Economy & Markets
May 20, 2025
Latin America amidst a trade war: Are new opportunities on the horizon?
Trade news continues to dominate global conversations, with the latest development being the U.S. maintaining a baseline 10% tariff on imports while pausing reciprocal tariffs on over 50 countries for 90 days, except for China, which still faces a 145% tariff. President Trump announced a temporary pause on duties for devices like iPhones and memory chips, particularly from Chinese levies, yet market volatility persists as investors navigate the tariff back-and-forth.
The bold move sparked a flurry of reactions, with some countries stepping up with retaliatory measures, from Canada’s tariffs on passenger vehicles to China’s hefty 125% tariff on U.S. imports. Amidst this back and forth, Latin America has remained relatively insulated. On the one hand, it was the region less impacted by reciprocal tariffs when originally slated. Post-fact, and even with the 90-day pause in mind, countries are still pursuing negotiations with the U.S. Mexico, for instance, has even considered halting investments from China to prioritize trade with countries they have free trade agreements with, such as the U.S. Argentina, on the other hand, has been seeking a free trade agreement of its own with the U.S.
While uncertain, we believe there will be some increase in U.S. tariffs with varying degrees of impact on different economies and sectors. But amidst it all, the least impacted could become actual beneficiaries of trade reshuffling. The region’s agricultural sector, particularly in Brazil, could benefit from trade diversion as global trade patterns shift, while countries like Mexico could leverage infrastructure and deeper North American integration for long-term gains. The path, however, may be fraught with short-term volatility.
Latin America, and Central America specifically, as relative winners or standing to lose the least
Announced tariffs as % of GDP, % of exports impacted
Source: Source: JPMorgan Private Bank, Trading Economics. Data as of April 8, 2025.
Whether Latin America remains relatively safe from tariffs is yet to be seen, but regional economies will not escape a global slowdown this year, with impacts varying based on each country’s exposure to the U.S. and China. Our Investment Bank colleagues have consistently cut back economic growth projections in the region, expecting all major regions to grow below trend in 2025 and 2026 as tariffs and slower growth in developed markets take effect. The short-term economic impact is expected to manifest in reduced export volumes, currency fluctuations, and potential supply chain disruptions.
Latin America’s modest share in U.S. imports, especially compared to larger economies
U.S. imports by country and category, bps
Source: Source: JPMorgan, Trading Economics, Haver Analytics. Data as of April 8, 2025.
Harnessing natural resources and nearshoring opportunities
However, short-term pain could translate into longer-term gain if capitalized correctly. China, Vietnam, and India, for instance, which could face some of the largest tariffs, export around $700 billion of goods to the U.S. —manufacturing products representing around $550 billion, while mining and other commodities represent around $100 billion.1 If we assume a 40% country substitution effect goes into effect here, as suggested by our Chairman of Investment Strategy, Michael Cembalest, this would mean there's potentially a $280 billion opportunity up for grabs — equivalent to the combined GDP of Costa Rica, the Dominican Republic, and Panama. Latin American countries, with their diverse range of exports and strategic geographic location, are well-positioned to capture a portion of this market share.
Other economies could potentially take up market share left empty by the trade war
U.S. imports by country and category, %
Source: JPMorgan, Trading Economics, Haver Analytics. Data as of April 8, 2025.
Subpar growth is now expected for some of Latin America's largest economies
Real GDP growth, %
Source: JP Morgan Investment Bank. Data as of April 22, 2025.
Why? We believe the U.S. will shift its focus to natural resources, particularly critical minerals on which it heavily relies on China. From 2019 through 2022, the U.S. imported 72% of its rare earth elements and 42% of its natural graphite from China.2 For certain minerals, such as yttrium, bismuth, and antimony, the U.S. reliance on China is even more pronounced. Overall, of the 50 minerals identified as critical by the Department of Interior’s U.S. Geological Survey, the United States is 100% reliant on imports for 12 of them and 50% reliant for the next 29.2 This is where South America stands to benefit the most. Chile, Peru, and Argentina could leverage trade diversion, holding significant reserves of critical minerals. Chile and Peru produce 40% of the global copper supply, while Chile and Argentina supply 32% of the world’s lithium.3 Additionally, Brazil, Argentina, Colombia, Peru, and Chile could gain market share in U.S. soft-commodity imports, such as soybeans, coffee, and fruits. Latin America's opportunity truly lies in its vast wealth of natural resources, stepping in to fill gaps in a world moving towards a digital and climate transition, together with a focus on increasing food security.
On the other hand, Mexico and Central America are strategically positioned to benefit from nearshoring, capturing a growing share of U.S. manufacturing imports previously sourced from China and ASEAN countries. The region's value proposition is bolstered by competitive labor and freight costs. Manufacturing wages in Honduras, Guatemala, and Nicaragua range from $1.50 to $2.50 per hour,4 significantly lower than Beijing's average of about $4 per hour.5 Additionally, ocean freight rates from China to the U.S. have increased by nearly 13% due to tariffs and port fees,6 with shipping times of 20 to 40 days by sea. In contrast, goods from Mexico can be transported in just 1 to 2 days by truck or rail.
Competitive advantages in global trade
The region's competitive advantages go beyond cheap labor and costs. Costa Rica exemplifies the region's skilled workforce, having developed a strong reputation in the medical device sector with companies like Boston Scientific and Abbott, while also being a key player in the semiconductor industry. Its political stability and ample renewable energy resources make it a top exporter to the U.S. Trade agreements like the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) or USMCA provide preferential market access. Walmart's $700 million investment in Guatemala over five years underscores the country’s manufacturing potential, as the company sources over $2 billion of goods directly from Guatemala, benefiting the local economy and serving customers across Central America, the U.S., Mexico, and Canada.
The main question is how to capitalize on these opportunities. While logistical challenges exist, there is a solid base to build upon. Countries like Brazil, Panama, Chile, Peru, Uruguay, Colombia, Costa Rica, Honduras, and Mexico rank above the median of 141 countries per the World Bank's logistics performance index (LPI). The LPI captures key logistics performance aspects: customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness. While countries like Japan (3.90), China (3.70), and India (3.40) have higher LPI scores, reflecting more advanced logistics capabilities, Latin America's proximity to the U.S. is a key differentiator. The geographic distance to the U.S. can be a disadvantage for Asian countries, as it implies longer transit times, higher shipping costs, reduced responsiveness, and inventory management challenges, among others.
Latin America stands above the median regarding logistics
Logistics Performance Index
Source: JPMorgan, World Bank. Data as of December 31, 2023.
Looking through different metrics, logistics competence and quality, timeliness, and tracking and tracing stand out as some of the strongest measures for the biggest economies in the region. Beyond their current score, according to the Inter-American Development Bank, investments in Public-Private Partnership infrastructure projects have increased by more than 15% in Latin America and the Caribbean, with the number of ventures rising over 25% since 2021-2022. That said, what is needed is not only further development in domestic infrastructure but new avenues of interconnection across countries in the region to leverage each country’s key competitive advantages: Mexico’s border with the U.S., Central America's manufacturing potential, and natural resources from South America.
Navigating economic challenges and opportunities
Similarly, the World Economic Forum’s Global Competitiveness Report (2023), which ranks countries based on various aspects such as institutions, infrastructure, macroeconomic stability, health, education, and innovation capability, shows several Latin American countries outperforming other emerging markets peers. Chile, Mexico, Uruguay, Colombia, Costa Rica, Peru, Panama and Brazil all ranked above the median of the 141 countries analyzed, surpassing countries like India and Indonesia. Chile leads the region with a stable macroeconomic environment, competitive markets, and a robust financial system, making it an attractive option for businesses seeking alternatives due to U.S. tariffs. On the other hand, despite trade tensions, Mexico has improved in areas such as the labor market and Information and Communication Technology adoption.
All that being said, the opportunity is not new. Latin America's strong growth pre Global Financial Crisis evidenced the region's exposure to commodities. Yet the opportunity was wasted in Latin America’s lost decade, from 2010 through 2020, when policy uncertainty and political radicalization led to deteriorating fundamentals and weak investments. We believe this time will be different. While many left-leaning administrations are still in place across the region, the unintended consequence of Trump's erratic trade policy could end up bringing the countries together, as they all work towards the same goal: managing their relationship with the U.S.
Growth in Emerging Markets has varied wildly over the last decade, with Latin America remaining mostly flat
Real GDP, YoY % change
Source: JP Morgan Private Bank, Haver Analytics. Data as of December 31, 2024.
All in all, while there might be some short-term pain, longer-term, Latin America seems properly positioned to capitalize on the ongoing trade tensions between the U.S. and the rest of the world – specifically Asia. The region's relatively low tariff risk, coupled with its geographic proximity to the U.S., provides a distinct advantage over Asian countries facing higher tariffs and longer transit times. While there are challenges to address, the region's focus on improving infrastructure through increased investments in Public-Private Partnerships further enhances its competitiveness on the global stage. Thus, as global trade patterns shift, Latin America stands to win, positioning itself as a key player in the evolving global 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.
4 WageIndicator Foundation. Data as of December 31, 2024.
5 China Briefing. Data as of April 5, 2025
6 The Times, Freightos. Data as of April 18, 2025
Important Information
Discover how transformations in global trade can open new growth possibilities for the region.
Nur Cristiani
Head of LATAM Investment Strategy
Federico Cuevas
Global Investment Strategist
Published Apr 29, 2025
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