Economic Policy Variation in Latin America
Latin America’s economic landscape is shifting as countries balance slow growth with rising geopolitical pressures. Diversified trade—especially deeper ties with China—and selective nearshoring are reshaping regional dynamics. While open-market economies like Chile and Colombia expand global access, protectionist players such as Brazil and Argentina prioritise shielding domestic industries. Despite strong potential, the region faces fiscal strain, low productivity, and infrastructure deficits. Long-term growth hinges on structural reforms and fiscal consolidation to strengthen resilience in a volatile global market.
Strategic Overview
Latin America is a region of major economic potential balancing the challenges of a shifting global market. Several primary emerging markets (EM) in the region demonstrate opportunities for trade and investment, including Brazil, Mexico, Colombia, Peru, Chile, and Argentina. These are characterised by potential for high growth and increasing integration into the global financial system as national economic policy focuses on heterogenous diversity. Operational risks, however, place constraints on economic growth prospects. These include ageing populations, high energy costs, logistical challenges, high public debt, and the need for reform amid recovery from global economic shocks.
Operational Context
For most countries in Latin America economic activity has largely been driven by consumption, while investment remains weak. A slow growth of 2.1% was expected in 2025, limited by rising import prices and currency depreciations, reducing core goods and services trade. This is forecasted to increase only slightly, to 2.4%, in 2026, making it the slowest growing region worldwide according to the World Bank’s Latin American and the Caribbean Economic Review (April 2025) (LACER).
While LACER places most large countries are on track to meet 2026 inflation targets, growth is constrained by rising labour costs in the service sector, ageing populations, high energy costs, technological change, and high levels of poverty, inequality and public debt. These national-level challenges are coupled with wider issues of a cooling global economy, falling commodity prices, and increased policy uncertainty. Haiti, Nicaragua, and Venezuela are among the weakest economies in the region due to political instability, corruption, high poverty, and limited economic diversification.
Shifts in Economic Policy
Fundamental shifts in trade policy in the last decade are heavily influenced by global geopolitical and geoeconomic tensions, such as the growing prominence of China in the world market. Latin America is moving towards a more strategic and diversified approach, expanding market influence and strengthening its economies as monetary policy responses across the region become more varied and heterogenous in response to slowing disinflation.
- For many Latin American countries there has been a shift away from the US towards China, exacerbated in response to trade barriers such as the US’s tariffs. The increasing reliance on China as a trading partner has transformed the regions trade landscape. The diversification of trade partners has facilitated largescale investment in infrastructure and resources.
- Other nations, including Brazil and Argentina, have adopted a strategic hedging approach, balancing relations with the US and China to maximise long-term market reach and flexibility.
- There is some movement for nearshoring and regional integration, leveraging geographical proximity to benefit from improved supply chain reliability, reduced logistics costs, and easier communication. Mexico has worked to reinforce its trade agreements with the US to maintain a competitive edge and negotiate tariff exemptions.
There is notable policy variance regarding free trade, with some nations maintaining a commitment to trade liberalisation, while others strengthen trade barriers.
Trade Liberalisation:
- Colombia, Ecuador, and Peru have trading ties with Europe. Their comprehensive trade agreement with the European Union provides improved market access and encourages bilateral trade through the reduction and elimination of tariffs.
- Colombia also maintains Free Trade Agreements (FTA) with Scandinavian countries like Iceland, Liechtenstein, Norway and Switzerland, and Central American countries like El Salvador, Guatemala, and Honduras.
- Costa Rica has extensive trading ties, having FTA’s with the US, Canada, Mexico, and the EU, and is working to join the Comprehensive and Progressive Agreement for Trans-pacific Partnership (CPTPP).
- Chile’s trade policy is characterised by an extensive network of FTA’s and an emphasis on open markets. Its main trade partners are China, the US, Japan, South Korea, Germany, the EU, and Brazil.
- Guyana ranks the highest GDP per capita in Latin America due to its burgeoning offshore oil industry. Its key trading partners include the US, Panama, the EU, the UK, Singapore, China, Japan, Suriname, Trinidad, and Tobago, making it a key economic power in the region. It is currently one of the fastest-growing economies in the world, projected to continue its high growth rates in 2026 at 22.4%.
Economic Protectionism:
- Brazil’s focus lies in guarding domestic industries, with extensive barriers to trade including high tariffs and non-tariff barriers such as import licensing, technical standards, and subsidies.
- Argentina’s trade policy is defined by its membership to the MERCOSUR bloc, which requires applying a common external tariff on imports from non-member countries. This trading bloc also includes Brazil, Paraguay, and Uruguay. Argentina has a long history of economic policy designed to shield domestic industries from foreign competition; however, it does hold FTAs with Europe and Israel, and trade framework agreements with Morocco and Mexico.
Strategic Outlook
Economic Potential:
There are considerable shifts in policy within the region that indicates potential for investment and trade opportunities. A greater focus on economic complexity with adapting strategies to shifting global markets lends to Latin Americas growing economic strength. The upswing in trade diversity and market access opportunities in countries like Colombia, Chile, and Argentina, among others, suggest potential for growing trade corridors for Latin America with both Asia and Europe. In particular, China, as a growing economic superpower, offers considerable opportunities for Latin American nations looking to transform their trade infrastructure.
Limitations:
The region is however limited by slow and uneven growth, low productivity, fiscal vulnerabilities, and inadequate infrastructure which pose macroeconomic and structural challenges for the region as its economic landscape battles with increased uncertainty. Constrained growth prospects in the medium-term indicates higher levels of risk for investors that requires careful consideration and mitigation when decision-making.
Policy Recommendation
The International Monetary Fund (IMF) highlights fiscal consolidation to rebuild buffers as a crucial step in adapting to the challenges of a shifting global environment. Sustainable long-term economic growth is dependent on the regions capacity to implement structural reforms that will boost productivity, efficiency, and competitiveness, including empowering private sector businesses and entrepreneurs to drive growth.
Niamh Allen is a fellow of the Global Policy Intelligence Unit at the Sixteenth Council
