Introduction to EU-Mercosur Trade Deal
Brazilian President Luiz Inacio Lula da Silva stressed this week that after more than two decades of negotiations there are no longer any obstacles to the signing of the EU-Mercosur trade deal next month. Speaking on the sidelines of the G20 summit in South Africa, Lula said the deal would represent "potentially the largest deal" in global trade, citing the two blocs’ nearly 722 million residents and $22 trillion gross domestic product (GDP).
Obstacles to the Deal
But while EU trade officials believe the Mercosur pact is a done deal, France and Hungary are calling for last-minute changes, citing risks to their agricultural sectors. And while the long-sought pact remains precarious, the US is stepping up efforts to sign its own trade deals with several countries in the region.
US Trade Strategy
The US is accelerating its trade strategy, with the White House announcing or negotiating framework agreements with Argentina, Guatemala, El Salvador, and Ecuador as part of efforts to shift the trade balance and contain China’s growing influence. According to Vladimir Rouvinski, a political scientist, these agreements strengthen the US presence in the face of growing competition with China in infrastructure, technology, and critical minerals.
Benefits for Latin America
Rouvinski believes that closer trade ties with the US would give Latin American countries “greater room for maneuver, access to technical cooperation, and opportunities to diversify production.” He also thinks that the agreements could anchor Latin America in changing US economic priorities and give the region a stronger footing in the broader global realignment.
China’s Influence in Latin America
China is currently overtaking rivals from the US and EU in the race for geopolitical influence in Latin America. In Argentina, for example, China recently replaced Brazil as the country’s largest trading partner, with Chinese imports of Argentine goods surging. The US has slipped to fourth place behind Brazil and the European Union, explaining Washington’s renewed interest in closer ties with Buenos Aires.
US Seeking Strategic Allies
The US is looking for strategic allies in Latin America, with the Trump administration resorting to a familiar approach, particularly the "classic ‘carrot and stick’ method" to strengthen its trade position. Countries perceived to be cooperative on migration and security, or politically allied states such as Argentina, would be given preferential treatment.
Impact on Argentina
Argentina’s libertarian leader Javier Milei now has to tread a narrow path, as the new US trade frameworks may not be fully compatible with Mercosur rules. This could raise the possibility that the country will have to choose between the US approach and its Mercosur commitments, having significant impacts on Brazil and trade throughout the Mercosur block.
Europe’s Role
Europe remains waiting in the wings, partly on its own, with EU negotiators still having "extensive lists of demands" while bilateral US deals offer "faster and more tangible results". The EU-Mercosur trade deal is still pending, with the US making moves to strengthen its trade position in the region.
