Europe and MERCOSUR finally ink the bloc-to-bloc trade deal

What Europe sees in LATAM that America does not

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Was ist das?

Argentina’s Javier Milei standing with other MERCOSUR leaders celebrating a mega-trade deal with the EU?

Understand the significance of this milestone in international trade: the first major free trade deal between two large trading blocs.

Twenty-five years (!) of negotiations begun back when the US was still pursuing Bill Clinton’s dream of a Free Trade Area of the Americas (FTAA) have finally resulted in a deal that indicates just how America ignores and undervalues Latin America as an economic building-block of our future in a world of North-South integration.

North America is the obvious integrator of South and Central America, but instead, the Chinese are the biggest movers and shakers there and now the EU has thrown down the trade gauntlet.

Meanwhile, experts expect Trump to end three decades of “benign neglect” of Latin America — sort of. His priorities speak volumes about his strategic vision:

• Reducing immigration to make our aging/birth-dearth country “great again” (that, Mr. President, is actual sarcasm)

• Ending the importation of fentanyl via Mexico, because that’s clearly Mexico’s problem and not ours AND because a supply-side approach to the War on Drugs has worked so brilliantly in the past (ditto)

• Limiting China’s sideways exports into the US via Mexico.

If I’m Latin America, I see basically nothing of value here — only demands and obligations and threats to fix problems of America’s own making.

So yeah, after two-dozen years of meandering, I suddenly get that mega-trade deal down with the EU.

What is MERCOSUR?

Mercosur, or the Common (común) Market (Mercado) of the South (del sur) in English (Mercado común del Sur), is a trade bloc agreement that exists among Argentina, Brazil, Paraguay, and Uruguay — basically South America’s mini-EU-in-embryo.

The EU is already MERCOSUR’s #2 trade partner — after China, of course.

From my second Massive Open Online Course (MOOC) on edX:

Europe is the decisive export market for the US and is a stronger export market for LATAM than is the US.

So, whether it’s China or the EU, the same dynamic is unfolding, as far as the US is concerned: SOMEBODY ELSE IS DRINKING OUR MILKSHAKE!

So Europe acts decisively, per the NYT:

The European Union reached a major trade agreement on Friday with four South American countries, concluding a long-delayed negotiation that took on new urgency as President-elect Donald J. Trump threatened to impose tariffs on some of the world’s largest economies.

The deal, between the European Union and members of Mercosur — a bloc that includes Argentina, Brazil, Paraguay and Uruguay — would establish one of the largest trade zones in the world and would be the European Union’s biggest trade agreement ever.

With European leaders preparing for the possibility that Mr. Trump’s return to office will lead to a more fragmented global economy, the deal is a significant victory for proponents of free trade, linking markets with more than 700 million people.

Here’s the thing most people forget: trade deals aren’t forged during good times but during scary times, and Trump’s return to power constitutes — all by itself — a scary time, but also a time in which crisis is quickly transmuted into opportunity. A quarter-century of foot dragging … and … voila!

Go back and check the history books: this deal was nowhere until Trump came into office in 2017. His return was just the final boost needed.

Speaking of voila, the French are somewhat unhappy over the ag export issues here. Per CSIS:

The agreement stalled for years due to opposition from France and other EU countries, who demanded environmental guarantees from Brazil and expressed concerns over the potential losses to European farmers. Simultaneously, the protectionist governments of Brazil and Argentina did not prioritize ratification.

But then the deal got fast-tracked and signed on 6 December, within a month of Trump’s re-election.

The deal creates a market of almost 800m souls.

And no, I’m not talking about lithium here — even if the EU quietly is. As far as we’re concerned, it’s not about their natural resources but about their growing middle-class and its demands. China and the EU are primed to capture that big chunk of the Global South and all the Big Data and connectivity (and resulting AI) that goes with it, while we’re putting up walls and engaging in mass deportations.

Which superpowers do you think are winning this contest?

Somebody got the memo:

From Uruguay, the host of the Mercosur summit, European Commission President Ursula von der Leyen hailed the deal as a “truly historic milestone” at a time when global protectionism is on the rise.

“I know that strong winds are blowing in the opposite direction, toward isolation and fragmentation, but this agreement is our clear response,” von der Leyen said, an apparent reference to U.S. President-elect Donald Trump’s vows to protect American workers and goods.

The French will fight this, as they fight everything that imposes competition on their flabby economy, but Latin American leaders get it:

At the Mercosur summit in Uruguay’s capital of Montevideo, Brazil’s President Luiz Inacio Lula da Silva praised “a modern and balanced text which recognizes Mercosur’s environmental credentials.”

“We are securing new markets for our exports and strengthening investment flows,” he said.

Even our new Trumpkin gets it:

Libertarian President Javier Milei of Argentina described the accord as aligning with his free market principles. Argentines are excited about selling more beef and agricultural products in the EU.

Yes, ratification will take years. Hell, maybe the entire second Trump administration!

Back to the NYT:

Jacob Funk Kirkegaard, a senior fellow in Brussels at the Peterson Institute for International Economics, said the deal came at a critical moment. “The signal is that, well, the United States may be pulling out of the global trading system, but the rest of the world is intent on pursuing a different route,” he said.

Again, this is all about meeting middle-class demand in the Global South as the Global North grows more protectionist:

Economists say the agreement is critical for Europe, which is facing a disappointing economic outlook, and particularly for Germany, the biggest exporter to the Mercosur region. Tariffs imposed by Mr. Trump would exacerbate challenges for major European industries, including the automobile, pharmaceutical and machinery sectors.

European carmakers, including BMW, Fiat, Peugeot and Volkswagen, would benefit from lower tariffs on imports and exports between the two blocs. Novartis, Sanofi and other European pharmaceutical giants would gain easier access to a large market for health care products.

A range of other European industries, such as the luxury sector, tech, construction and banking, would also be able to reach hundreds of millions of consumers.

This is a real achievement, no matter how much American experts pooh-pooh it. Back to CSIS:

This landmark deal is the largest ever concluded by the EU and the only one Mercosur has with a major trading bloc—which means that European products will enter its market under much better conditions than U.S. or Japanese products. It eliminates tariffs on over 90 percent of bilateral trade, saving European exporters EUR 4 billion annually while granting South American products preferential access to European markets, particularly for agricultural goods where Mercosur holds a strong comparative advantage.

Tell me this doesn’t sound like a good description of what the US should be concerned about and seeking and achieving, given Trump’s ambitions:

Until now, trade relations between the two regions have underperformed relative to their potential, especially in merchandise trade (and less so in investment). The agreement is set to change this dynamic, opening Mercosur’s highly protected market to European industrial goods. For instance, previous tariffs on automobiles, textiles, and machinery ranged from 14 percent to 35 percent. The agreement also ensures the protection of 357 European geographical indicators, boosting exports of specialty agricultural products like wines and cheeses.

Additionally, European companies will gain better access to Mercosur’s public procurement markets, high-value service sectors, and critical raw materials like lithium. In return, the European Union will reduce tariffs on agricultural products and other goods and contribute EUR 1.8 billion through the Global Gateway initiative to support Mercosur’s green and digital transition.

Every journey begins with a step in the right direction:

Even if the European ratification process runs smoothly, the tariff reductions will take some months to be applied, and the rest of the elements could take more than a year.

Trump wants to play disruptor while EU extends its straw to what should be our milkshake:

But in any case, the signing of this partnership agreement demonstrates the strong interest in trade liberalization among countries that favor maintaining an open economic order based on stable and predictable rules in the context of threats to cooperation and potential trade wars.

If this feels like an own goal, it’s because it is.