Geopolitical tensions: an opportunity to strengthen the relationship between the EU and Latam

The Bank of Spain analyzes how the current situation of geopolitical fragmentation of world trade due to the emergence of two blocs (Western countries vs. China and Russia) could affect Latin America and the Caribbean (LAC) in the hypothetical case of a trade conflict between the two blocs that limit the region's trade relations with any of those blocs. One of the most relevant conclusions is that for most LAC countries, greater integration with the European Union (EU) could be a way to offset a large part of the losses derived from trade fragmentation.

Main takeaways of the analysis:

• LAC, taken as a whole, exports 20% of its GDP and imports 19%. These figures are lower than those of other emerging areas of reference, such as Eastern Europe (49% and 51%, respectively) or the emerging countries of Southeast Asia (39% and 36%, respectively).
  
  
• LAC's main trading partners are the United States, China and the European Union (EU), which account for 65% of the total. The main destination for LAC exports is the United States. This country accounts for 42% of the region's total exports. China and the EU are relatively less important, attracting 15% and 9% respectively.
  
  
• One possible channel of protection against possible shocks of this type is trade diversification. In this sense, the agreements in force do not exhaust all the possibilities of commercial integration between LAC and the EU, and the deepening of commercial relations may be of greater geostrategic interest.
  
  
• The heterogeneity in the trade relations of the LAC countries implies a very different degree of exposure to the risk of a geopolitical fragmentation of world trade, with the most open countries being the biggest losers if this risk materializes. However, one of the main conclusions of the analysis indicates that for most of the countries a greater integration with the EU could be the way to compensate a large part of the losses derived from a fragmentation of trade.