the state’s influence, cut public spending, and generate growth through investor-friendly policies.

Nayib Bukele’s priorities in El Salvador are quite different. His government is focused on restoring public safety. For many conservative politicians in the region, Bukele is now seen as a role model in the fight against crime. The autocratic president succeeded in drastically reducing his country’s homicide rate within just a few years. Today, he is the most popular head of state in Latin America.

Most of the recently elected presidents operate between these two poles—tough security policies and economic liberalism. There are comparatively moderate conservative governments, such as in Chile under José Antonio Kast, in Paraguay under Santiago Peña, or in Bolivia under Rodrigo Paz. Alongside them are more populist leaders such as Milei in Argentina, Bukele in El Salvador, the Bolsonaro family in Brazil, or de la Espriella in Colombia.

Despite these differences, their rise marks a common political shift: the region’s central issues have shifted from redistribution and social inclusion toward security, order, and economic dynamism.

This political shift is also changing relations between Latin America and Europe.

On the one hand, the new governments will seek close political ties with Washington. They hope for investment, financing, and security assistance in the fight against organized crime.

The interest is certainly mutual. Donald Trump’s new security strategy for the Western Hemisphere is based on closer cooperation with the countries of Latin America. Under the umbrella of the “Shield of the Americas,” a security and defense alliance is taking shape that is intended to consolidate U.S. influence in the region. Together, Washington and its partners aim to crack down on drug cartels and organized crime, control migration flows, and limit the influence of China and Russia.

However, unconditional alignment with the U.S. is unlikely. Trump has shown on multiple occasions that even close allies are not immune to punitive tariffs or political pressure if it serves his domestic political interests.

This is precisely where a strategic opportunity arises for Europe. The more the geopolitical competition between the U.S. and China intensifies in Latin America, the more attractive a third partner could become—one that neither asserts hegemonic claims nor views the region primarily as a security buffer zone.

As an investor and a politically predictable actor, Europe could even strengthen its position in the region despite the shift in political trends.

Latin America remains surprisingly economically stable

Geopolitics is elevating the continent’s role as a business location and trade partner. With trade agreements with Mexico and Mercosur, the EU has now positioned itself strategically.

by Alexander Busch, Latin America correspondent for Handelsblatt and NZZ

At the midpoint of the year, the region is proving more resilient than the political and economic uncertainty in the global economy and world politics would suggest. No country is facing the threat of a recession or a political crisis.

However, the reasons for the economic stability vary from country to country.

Brazil and Colombia are in election campaign mode. The governments are trying to win votes through government spending programs. This has boosted growth in the short term. However, social spending and minimum wage increases are unlikely to be sustainable in the medium term, which means that growth forecasts for 2027 are weaker in both countries.

In Argentina and Peru, by contrast, the economy is being supported by exports and investments, particularly in mining and energy. Together with Chile, these economies will perform best in the region next year, with growth rates exceeding three percent.

Mexico remains the exception: there, economic development continues to be volatile and well below potential, despite some impetus from abroad.

For several reasons, the outlook for the region is stable.

For instance, Latin America is a strategic winner of the global upheaval and current conflicts. As a supplier of critical raw materials, food, and energy, the region is gaining equal importance for Europe, the U.S., and China.

Latin America possesses large reserves of copper, lithium, iron ore, silver, bauxite, and rare minerals needed for the energy transition, digitalization, and defense. Chile and Peru supply around 40 percent of the world’s copper, and Argentina is part of the “lithium triangle.”

Brazil, Guyana, and Argentina possess significant oil and gas reserves, and production is on the rise. This also applies to Venezuela, which is ramping up its oil and gas production once again. At the same time, the region utilizes one of the world’s highest shares of renewable energy.

Brazil and Argentina are among the leading exporters of soybeans, corn, sugar, meat, and other agricultural products. Agricultural potential is high throughout South America.

Compared to Eastern Europe, the Middle East, or parts of Asia, South America is considered relatively conflict-free despite growing internal security issues. This makes the region attractive to investors and companies.

The region is beginning to benefit from the diversification of Western supply chains: Europe and the U.S. are seeking alternatives to China and Russia. At the same time, however, China and other Asian emerging economies are also expanding their relationships with South American commodity exporters and increasing their investments in infrastructure.

They are also drawn to a market of around 670 million people. For European companies, competitive pressure in the region’s major economies has therefore increased significantly.

With the renewed trade agreements with Mexico and Mercosur, the EU has now strengthened its ties with Latin America just in time. For industry in particular, the agreements provide improved market access and business conditions.

While the U.S. under Donald Trump continues to rely more heavily on tariffs and protectionism and China is expanding its influence in the region, European companies now have a competitive advantage over foreign competitors in Latin America. This is particularly crucial for small and medium-sized enterprises in the industrial sector.

The agreements not only provide European industry with better market access but also facilitate access to raw materials and more stable supply chains.

Politically, important decisions are on the horizon in South America: presidential elections are taking place in Peru, Colombia, and Brazil. These three countries account for roughly half of the population and economic power of all of Latin America. It remains to be seen which candidates will prevail. Politics is highly polarized in all three countries. Nevertheless, recent years have shown that economic development is more decoupled from the ideological orientation of governments than it appears during election campaigns.

It is also unclear how the growing influence of the U.S. in Latin America will affect cooperation with Europe. Since the U.S. government announced its new security strategy for Latin America at the end of last year, Washington has been noticeably expanding its influence in the region. Growing investments in mining and critical minerals demonstrate that Washington’s primary goal is to reduce Chinese influence in Latin America.

As the example of Venezuela shows, Washington does not hesitate to use military force to assert its influence. The extent to which this strategy will affect European companies in the future remains to be seen.

“Bad for the world – good for Venezuela”

Two months after Nicolás Maduro’s kidnapping, the people of Venezuela are hoping that Donald Trump’s US administration will lead the country out of its economic and political isolation. This presents great opportunities for German industry.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

Two months ago, US military personnel kidnapped Venezuelan President Nicolás Maduro and his wife from Caracas. Since then, nothing in Venezuela has been the same.

Most people seem relieved. It is as if a nightmare has ended. Almost everyone assures you: “Trump’s violent action was right,” without any ifs or buts. There is no sign of the anti-Americanism that is otherwise so widespread in Latin America. “Trump’s action was bad for the world, but good for Venezuela,” says a European diplomat.

Support for the US action in Venezuela cuts across all social classes: student leaders, members of parliament, trade unionists, and entrepreneurs. But even the residents of the barrios, the slums, are glad that Maduro has been arrested and that the repression and paternalism have come to an end.

Today, the colectivos, the regime’s armed motorcycle militias, have disappeared. In the days after Maduro’s abduction, they still dominated the streets in a threatening manner. In other respects, too, the capital is safer than it has been for many years – safer than most other cities in South America. A few years ago, Caracas was still the city with the highest rate of violence in South America.

The US is making it clear that it has come to stay. High-ranking US representatives travel to the country on a weekly basis – but not as visitors or state guests. “They act like governors visiting a province,” says the diplomat.

Almost everyone in Venezuela says the country is under US tutelage, but that doesn’t seem to bother anyone. On the contrary. It is associated with the hope that the regime will no longer harass the people as it has done in the past and that the country will finally find its way out of the economic and political isolation in which it has been for over a decade.

But even if the US leads the opening process and gives priority to US corporations, there are also extraordinary opportunities for German industry.

There are several reasons for this:

Firstly, German companies have traditionally had a strong presence in the country’s infrastructure. This is particularly true in the areas of electricity, chemicals, and water supply. There has been little investment in these areas for years. However, much of the original hardware in power plants, refineries, and pumping stations still comes from German corporations.

Secondly, before the left-wing president took office 26 years ago, Venezuela was one of the most important locations for German industry in South America. From there, companies also covered difficult neighboring countries such as Colombia and countries in Central America and the Caribbean. Many of these companies still have small representative offices there today. However, these could quickly be expanded again.

Thirdly, the oil sector is currently the focus of investor interest. Venezuela has considerable reserves in this area. The government has prepared comprehensive privatization legislation. In the future, companies will be able to produce and export oil without the state having to be involved.

German companies are not present as oil multinationals. As suppliers to the oil industry, however, there are considerable market opportunities for them, as Venezuela’s electricity sector now needs to be modernized rapidly. Only then can oil be extracted or the country’s other resources (ores) be exploited. Electricity is urgently needed to get the manufacturing industry – such as food processing, agrochemicals, and pharmaceuticals – up and running again.

A comparison shows how enormous the difference between supply and demand is in the electricity sector: Venezuela currently produces around 80 terawatt hours per year. That is about as much as Lower Saxony. However, Venezuela has around 30 million inhabitants instead of eight million and is almost as large as France and Germany combined.

Major blackouts are only avoided because the country’s industry is completely devastated. If electricity consumption rises rapidly, the energy system would collapse.

Fourthly, German companies also have privileged access to Venezuela for other reasons: in some areas, it is the US subsidiaries of German companies that would supply the equipment and machinery to Venezuela. This would be advantageous given US control over the economic and political opening process.

Fifthly, German brands and expertise enjoy a good reputation in Venezuela. Skilled workers and experts are also urgently needed for the Venezuelan economy to recover. Many engineers and technocrats in the state apparatus studied in Germany or attended the German school in Caracas. That could open doors. In Venezuela, there is renewed talk that the dual system offers the opportunity to train the necessary skilled workers within the existing higher education system. The country’s universities have suffered from a lack of support from the regime. Nevertheless, they still have a solid academic foundation.

What are the risks?

Venezuela’s opening process under US control is not yet guaranteed. No one knows when elections will take place or whether there will be authoritarian setbacks. The regime is still in power, even if the US government is currently calling the shots.

So far, local representatives have observed a specific problem for German companies in Venezuela. There is over-compliance. Companies fear that possible economic ties with Venezuela could cause them problems with US sanctions. The sanctions remain in place. However, in order to avoid any risk, companies are completely ignoring the market opportunities in Venezuela instead of even considering them, local representatives criticize the behavior of the parent companies.

Nevertheless, Venezuela remains a corrupt country. Transparency International has just ranked Venezuela as the third most corrupt country in the world.

In short, German industry finds good starting conditions in Venezuela in what remains a complicated environment. However, it will be crucial who will meet the pent-up demand in the coming months. Those who are too late could miss out.

Developments in Mercosur could call the entire EU agreement into question

Legislative proposals for the treaty have been submitted to the Mercosur parliaments. In Brazil, the agricultural sector wants improvements, and Argentina has concluded a trade agreement with the US that conflicts with the agreement with the EU.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

First, the good news: the Argentine Chamber of Deputies is the first legislative body in Mercosur to approve the agreement by a large majority. The bill must now also be voted on in the Senate. This marks the first step toward ratification of the agreement between the EU and South America’s largest economic community, Mercosur.

Similar bills have also been introduced in the parliaments of the other Mercosur countries, Brazil and Uruguay. Paraguay plans to follow suit soon. In Uruguay, parliamentarians hope to approve the bill by the end of February. This would be an important step toward bringing the trade part of the agreement into force.

This is because the EU could provisionally apply the EU-Mercosur agreement as soon as the first Mercosur country has completed the ratification process. In Europe, the agreement, which was signed on January 17, 2026, was halted again just four days later. On January 21, the European Parliament decided to refer the agreement to the European Court of Justice (ECJ) to examine whether it is compatible with EU treaties and legal standards. This step delays the pending final parliamentary approval by at least a year.

Nevertheless, the agreement between the EU and Mercosur is now also facing new resistance in South America, which could ultimately call the treaty into question.

The Brazilian Congress has rejected the government’s plan for rapid ratification. A commission made up of members of the Senate and Congress will decide whether to introduce similar safeguard clauses for farmers in Mercosur to those that European farmers were able to include in the agreement as an additional protocol in the days before it was signed.

Among other things, this involves the EU activating temporary protective measures in the event of changes in export volumes or prices of more than five percent. The South American farmers’ association considers this unrealistic given the highly volatile nature of agricultural commodities and is also demanding such a safeguard clause.

However, the Agreement on Reciprocal Trade and Investment (ARTI) just concluded between Argentina and the US could have far more serious consequences for the future of the EU-Mercosur agreement. Argentina and the US signed it on February 5. It mainly concerns tariffs, market access, investment rules, and regulatory requirements, which also play an important role in the EU-Mercosur agreement.

The plan is for Argentina to be able to import numerous products into the US duty-free from March onwards, including sensitive agricultural products such as beef. The EU strongly protects this access. Agricultural imports from South America are meeting with massive resistance from farmers from France to Poland in the agreement with the EU.

At the same time, US companies will be allowed to export numerous industrial goods – including pharmaceuticals, vehicles, and machinery – to Argentina duty-free. It is precisely these markets that European companies hope will bring them trade advantages through the EU-Mercosur agreement.

US norms and standards are also to be adopted in Argentina without further review. North American companies will receive privileged access to rare earths and critical minerals in Argentina. Here, too, the EU had hoped for preferential treatment in the agreement.

It is now completely unclear whether a bilateral agreement between Argentina and the US could break up Mercosur. According to its statutes, the South American economic community must negotiate jointly with new partner countries. However, it recently expanded the number of possible tariff exemptions for Argentina.

In Brazil, which accounts for around two-thirds of Mercosur’s economic power, consideration is now being given to how Brasília should respond to Argentina’s solo effort. However, formal criticism of Argentina would probably do little to dissuade libertarian President Javier Milei from his policy of opening up to the US. At the same time, there are also considerations in Brazil as to whether a bilateral agreement with the US would not bring more advantages than an agreement within Mercosur.

For influential economist and former foreign trade secretary Lucas Ferraz, the latest developments put Mercosur’s existence at stake. This also suddenly makes the agreement with the EU uncertain again.

2026: A key year for the economy and politics in Latin America

The economic forecasts for the coming year are stable and slightly positive. On a political level, the continent is facing a change of direction due to several elections. In addition, geopolitics is likely to exert an even stronger influence.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

The economic outlook for Latin America is stable, albeit at a low level. After a weak second half of 2025, growth is expected to pick up again in the first half of 2026, but will remain below potential. The region as a whole is expected to grow by 1.7% next year (2025: 2.2%). However, no country is expected to slip into recession.

Argentina is a positive outlier. Latin America’s third-largest economy is performing best in the forecasts for 2026. Investment bank JP Morgan expects growth of 3.4%. Economists attribute this to the expected recovery following the clear election victory of President Javier Milei’s party in the midterm elections.

The forecasts for Colombia (2.8%), Chile (2.3%), and Peru (3.1%) also look better than average. Colombia’s economy continues to benefit from politically stimulated consumption. In the mining country of Peru, high prices for ores and raw materials are providing additional momentum. Chile could benefit from stable investment under a likely center-right government in 2026.

For Brazil and Mexico, which rank first and second among Latin America’s largest economies, the expected growth figures are weaker. Despite expansionary fiscal policy, Brazil is growing well below its potential. The Mexican economy is stagnating this year. Due to ongoing uncertainties about the USMCA free trade zone, growth is likely to remain limited.

Politically, 2026 will be a key year for the region

Elections are coming up in almost all major economies, with the exceptions of Mexico and Argentina. In March, the new government will take office in Chile. Elections will be held in Peru in April and May, in Colombia voters will go to the polls for the first time at the end of June, and in Brazil at the beginning of October. The election results are considered indicative of the region’s economic policy course.

It is not certain whether the recent trend toward the center-right, as observed in Argentina, Ecuador, and Bolivia, will continue. In Brazil and Colombia, left-wing candidates are currently in the lead.

There is a general tendency for incumbents or candidates close to them to be voted out of office. People are dissatisfied with the politicians currently in power. This is shaping election campaigns through greater polarization. It also increases the likelihood of political change or the rise of political outsiders.

The new US strategy under US President Donald Trump is having a strong influence. In his second term, the US is pursuing a much more active course toward Latin America. It is difficult to predict how this course will play out in the medium term. For example, Argentina’s President Milei is actively supported by the White House. Under Trump, however, relations with Brazil and Colombia have deteriorated significantly at times. Trump is literally at war with Venezuela.

China’s reaction to the North American offensive in Latin America is also difficult to assess. So far, China has been publicly cautious in its criticism of Trump’s course in the region. In the meantime, however, Trump is gaining support in several Latin American countries – especially in the growing political spectrum to the right of center.

The six most important economies in Latin America in detail:

Brazil

In Brazil, the general elections scheduled for October 2026 are already dominating everyday political life. They are creating considerable political and economic uncertainty, as it is completely unclear who will govern the country from the beginning of 2027.

The government will try to increase spending to enable the election victory of President Luiz Inácio Lula da Silva, who is expected to run again. However, this fiscal stimulus will be slowed down by high interest rates. On the positive side, inflation continues to fall. Pressure for structural reforms is increasing, but this will not be an issue in the election campaign.

Mexico

The economy is being weighed down by the revision of the USMCA agreement, which is scheduled for July 2026. The government and the central bank are pursuing restrictive fiscal and monetary policies. This is preventing rating agencies from raising the country’s risk rating.

Positive momentum is coming from US demand for high-tech goods and relatively robust consumption. Record levels of foreign investment are flowing into Mexico again this year. Despite uncertainty about how Trump will negotiate with Mexico, US companies are continuing to expand their operations in the country.

Argentina

Following Milei’s clear victory in the midterm elections, important tax and labor market reforms have become more likely politically. This is especially true given that the US intends to continue supporting the government. The government continues to strictly control public spending. JP Morgan expects annual inflation of 17 percent by the end of next year.

The continuity of the government’s course will depend on whether the purchasing power of the population continues to increase beyond inflation gains. Argentina urgently needs jobs in the private sector to combat high unemployment and get the economy back on track.

Chile

The presidential election (José Antonio Kast versus Jeannette Jara) will determine the country’s future economic policy course in an environment of low growth. Growth of 2.3% is expected for 2026, which is far too little for Chile. In addition, the issue of lack of security dominates public debate. The business community expects the next government to create a business-friendly environment.

Colombia

The 2026 elections – Congress will be elected in March, the president in May/June – are taking place in a climate of uncertainty, violence, and tense relations with the US. The government has continuously increased public spending, with the result that Colombia now has the highest budget deficit in Latin America after Brazil. Private investors are holding back. The security situation in the country has deteriorated.

Peru

Despite chronic government instability – seven presidents in eight years – the macroeconomy remains robust: growth is at 3%, inflation is low, and prices for copper, gold, and silver are high. The 2026 elections theoretically offer an opportunity for political stabilization. However, the likelihood of this is low. The party system remains fragmented, with no clear favorite emerging.

Rio de Janeiro — © Unsplash/Agustin Diaz Gargiulo

Trump brought Latin America a turnaround in US foreign policy

The US is attempting to reassert its influence in the region in order to counter China’s massive engagement. The impact this will have on European companies remains to be seen.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

A year ago, Donald Trump was elected president of the US. Since then, after decades of absence, Latin America is back on Washington’s political agenda. Trump’s attitude toward Latin America is sometimes unexpectedly aggressive, then supportive again. In just a few months, for example, he has changed his stance toward individual governments, such as Venezuela and Brazil, several times.

Washington’s actions vary for each Latin American country. For some governments, such as those in Venezuela and Colombia, the increasingly hostile US stance poses an existential threat. Other presidents, such as Javier Milei in Argentina, receive massive financial and political support from the US government. Brazil and Mexico have so far responded skillfully to Trump’s provocations. However, governments such as Ecuador’s are also trying to win US support and use it for domestic political purposes.

The US government views Latin America as a sphere of influence for the US from the perspective of the Monroe Doctrine. With the Monroe Doctrine, the US declared around 200 years ago that it would control Latin America and would not tolerate any foreign powers there. This doctrine was used to justify political and military intervention in Latin American countries during the Cold War.

Trump is now taking a similar approach: he is sending naval units to patrol the Caribbean off the coast of Venezuela and shoot down suspected drug boats. He is ensuring that Chinese suppliers have to give up their positions in Panama’s ports. He is using a special fund from the Treasury Department to buy up Argentine pesos in order to stabilize the exchange rate.

This represents an abrupt change of course from the widespread neglect of Latin America by US administrations in recent decades. Especially since the failure of negotiations on a Free Trade Area of the Americas (FTAA) in 2005 due to resistance from the then predominantly left-wing governments of South America ( ), the US has largely stayed out of the region, especially politically.

China took advantage of the US absence to gain a foothold in Latin America. It is now the most important trading partner and investor in the region and has growing political influence.

Trump’s new course toward Latin America can be explained in large part by his attempt to curb China’s influence in the region. For example, the US Treasury Secretary called on Argentina to cap Chinese credit assistance in return for support measures.

Nevertheless, Trump’s tariff policy has not had a major impact on growth in Latin America so far: the region’s six most important economies are growing this year and, according to forecasts for 2026, will grow by 2 to 3 percent.

One exception is Mexico, where growth has shrunk to 0.5 percent this year. Brazil, which has been hit by the world’s highest US tariffs, has been able to divert a large part of its exports to the US to other regions of the world. This applies above all to coffee and beef.

Nevertheless, Latin America’s two most important economies are benefiting from an unexpected surge in investment by foreign companies. Brazil and Mexico rank second and fifth on the OECD list of countries that received the most foreign investment worldwide in the first half of 2025 – ahead of China and India.

It appears that corporations with multiple locations in Latin America now want to redesign their value chains from Mexico to Brazil. In addition, trade between Latin America and Mexico has increased.

However, it remains to be seen how the new US offensive in Latin America will affect European interests. Although the prospects for concluding the EU-Mercosur agreement by the end of the year appear to be good, it is unclear how much pressure the US will exert on South American member states or how much it will increase its offers to them in order to prevent such a free trade agreement from being concluded.

The new interest on the part of the US also means a changed competitive situation: until now, European companies have mainly felt competition from Chinese companies on Latin American markets, in addition to US corporations.

If US companies now re-emerge in Latin America with the backing of their government, they will automatically become stronger competitors. If Washington strategically supports certain industries (energy, raw materials), this will lead to fierce competition with Chinese companies. European corporations will then be under pressure from two sides.

The US presence should not be underestimated. Despite its two decades of political absence, the US remains a significant investor and trading partner in the region. In terms of foreign direct investment, US corporations are roughly on a par with European companies in Latin America.

However, the volume of trade with the US is significantly higher, mainly due to trade with Mexico. Total US trade with Latin America amounted to around US$365 billion in 2024. By contrast, the volume of trade between Europe and Latin America was only about half that, at around €180 billion.

american_eagle — © Pixabay/bryanhanson1956

EU and Latin America would like to get serious about free trade thanks to Trump

Brussels has initiated the ratification process for the trade agreements with Mercosur and Mexico. The chances are good that this will be completed before the end of this year.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

On December 6, 2024, negotiations on the agreement between Mercosur and the EU were concluded. The EU Commission has now set itself the ambitious goal of having the agreement ratified by the end of the year.

To this end, it forwarded the texts of the agreements with Brazil, Argentina, Uruguay, and Paraguay to the governments of the EU member states and the European Parliament.

To ensure that the necessary majority of votes is achieved, the Commission has separated the trade section from the political framework: as a pure trade agreement, it can be adopted by a qualified majority of the member states. This requires the approval of at least 15 of the 27 member states, which together represent at least 65 percent of the EU population. The complete agreement would also require ratification by the parliaments of the member states, which seems highly unlikely.

After a quarter of a century of negotiations, Brussels hopes to finally conclude the agreement, which could create the world’s largest free trade area with more than 715 million people.

The Trump administration’s erratic tariff policy has significantly accelerated the agreement process. This is because both regions are severely affected by the US tariff increases.

Most recently, the EU also made significant concessions to opponents and critics of the agreement. The opponents include France and Poland in particular, but Italy, Austria, and the Netherlands have also repeatedly stated that they are against an agreement with Mercosur.

Farmers in these countries in particular are opposed to an agreement with South American agricultural exporters because they fear for their protected markets. Industry, banks, and service providers in Europe, on the other hand, are largely in favor of the agreement throughout the EU.

However, the EU has now made it clear once again that it will continue to allow only small quantities of Latin American agricultural imports in the future. For example, only 99,000 tons of beef may be imported into the EU annually at a reduced tariff rate of 7.5 percent. This corresponds to 1.5 percent of European consumption. Any quantities exceeding this will continue to be subject to a significantly higher import duty. The same applies to poultry.

In addition, the Commission has promised to analyze every six months whether the agreement is causing market distortions for agricultural goods, such as a drop in prices or an increase in imports of more than 10 percent. Should this happen, there is a safeguard mechanism in place that provides, among other things, for the reintroduction of quotas. In addition, the EU would like to create a fund of €6.3 billion to support farmers who come under pressure as a result of market distortions.

It is not yet certain whether these concessions will be enough to convince opponents. However, Poland and France have indicated that they will no longer oppose the agreement. Italy and Austria still would like to review it.

At the same time, the EU has also presented the ratification agreement for the current agreement with Mexico. This agreement has been negotiated to deepen and modernize the existing agreement.

The geostrategic signal effect of a rules-based agreement for a free trade zone between two economic communities is significant: Brussels would like to show that it is once again in a position to conclude trade agreements. It has not been able to do so for more than six years.

The potential for trade and investment in both regions is also considerable: the EU Commission estimates that the agreement could increase annual EU exports to South America by up to 39 percent (49 billion euros), supporting more than 440,000 jobs across Europe. Particularly great opportunities are seen for the automotive industry, mechanical engineering, and the chemical and pharmaceutical sectors.

The Latin American partner countries are hoping above all for direct investment and loans from Europe in order to become part of the industrial value chains between Europe and Latin America. Mercosur and Mexico have a number of important raw materials, sustainable and conventional energy sources, and human capital to offer.

It is now important that the agreement is also accepted by the Latin American parliaments. In the region itself, reactions to the news from Brussels have been muted so far.

However, Brazil, which dominates Mercosur, has a particular interest in concluding the agreement: Trump has just imposed record tariffs of 50 percent on Brazil. Brazilian industry and agriculture are urgently seeking new foreign markets.

European Union — © Pixabay/Dusan_Cvetanovic

Latin America concerned about Trump’s political interference

It is still unclear where the US customs policy toward the region will ultimately lead. The future of the EU’s free trade agreements with Latin America also remains open.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

Until recently, many governments in Latin America hoped that they would suffer less from US tariff increases than other regions around the world.

On the one hand, the US has trade surpluses with South America’s five most important economies. The exception is Mexico, with which the US has a large deficit. However, the region’s second-largest economy is linked to the US and Canada through a free trade agreement. The USMCA – the former NAFTA agreement – was renegotiated during Trump’s first term and adopted in 2018.

In fact, the tariff increases on exports from Latin America to the US were less severe than feared. For many countries, the 10 percent import duty that has been in place since April 1 continues to apply.

This affects most Central American countries, which are heavily dependent on the US. However, commodity exporters such as Peru and Chile also benefit from the fact that copper exports (ore, cathodes) to the US remain exempt from tariffs, which was only announced retrospectively.

The situation in Brazil and Mexico, on the other hand, remains completely open. This is significant for the double continent: Mexico’s economic power has surpassed Canada’s for the first time this year, making it the third-largest economy in the Americas after the US and Brazil.

Mexico has provisionally avoided the 30 percent tariff announced for August 1, 2025. The US has granted a deadline until the end of October to negotiate a more far-reaching agreement. Since March 4, 2025, the US government has imposed 25 percent tariffs on Mexican imports that are not covered by the USMCA agreement. This affects about half of Mexican exports to the US. Products that comply with USMCA rules (such as passenger cars) have so far been exempt from the tariffs.

Mexican President Claudia Sheinbaum has so far succeeded in pursuing a de-escalation strategy towards Trump. She sent 10,000 soldiers to monitor the border and stepped up measures against fentanyl smuggling on Mexico’s northern border. However, it remains to be seen how Trump will decide in Mexico’s case. The country has close ties to the US: 80 percent of its exports go north. Many US companies manufacture in Mexico. For example, Trump punished Canada, also a signatory to the USMCA agreement, with a 35 percent tariff, primarily because of its planned recognition of a Palestinian state.

In the case of Brazil, Trump has also linked his threat of record tariffs to political demands: The country must immediately drop the proceedings against former President Jair Bolsonaro for his possible involvement in a coup d’état. The Brazilian government refused to comply with this demand. As a result, the US imposed a record 50 percent tariff on Brazilian imports. At the same time, however, the government exempted almost half of Brazilian imports from the increase. Almost all of Brazil’s most important export items are now only taxed at 10 percent, including Embraer aircraft, oil, orange juice, and steel products. Other important export products such as coffee, beef, ethanol, and cellulose are now subject to 50 percent tariffs.

According to forecasts, the immediate damage to the region will be less than expected. The UN Economic Commission for Latin America and the Caribbean (CEPAL) expects the region’s economies to grow by 2.2 percent, slightly higher than forecast in April. However, the IMF lowered its growth forecast for Latin America and the Caribbean for this year from 2.4 percent to 2.0 percent. The fund warns of “downside risks from trade uncertainty, tariffs, volatility in supply chains and commodity prices.” According to Moody’s, a drastic increase in US tariffs (to around 20 percent, for example) could threaten a recession in Latin America, from which the region would not recover until 2028. An escalation of political disputes between Washington and Brazil, Mexico, or Colombia could occur at any moment.

It is difficult to assess how US tariff policy will affect the competitiveness of Latin American exports to third markets: Asian countries have opened their markets to US products. Something similar could happen in China’s negotiations with the US. Latin American products could then find it more difficult to compete in these markets. The same applies to investments that are now being diverted to the US in light of the new conditions there – possibly at the expense of direct investment in Latin America.

It is also unclear how US tariff policy will affect the EU’s bilateral free trade agreements with Latin America. This concerns both existing and newly negotiated agreements with Chile and Mexico, as well as the agreement between the EU and Mercosur, which is to be concluded this year. Although the EU industry and companies in Latin America are likely to show greater interest in facilitating mutual market access, the EU has now made commitments to the US on energy imports and investments that the Latin American countries hope will be mirrored.

Furthermore, the principle of most-favored-nation treatment continues to apply in external relations between the EU and its partner countries in Latin America: if the EU unilaterally grants the US better customs conditions (e.g., lower tariffs on cars, agricultural products, machinery) without a free trade agreement, then the WTO’s most-favored-nation obligation applies. In this case, Mercosur countries or other partner countries in Latin America could also demand the same tariff concessions.

On the other hand, Latin American industrial and consumer goods companies fear that global corporations could try to divert their exports blocked in the US to other regions – growing Latin America would be an interesting market.

Containerskulptur Le Havre — © Pixabay/Valdas Miskinis

Energy from the land – Brazil’s strength in times of fluctuating oil prices

The country produces almost a third of its energy in agriculture. This makes it an attractive location for sustainable value creation.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

In view of the wars in the Middle East, there has been growing concern in Latin America in recent days that the price of oil could once again reach historic highs. This would be bad for the global economy, as rising oil prices would fuel inflation. Central banks would be forced to raise interest rates. The result would be a stagnation of the global economy with high inflation.

In Brazil, these scenarios are viewed less dramatically than in Europe or Asia, which are dependent on oil imports. One reason for this is that Brazil itself is a major oil producer. Brazil ranks 10th among the world’s oil exporters.

On the other hand, Brazil’s own agriculture covers its energy demand. 30 percent of the energy consumed in Brazil in the form of electricity or fuel comes from farms. This is rare worldwide. Only Thailand and the Scandinavian countries have similarly high proportions of agricultural energy in their energy systems. In Germany, only around eight percent of energy comes from biogas plants. In South America, Uruguay is similarly advanced.

A corresponding study has just been published by the Observatório de Bioeconomia of the Fundação Getulio Vargas (FGV) in São Paulo. There, ethanol and biodiesel from sugar cane, maize and soy are blended as fuels or used on their own. In Brazil, a blending of 20 percent ethanol with petrol (E20) and 15 percent biodiesel with diesel (B15) will be mandatory nationwide from August.

The sugar companies also burn biomass and feed it into the electricity grid. Today, the factories could generate as much electricity as the whole of Argentina. In turn, organic waste is processed into gas in biogas plants.

The proportion of energy from the field is set to increase. However, the second generation of ethanol production is still in its infancy. Enzymes are used to use the fibers of sugar cane to produce ethanol. Ethanol production from maize is also growing rapidly. The first pilot projects for the production of SAF (Sustainable Aviation Fuel), i.e. sustainably produced fuel for aircraft, have been launched. The most important goal for agriculture will be to replace the still high diesel consumption with sustainably produced fuels.

More and more farms are feeding their electricity directly into the grid or becoming energy self-sufficient with the help of solar panels. As a result, they will also play a role in the development of green hydrogen. The FGV study shows that around 60 percent of all sustainably generated energy in Brazil comes from agriculture.

However, Brazil’s sustainable energy autonomy has hardly been perceived as a locational advantage in Europe to date. This is astonishing, because in view of current geopolitical developments, energy autonomy is becoming an increasingly important location factor.

Europe is currently experiencing once again how dependent it is on foreign energy supplies – be it Russian natural gas or oil from the Middle East. Since the “oil crises” half a century ago, Europe has not succeeded in reducing its dependence on energy imports.

Brazil’s pioneering role in energy production goes largely unnoticed in Europe. With the argument of a lack of nature conservation, for example in the Amazon rainforest, Brazil’s progress in energy production from agricultural raw materials is often viewed one-sidedly – and the potential overlooked. China, for example, sees things differently and is very interested in adapting parts of the Brazilian agricultural energy system for itself.

Is South America’s infrastructure finally coming together?

The port of Chancay in Peru could become a key driver for the development of cross-border infrastructure. Chinese investment is playing an important role in this.

by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung

When trucks travel westward from Brazil’s major cities to the Pacific cities of Peru or Chile, the journey takes a long time. There are only two or three overland routes via highways, each about 3,500 kilometers long. One southern route goes through Argentina to Mendoza and over the Andes to the Chilean port of Valparaíso. Further north, a road connection runs through Bolivia to the Peruvian ports. The pure driving time is, at best, 45 to 50 hours.

Along the way, vehicles must cross mountain passes over 4,000 meters high or take routes through the Amazon region, which are impassable for several months each year during the rainy season. If the border crossing in the Andes just past Mendoza is snowed in, the 1,300 trucks that cross the pass daily may have to wait several days until the snow is cleared. Accidents can also significantly increase travel time on the Bolivian route. The alternative, longer route that directly connects Brazil and Peru is rarely used. Additionally, some border crossings are closed at night.

The Andes and the Amazon region still divide the continent into two halves and pose nearly insurmountable obstacles. But that could now change for the first time. Brazil is currently working intensively on five “bi-oceanic corridors” between countries. These are large-scale road, river, and rail projects in various stages of planning and implementation.

With the initiative “Rotas da Integração Sul-Americana,” launched at the end of 2023, Brazil aims to connect its western agricultural region to the Pacific.

The most promising project currently is the “Amazonas Route.” It plans to use existing river routes to Peru and Colombia. In those countries, soybeans would then be transported by truck to Pacific ports. Two other routes aim to connect the agricultural and industrial regions of southern and southeastern Brazil to the ports of Chile and Peru.

These plans have existed for a long time. However, endless hurdles, high financing costs, and differing regulations among the involved Brazilian states and national governments have so far prevented the implementation of these ambitious projects.

What’s new are the sharply increased trade flows between South America and the Far East. Today, South America trades significantly more with Asia than with Europe or the USA. Chinese companies and South American farmers would therefore like to speed up and simplify the transport of agricultural goods between South America and Asia.

Currently, a container ship from the Brazilian port of Santos takes at best 35 days to reach China. The route goes around the Cape of Good Hope past Africa. The route through the Panama Canal is more expensive.

A new boost could now come from the recently opened port of Chancay, north of the Peruvian capital Lima. The Chinese investors and operators of the port aim to connect it with all countries via rail, river, and road—across the Andes and through the rainforest.

The more goods the operator Cosco ships through the port, the faster the $3.5 billion investment pays off. After all, the competition isn’t sleeping. Other Pacific ports in Chile (San Antonio, Valparaíso), Colombia (Buenaventura), Peru (Callao), and Ecuador (Guayaquil) are also investing to meet the demand for Asia-bound transport.

But behind Chancay stands China, a financially strong investor. The port and other Chinese infrastructure projects in Pacific countries are financed from Beijing through the Belt and Road Initiative (BRI). Colombia has now also joined China’s Silk Road initiative. Among the major Latin American countries, only Brazil and Mexico are not yet part of the Chinese infrastructure initiative.

However, this hasn’t stopped Brazilian President Luiz Inácio Lula da Silva from recently discussing the financing of a railway through the Amazon to Brazil’s agricultural regions during a visit to Beijing.

For South America’s economy, better integration would bring a significant productivity boost. The reason: In 2022, the share of intra-regional trade in Latin America and the Caribbean was only about 15 percent. By comparison, intra-regional trade shares in Europe and Asia are significantly higher, at 69 and 56 percent, respectively.

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