THE GLOBAL ECONOMY IS CHANGING, AND SO IS LATIN AMERICA´S / GEOPOLITICAL FUTURES

The Global Economy Is Changing, and so Is Latin America’s

A lot of it comes down to the protection of the dollar. 

By: Allison Fedirka

Of all the regions affected by the global economic restructuring currently underway, Eurasia has commanded the most attention. 

And rightly so – the enormous landmass bridges export-dependent China with energy suppliers and access routes to European markets. 

It’s also home to the emerging markets of Central and South Asia where major economies hope to grow influence. 

But no region will be spared from the changes, the first signs of which in Latin America are starting to take shape. 

In addition to near-shoring efforts in the Americas – the clearest manifestation of changes in the Western Hemisphere so far – there have been a series of developments that suggest a deeper shift is happening in other areas.

One of those areas is trade blocs. 

The U.S.-Canada-Mexico Agreement and Mercosur, the hemisphere’s two largest groupings, face an uncertain future. 

The USMCA is slated for renegotiation in the coming months, and those involved have until July 1, 2026, to reach a new agreement or, by default, they will trigger the trade agreement’s sunset clause. 

This puts at risk nearly $2 trillion worth of trade across North America, $623 billion of foreign direct investment in the United States and $569 billion of U.S. FDI in Canada and Mexico. 

Given the amount of money at stake and the sheer integration among the pact’s members, it’s hard to imagine walking away from the agreement.

Even so, some have already acknowledged the need for backup plans. 

U.S. President-elect Donald Trump has already linked trade negotiations with border security and has threatened a 25 percent tariff on all goods from Canada and Mexico if they don’t implement stronger measures to stem the flow of drugs and migrants. 

Mexican President Claudia Sheinbaum said her government has a "plan B" for any U.S. tariffs on oil exports and remains open to enacting retaliatory measures as needed. 

Meanwhile, many provincial premiers in Canada have called for the federal government to consider entering into a bilateral agreement with the U.S. rather than maintaining the current trilateral structure. 

Though some of this can be attributed to negotiation tactics, it also hints at the possibility of a major revamping in how North America conducts trade.

Farther south, the presidents of Mercosur member states convene on Dec. 5 in Montevideo to discuss the bloc’s future. 

The top two agenda items – a pending free trade agreement with the EU and liberalizing rules to allow for independent trade deals – exemplify the bloc’s weakness and decline. 

Finalizing the EU-Mercosur trade deal has been 24 years in the making, and yet hurdles remain. 

The inability to strike a deal with other economic blocs or countries calls into question the very utility of Mercosur. 

Meanwhile, Argentine President Javier Milei is leading the call to allow for independent trade agreements for Mercosur members. 

Uruguayan President-elect Yamandu Orsi and Brazil’s business community members support his view. 

The pressure for such a drastic change stems from the different needs of different member states, not to mention their respective governments’ search for solutions to economic problems. 

Essentially, the ability to negotiate FTAs outside the bloc would ultimately defeat the original purpose of having collective power in gaining trade agreements, which require unanimous approval.

Elsewhere, there are notable infrastructure projects under discussion that could affect the transit of various goods throughout the Americas. 

Maritime transport dominates international trade in the Western Hemisphere, with most Latin American countries being organized around major port cities and infrastructure that supports the conveyance of natural resources from the interior to the coast. 

Unsurprisingly, transit between the Atlantic and Pacific oceans plays a crucial role in regional trade dynamics.

Historically, the Panama Canal has been a centerpiece of interoceanic trade. 

However, an intense drought recently put the canal’s dominance into doubt and spurred the development of alternative routes. 

Panama is considering the construction of a dry canal parallel to the water canal as a backup mode of transit. 

Mexico is already in the process of building infrastructure along its own isthmus. Nicaragua recently announced the revival of an interoceanic canal, 12 years after the initial (unsuccessful) proposal. 

(The feasibility of this project is uncertain given the engineering demands and insufficient information on financing.) 

And Colombia has also started moving forward with a transoceanic train project that it says will complement Panama Canal traffic. 

The success of any one of these new projects would change the landscape of interoceanic trade.

Finally, there are indications that Latin America may be a target for tariffs under the incoming Trump administration, which has been vocal about its intention to use tariffs as part of its overall economic strategy. 

(GPF has previously noted that despite the rhetoric, the administration will be strategic and selective with its tariff policy.) 

Most recently, Trump representatives said the administration would put tariffs on all imports from BRICS countries, particularly Brazil, if they attempt to devise a single currency. 

This is a reminder of how eager Washington will be to engage in economic warfare to secure the value of the dollar.

Given the prominence of commodities in Latin American economies – commodities that are traded primarily in U.S. dollars – the future of the dollar and the suppression of other currencies in trade matters. 

The U.S. dollar still dominates markets and comes with a level of stability absent in other currencies. 

While the likelihood of abandoning it remains very low, several Latin American countries have dabbled in local currency trade and non-dollar currency swaps. 

The prospect of the U.S. economic incentives to secure the dollar puts many of the region’s economies in the potential crosshairs of anticipated U.S. trade wars.