Positioning South America for global connectivity

In a rapidly evolving global trade landscape, a number of countries in South America are positioning themselves as a crucial partner for major economic powers. As geopolitical tensions and trade uncertainties reshape global commerce, the region is leveraging its “neutral” stance to balance relationships with the United States, China and Europe. This approach aims to attract foreign direct investment (FDI) and positions South America as a versatile player capable of capturing demand from multiple economic blocs.

Seizing opportunities amid global turmoil

South America is well-placed to capitalise on global trade fragmentation. Executives in the region see growing divisions among the EU, America and China as a positive for South American exports (according to 64% surveyed).

The region is fostering balanced trade relationships with North America, China and Europe. Of the South American executives we surveyed, 37% see opportunities to increase exports to replace goods from these markets, highlighting South America's potential to leverage its neutrality. For instance, as a result of Chinese tariffs on US soybeans, Brazil’s exports of the crop to China have surpassed those of the US.¹ Additionally, 32% of executives believe the region’s neutral stance will attract investment to expand manufacturing capabilities. By viewing market fragmentation as an opportunity, South American firms can navigate diverse markets without relying on any single economic power, offsetting risks from political shifts.

Trade agreements are central to this strategy. Reducing barriers and enhancing competitiveness will strengthen South America’s export position. The successful EU-Mercosur trade negotiations, which concluded in December 2024, were a major development.² Several countries, including Chile and Peru, also have free-trade agreements (FTAs) with China and America.^3,4 Expanding and strengthening these deals—particularly regarding market access, rules of origin and digital trade—would provide stability as major powers turn inward.

The American election will dramatically affect trade between the United States and South America. With Donald Trump in the White House, 45% of our survey respondents in South America said they would increase sourcing from the United States to capitalise on reduced competition from foreign imports. Anticipating higher tariffs and trade barriers, 41% plan to cut internal costs, and 35% plan to adjust their supply chains to mitigate the impact of new tariffs or restrictions. These responses suggest South American businesses are preparing both defensive and offensive strategies to manage risks and exploit opportunities under changing US trade policies. This is a sensible approach as, under a new plan, goods shipped from Chinese ports through Latin America may be subject to the same 60% tariffs that Mr Trump has proposed on direct imports from China.⁵

Beyond America, South America is also deepening ties with China and Europe. China’s influence in the region is significant; trade between China and Latin America grew from US$18bn in 2002 to US$450bn in 2022 and is expected to have exceeded US$500bn in 2024.^6,7 Chinese infrastructure investments and trade agreements have helped South American countries to diversify economic ties, building more resilient trade networks. Europe remains a major partner as well.⁷ Balancing these relationships allows South America to attract FDI and maintain resilience amid shifting global trade dynamics.

However, deepening ties with China brings risks, including reduced sovereignty and an over-reliance on commodity exports, which could hinder diversification and long-term stability.⁸ Moreover, deeper integration into North American supply chains could force South America to limit its dealings with Chinese companies, given the increasingly protectionist stances of America and Canada. Businesses should monitor these partnerships to alleviate risk, enhance market access, build resilient supply chains and capitalise on new investment opportunities.

South America’s strategic position as a major source of critical resources, particularly lithium, enables it to attract investment and forge diverse trade relationships. By maintaining neutrality amid competing interests from China, America and the EU, the region can leverage its natural resources to gain geopolitical influence and diversify its economies.⁹ However, the region must carefully navigate its partnerships to avoid over-dependence and ensure that infrastructure and trade agreements benefit long-term stability and economic resilience.

Stability through trade agreements

South American firms view new trade agreements as a source of optimism to a greater degree than the global average (26% versus 20%), reflecting a strategic intent to diversify partnerships and reduce dependency on any single power. This openness is part of a broader effort to ensure resilience in a changing global market.

New trade agreements will not only increase diversification, but also enhance competition. By entering into agreements that reduce trade barriers, South American countries position themselves as attractive hubs for manufacturing and distribution. This is increasingly important as global supply chains evolve, with companies seeking reliable partners that offer stability and efficiency. South America's willingness to form these new agreements highlights its commitment to being an integral part of the global value chain and adapting to trade shifts.

Argentina’s recent rise in EIU's business environment rankings signals confidence in the free-market reforms promised by the country’s president, Javier Milei.¹⁰ These include measures to encourage private enterprise, increase competition and attract foreign investment. Such policies could strengthen Argentina’s position as a regional leader in FDI.

Similarly, the Dominican Republic’s president, Luis Abinader, has pursued business-friendly policies. The government has invested in tourism infrastructure and improvements to logistics systems in a bid to establish the country as a regional hub for transport and distribution.

However, efforts to draw investment, including nearshoring production, depend on clear legal frameworks and reliable tax incentives. Without guarantees of long-term stability, governments risk deterring investors who value predictability for their operations.

Unlocking stymied opportunities through regional integration

South American executives are more focused on nearshoring than reshoring (see figure four). Reducing transport and logistics costs is one of the main motivations for this (selected by 41% of executives in the region, compared with a global average of 33%). Nearshoring also improves logistics efficiency and reinforces regional integration. By building cost-effective, interconnected supply chains, South America aims to create an agile and resilient trading system that leverages geographical proximity. However, South America's infrastructure remains underdeveloped, with issues like unpaved roads, poor sanitation and unreliable electricity still common in many major cities in the region. Corruption scandals, bureaucratic delays and rising interest rates have hindered economic progress, making public-private partnerships and international investment—particularly from China—essential to overcoming these challenges.¹¹ However, Chinese infrastructure projects in the region often come with dual-use capabilities, serving both civilian and potential military interests, which could present strategic challenges in the future.¹²

Strengthening regional collaboration and nearshoring production enables businesses to capitalise on the advantages that each South American market offers. One example is powershoring: relocating production to countries with cleaner, more stable and abundant energy supplies. Chile is a good example of this trend: the country is leading Latin America’s push for clean hydrogen, aiming to use its vast renewable energy resources to produce up to 160m tonnes of it a year by 2050.¹³ This strategy positions Chile as a major player in low-emission hydrogen production, attracting international investment and promoting sustainable industrial growth. Regional trade agreements can help with such initiatives. Indeed, South American firms value regional trade agreements, citing opportunities to increase market access in the region (37%) and form new partnerships and alliances (31%). This underscores a commitment to diversify supply sources and enhance operational capabilities within the region.

Regional collaboration is not just about cost reduction, it also builds a more competitive and integrated economic bloc. By working together, South American countries can enhance their collective bargaining power on the global stage. This regional approach is crucial as supply chains shift, with proximity and reliability becoming important decision factors. Nearshoring allows South American businesses to cut transport times and costs, making their products more competitive in regional and global markets.

Harnessing AI for cost reduction and agility

South American firms are adopting artificial intelligence (AI) in unique ways as part of their digital transformation.They are focused on reducing trade costs, improving planning and optimising cash management, reflecting an emphasis on operational efficiency. Although its use remains limited and varies significantly across industries and countries, AI adoption shows potential for reducing trade costs, improving planning and optimising cash management. Digital tools, particularly for inventory management, play a vital role in streamlining logistics and cutting trade costs. Notably, there is relatively low concern about data privacy, suggesting that companies prioritise immediate efficiency gains over mitigating potential risks.

By adopting AI for cost reduction and planning, South American firms can enhance their competitiveness in global markets. This focus on efficiency is crucial as businesses navigate modern supply-chain complexities, where disruptions can heavily dent profitability and customer satisfaction. AI helps South American companies to better anticipate demand changes, manage inventories more effectively and reduce operational costs.

The use of digital tools is also bridging infrastructure gaps that have historically limited South America’s trade capabilities. By using technology to improve visibility and control over supply chains, businesses can mitigate some of the logistical challenges associated with poor infrastructure. Digital transformation is therefore an important element of South America’s broader strategy to become a competitive and reliable global trade partner.

Neutrality as a strategic advantage

Ultimately, South America’s strategy is to position itself as a reliable partner for all major powers. By maintaining neutrality amid tensions between America, China and Europe, the region seeks to collaborate with each without being overly aligned to any single bloc. This balanced approach not only makes South America attractive for FDI, but also ensures that it can adapt swiftly to shifts in global trade policies. The region’s role as a connector between global powers is increasingly valuable as economic and political divisions deepen.