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Latin America amidst a trade war: Are new opportunities on the horizon

  Key Takeaways:

  • Strategic growth opportunities: Latin America is poised to benefit from trade reshuffling, leveraging agricultural and infrastructure strengths.
  • Resource and nearshoring potential: The region's natural resources and competitive labor costs offer opportunities to capture market share from tariff-affected countries. 
  • Competitive edge and infrastructure: Proximity to the U.S. and strategic trade agreements enhance Latin America's competitiveness in global trade.
Trade news continues to dominate global conversations. Continued developments are one constant we are sure of, in the need to get comfortable with continued market volatility. Latin America has remained relatively insulated from these tariffs. Mexico is prioritising trade with countries it has free trade agreements with — such as the U.S. — while Argentina seeks its own agreement. Despite uncertainty, some regions could benefit from trade reshuffling. Brazil's agricultural sector might gain from trade diversion, and Mexico could leverage infrastructure and North American integration for long-term gains, though short-term volatility is expected.

Latin America, and Central America specifically, as relative winners or standing to lose the least

Announced tariffs as % of GDP, % of exports impacted

This chart shows the announced tariffs as a percentage of GDP, and the percentage of exports impacted for several economies.
Source: JPMorgan Private Bank, Trading Economics. Data as of April 8, 2025.

Subpar growth is now expected for some of Latin America's largest economies

Real GDP growth, %

This chart shows real GDP growth for Latin American countries for 2025 pre and post liberation day, and 2026 pre and post liberation day.
Source: JP Morgan Investment Bank. Data as of April 22, 2025.
Regional economies won't escape a global slowdown, with impacts varying based on exposure to the U.S. and China. Economic growth projections are cut, expecting all major regions to grow below trend in 2025 and 2026 due to tariffs and slower growth in developed markets. Short-term impacts include reduced export volumes, currency fluctuations and supply chain disruptions.

Harnessing natural resources and nearshoring opportunities

Short-term pain could lead to long-term gain if capitalised correctly. Countries facing high tariffs, like China, Vietnam and India, export around $700 billion to the U.S.1 If a 40% substitution effect occurs, there's a $280 billion opportunity, equivalent to the GDP of Costa Rica, the Dominican Republic and Panama. Latin America, with diverse exports and strategic location, is well-positioned to capture this market share.

Other economies could potentially take up market share left empty by the trade war

U.S. imports by country and category, %

This chart shows U.S. imports by country and category, as a percentage of US imports.
Source: JPMorgan, Trading Economics, Haver Analytics. Data as of April 8, 2025.
The U.S. may shift focus to natural resources, particularly critical minerals. From 2019-2022, the U.S. imported 72% of rare earth elements and 42% of natural graphite from China.1 South America could benefit, with Chile, Peru and Argentina holding significant reserves. Chile and Peru produce 40% of global copper, while Chile and Argentina supply 32% of lithium.2 Brazil, Argentina, Colombia, Peru and Chile could gain in U.S. soft-commodity imports like soybeans, coffee and fruits.

Latin America’s modest share in U.S. imports, especially compared to larger economies

U.S. imports by country and category, bps

This chart shows U.S. imports by country and category, as a portion of US imports (basis points).
Source: JPMorgan, Trading Economics, Haver Analytics. Data as of April 8, 2025.
Mexico and Central America are positioned to benefit from nearshoring, capturing U.S. manufacturing imports previously sourced from China and ASEAN countries. Competitive labor and freight costs bolster their value proposition. Manufacturing wages in Honduras, Guatemala and Nicaragua are significantly lower than in Beijing, and ocean freight rates from China to the U.S. have increased due to tariffs and port fees.

Competitive advantages in global trade

The region's advantages extend beyond cheap labor. Costa Rica exemplifies a skilled workforce, excelling in medical devices and semiconductors. Trade agreements like CAFTA-DR and USMCA provide preferential market access. Walmart's $700 million investment in Guatemala underscores its manufacturing potential, sourcing over $2 billion of goods directly from the country.

To capitalise on these opportunities, logistical challenges must be addressed. Countries like Brazil, Panama, Chile, Peru, Uruguay, Colombia, Costa Rica, Honduras and Mexico rank above the median in the World Bank's logistics performance index. While Japan, China and India have higher scores, Latin America's proximity to the U.S. is a key differentiator, offering shorter transit times and lower shipping costs.

Investments in Public-Private Partnership infrastructure projects have increased by over 15% in Latin America and the Caribbean, with ventures rising over 25% since 2021-2022. Further development in domestic infrastructure and interconnection across countries is needed to leverage each country's competitive advantages.

Navigating economic challenges and opportunities

The World Economic Forum’s Global Competitiveness Report shows several Latin American countries outperforming emerging market peers. Chile leads with a stable macroeconomic environment, competitive markets and a robust financial system. Despite trade tensions, Mexico has improved in areas like the labor market and ICT adoption.

Latin America's strong growth pre-Global Financial Crisis evidenced its exposure to commodities. While policy uncertainty and political radicalization led to a lost decade from 2010-2020, Trump's erratic trade policy could unite countries towards managing their U.S. relationship.

While short-term pain is expected, Latin America is positioned to capitalise on trade tensions between the U.S. and Asia. The region's low tariff risk and proximity to the U.S. provide advantages over Asian countries facing higher tariffs and longer transit times. Challenges remain, but increased infrastructure investments enhance competitiveness. As global trade patterns shift, Latin America stands to win—positioning itself as a key player in the evolving trade landscape.

1 Trading Economics. Data as of December 31, 2024.

2 U.S. Geological Survey. Data as of December 31, 2023.

3 International Energy Agency. Data as of December 31, 2021.

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Discover how transformations in global trade can open new growth possibilities for the region.
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2025 Mid-Year Outlook: Comfortably Uncomfortable

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