Latin America’s trade balancing act
April 30, 2025
Latin America‘s trade is increasingly caught in a balancing act between two of its biggest investors, China and the U.S. As U.S. foreign policy grows more aggressive, creating the risk of a trade war with China, the region needs to tread carefully.
Brazil seeks to preserve Latin America’s trade stability
In 2023, China became both Brazil’s largest export market and the main source of imports. In 2022, trade between the two countries reached US$ 157 billion. You would think this could only be good news, however, Brazil is having to exercise caution in its relationship with China as it seeks to avoid tensions with the US.
So far, the balancing act seems to be working. ‘Despite possible divergences between Brazil’s economic policy and the strategies of Trump’s new administration, there is no sign of reduced Chinese or American investment in Brazil,’ said Tatiana Andrade, Partner, Kreston KBW Auditores. ‘This is due to Brazil’s importance as a major commodity exporter to both countries and as a significant import market, with China as its largest supplier and the US in third place as of 2023.’
BRICS and the currency debate
Brazil is being cautious about joining China’s Belt and Road Initiative, while seeking more favourable trade terms with China. As a leading BRICS (Brazil, Russia, India, China, and South Africa) bloc member, Brazil faces potential risks, particularly concerning tariffs, if BRICS countries decide to replace the dollar in global trade. However, South Africa and India have denied any intent to replace the US dollar as a reference currency for BRICS.
Mexico’s economic exposure to US trade policy
Jorge Oropeza, Transfer Pricing Partner at Kreston BSG Mexico, is concerned that the tariffs imposed by Trump could have a significant impact in the medium and long term.
‘The price increase caused by these tariffs, both on manufactured goods and agricultural products, could lead to inflationary pressures in the US, affecting consumers’ purchasing power and potentially reducing demand,’ he warned. ‘This scenario could trigger a cycle of lower exports to the US, leading to a slowdown in investment in Mexico. In the long term, the instability generated by protectionist trade policies could also make investors more cautious, which would impact economic growth expectations and the investment climate in the country.’
However, Oropeza pointed out that Mexico could consider a strategy of diversifying its markets and focusing more on Latin America, where growth potential exists, particularly in sectors such as manufacturing, technology, and e-commerce. By strengthening trade ties with other countries in the region, Mexico could offset the negative impact of US tariffs and reduce its dependency on the North American market.
Trump’s aggressive stance on tariffs might just be enough to push Mexico into the BRICS bloc. Becoming a BRICS member could offer Mexico a platform to access new markets and sources of investment. By joining this group, Mexico could benefit from strategic alliances with emerging economies that are expanding. This would further diversify Mexico’s trade relationships and could mitigate the effects of global economic uncertainty, allowing the country to seize growth opportunities in markets outside of North America.
Latin America’s trade tensions and compliance pressures
At the moment, Mexico is still very US-centric in its approach, and it is already slowing down investment in the country.
The measures taken by the Mexican government to review products more rigorously from China, both at customs and in stores, is a response to Trump’s pressures on combating unfair trade practices. ‘This approach has generated a climate of uncertainty, which could slow the arrival of Chinese investment in Mexico, particularly in sectors like manufacturing and technology, which are sensitive to trade tensions,’ said Eduardo Solana, Manager of Transfer Pricing for Kreston BSG Mexico.
While Mexico could benefit in the short term by aligning with US expectations, Solana pointed out that there are risks in this approach. ‘Increased reviews and controls could create friction with Chinese companies operating in the country, affecting the flow of foreign direct investment,’ he said. ‘In the long term, if tensions between the US and China escalate, Mexico may face a dilemma: either capitalise on the redirection of Chinese investment to the region or confront a slowdown in trade relations with China that limits its growth potential.’
The Kreston network’s ability to collaborate is proving invaluable at the moment, as firms share regional expertise. This network of collaboration optimises tax and accounting compliance, and also supports client expansion during such turbulent times.
