Globalization is turning more geopolitical. Efficiency still matters, but security and alignment increasingly drive decisions. In the late 20th century, production chased lower costs, supply chains went global, and capital clustered in manufacturing hubs. Those shifts turbocharged integration: from 1970 to 2009, trade rose from 20% to nearly 60% of GDP1. Trade remains high, but the underlying structure is shifting.
We call this phase fragmentation—not a retreat from trade, but a reorganization around regional blocs. To cut geopolitical risk, governments and companies are reshoring and nearshoring critical industries, rewiring supply chains by shortening, diversifying, and pivoting to ideologically aligned partners.
Against this backdrop, recent U.S. moves—from Venezuela policy to sharper rhetoric on Colombia, Mexico, and Cuba—signal a push to reassert Western Hemisphere influence and secure energy and trade corridors. The stakes are underscored by recent military escalations in the Middle East, where U.S. and Iranian actions have disrupted energy flows and reshaped risk calculations globally. This geopolitical dynamic aligns with the J.P. Morgan’s $1.5 trillion Security and Resiliency Initiative, which includes up to $10 billion in direct investments2 in strategic sectors such as infrastructure, advanced manufacturing, digital systems, and energy networks. For Latin America, proximity to the U.S. and wealth of critical materials and other natural resources position the region squarely in the reshoring and nearshoring flow.
In practice, this shift is playing out across three fronts: regional alignment through nearshoring and reshoring, national defense and cybersecurity as industrial strategy, and energy security powering the digital economy.
It is not about less trade; it’s rerouted trade, with production moving closer to markets and allies. Over the past year, the U.S. has used targeted tariffs and other tools to steer investment onshore and toward trusted partners. The result is a shift in trade exposure and renewed focus on where supply chains sit.
The scale of the rebalancing is clearest in the U.S.–China relationship. In 2017, China accounted for 22% of U.S. imports; today that share has declined to roughly 12%3. These changes reflect not the collapse of trade, but a deliberate diversification of exposure away from concentrated supply chain risk.
Tariffs have been a key lever in accelerating this realignment. As of year-end 2025, the average effective tariff rate among USMCA member countries stood at just 3.8%, compared to 24.1% for countries like China, India, and Indonesia4. Even after the recent Section 122 tariffs take effect, Mexico and other Latin American trading partners remain structurally favored relative to other regions, reinforcing the incentive to produce within the bloc.
Mexico, in particular, stands out as a primary beneficiary. In 2025, bilateral goods trade between the U.S. and Mexico reached approximately $873 billion, with imports up nearly 6% year over year5. The shift is especially visible in advanced technology products, where U.S. imports from Mexico surged 46% in 2025 while ATP (Advanced Technology Products) imports from China fell by nearly half6. The country’s geographic proximity established manufacturing base, and deep logistical integration with the U.S. make it a natural beneficiary of nearshoring dynamics.
Costa Rica has also emerged as a notable beneficiary, particularly in life sciences and electronics. In 2025, the country exported $3.8 billion in life science products and $2.4 billion in electronics to the U.S., with electronics imports nearly doubling year over year (up 88%)7. The country hosts major operations from companies like Boston Scientific, Abbott, Edwards Lifesciences, and Baxter in medical devices, alongside semiconductor and tech presence from Intel. Its skilled workforce, competitive investment incentives, and established export-processing zones illustrate how nearshoring extends well beyond heavy industry into specialized, higher-value segments of the supply chain.
As supply chains concentrate within regional blocs, national security priorities increasingly shape industrial strategy. Defense and cybersecurity are no longer viewed solely through a military lens; they influence where advanced technologies are produced and how digital systems are protected.
U.S. defense spending is approaching $1 trillion in 20268. At the same time, Canada and the European members of NATO have raised their defense budgets from 1.7% of their combined GDP in 2020 to an estimated 2.3% in 20259. Defense Expenditures across major economies are at record levels, suggesting that current budgets are anchored in long term strategic planning rather than temporary responses.
Semiconductor fabrication, advanced electronics and secure digital infrastructure are increasingly viewed as components of national resilience. The U.S. government’s 10% equity stake in Intel10 underscores the emphasis placed on maintaining domestic chip production capacity. Investment in semiconductor facilities, battery manufacturing and grid equipment has accelerated within aligned jurisdictions, reflecting efforts to reduce reliance on extended supply chains for critical technologies.
Cybersecurity spending follows a similar trajectory. As financial systems, energy networks and logistics platforms become more digitized, protecting infrastructure from disruption becomes a macroeconomic priority. Digital resilience and industrial policy are moving in parallel, reinforcing the concentration of critical capabilities within trusted blocs.
Latin America is not only a key supplier of critical inputs — from rare earths and metals used in defense systems — but the region’s rapidly expanding digital adoption and infrastructure are also making cybersecurity an increasingly strategic priority.
The rapid expansion of artificial intelligence, data centers and electrification is reshaping global energy systems. As hyperscaler data centers expand and advanced manufacturing becomes more electrified, electricity demand is accelerating after years of relative stability.
In the U.S., projected incremental electricity demand through the end of the decade is 600–700 TWh—roughly the combined annual electricity use of California and Texas11. That demand is hitting a grid where nearly 70% of transmission lines are 25+ years old12, underscoring the scale of upgrades required. Meeting it will take not only new generation but also major transmission and storage modernization. Capital is already shifting, global clean energy investment has nearly doubled over the past decade—from about $1.2 trillion in 2015 to more than $2 trillion in 2025—and now exceeds fossil fuel investment at roughly $1.1–$1.3 trillion per year13.
For Latin America, the linkage is primarily resource based. South America accounts for roughly 40% of global copper production14 and holds substantial lithium reserves15, both critical for transmission networks, battery storage and electrification systems. The region is also a major supplier of iron ore and agricultural commodities. Brazil has become an increasingly important offshore oil producer, Argentina has expanded shale production in the Vaca Muerta basin, and Venezuela holds the world’s largest oil reserves, though export capacity remains constrained by policy and investment dynamics. As electricity demand rises alongside AI adoption and digital infrastructure buildout, these inputs remain integral to the resilience of global energy and industrial systems.
Trade flows, industrial investment and defense priorities reflect a system that is concentrating critical capacity within trusted corridors rather than dispersing it globally.
The three dynamics outlined in this note are not independent trends; they are mutually reinforcing. Nearshoring redirects production toward allied economies, defense priorities determine which technologies are kept close, and energy demand from AI and electrification raises the strategic value of the resources those economies supply. Latin America, and Mexico in particular, sits at the intersection of all three. For investors, the implication is that exposure to supply chain resilience, critical infrastructure, and resource security is no longer a thematic bet — it is increasingly a core consideration as the architecture of global trade continues to shift.
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