In the second series of his SJA exclusive, Latin America Unveiled, Peter Bäckman, CEO of TEDCAP discusses the economic impacts that current geopolitics may have on the Latin American region.

Trade in the Americas

The geopolitical landscape of Latin America is witnessing significant shifts as two major forces unfold: Donald Trump’s proposed tariffs on Mexico and other trading partners, and the BRICS nations’ push to replace the US dollar as the dominant global currency.

These developments pose both challenges and opportunities for Latin America, given its economic interdependence with the US and its increasing ties to emerging economies within BRICS.

President Trump has revived his protectionist rhetoric, proposing a 25% tariff on Mexican imports, citing concerns about immigration and drug trafficking.

This tariff could have profound repercussions for Mexico, which recently overtook China as the US’s largest trading partner.

Key sectors such as automotive production, which accounts for 5% of Mexico’s GDP and exports 75% of its vehicles to the US, could face severe disruptions.

Any deviation from the United States-Mexico-Canada Agreement (USMCA), under which such tariffs would violate free trade provisions, could lead to contentious renegotiations in 2026 or sooner.

Other Latin American nations with significant trade relations with the US are also on edge.

Countries like Brazil and Colombia rely on American markets for billions in exports.

The broader implications of a universal tariff policy, which Trump has floated at rates of up to 20%, could cost US consumers up to $2,600 annually due to higher import prices, according to the Peterson Institute for International Economics.

BRICS currency proposals: A shift from the dollar?

The BRICS bloc (Brazil, Russia, India, China and South Africa) has accelerated discussions about creating a currency to replace the dollar in international trade.

At their recent summit, Russian President Vladimir Putin and other leaders criticized the US for “weaponizing” the dollar through sanctions.

This sentiment resonates strongly with developing nations, including Latin American members like Brazil, which see an opportunity to reduce dependency on the dollar-dominated financial system.

For Latin America, deeper integration with BRICS could offer diversification in trade and finance.

Brazil, a founding BRICS member, is already exploring stronger economic ties with China, now its largest trading partner.

However, aligning with BRICS also presents risks, particularly for countries reliant on US trade and investment. Balancing relations with both blocs will require strategic diplomacy.

Economic and political implications

The confluence of Trump’s tariff threats and the BRICS currency initiative underscores a shifting global order.

For Latin America, the stakes are high. Economic realignments could see Mexican and Brazilian economies pivot towards deeper intra-regional cooperation or increased reliance on Asia to mitigate potential fallout from US protectionist policies.

Trade policy challenges, such as disruptions to supply chains in sectors like automotive and agriculture, could slow growth across the region.

Mexico, for instance, risks losing its edge in integrated supply chains with the US and Canada. Geopolitical maneuvering is also at play, as BRICS challenges the US-led financial system.

Latin American countries must weigh the benefits of joining this movement against the potential alienation of Washington.

Strategic path forward for Latin America

Latin American leaders face critical decisions.

Mexico’s President Claudia Sheinbaum has advocated for diplomacy, urging collaboration over conflict in addressing cross-border issues like migration and trade.

This approach could help preserve the region’s robust economic ties with the US while also engaging with BRICS initiatives to enhance financial autonomy.

Additionally, Latin American nations can leverage their unique position between the US and BRICS to become hubs of innovation and sustainable growth.

Investments in infrastructure, renewable energy and digital transformation could enhance competitiveness and reduce reliance on external forces.

You can connect with Peter on LinkedIn here.

Read the previous installments of Latin America Unveiled here and keep an eye out for the next piece, coming soon!