US-Mexico trade uncertainty intensifies: Latin American supply chain landscape faces reshaping

Introduction

In June 2026, officials from the United States and Mexico plan to hold high-level talks on agricultural and energy issues, against the backdrop of President Trump publicly questioning the validity of the United States-Mexico-Canada Agreement (USMCA). This event may appear to be a routine continuation of bilateral trade frictions, but it actually reflects deep cracks in the process of economic integration in North America and even the broader Latin American region. As a core node of "nearshoring" in global supply chains, Mexico's loss of stable export expectations to the U.S. will force multinational capital and industrial chains to reassess the locational value of the entire Latin America.

This is not only a challenge for Mexico but also a litmus test for the transformation of the development model across Latin America.

Core Observations

1. Resurgent protectionism threatens the USMCA framework: Trump's questioning is not the first time, but it coincides with the approaching 2026 USMCA review period, sharply escalating uncertainty. Agriculture and energy are highly sensitive and interdependent areas of U.S.-Mexico trade; any renegotiation of terms could lead to higher bilateral trade costs.

2. Mexico's nearshoring advantage is weakening: Over the past five years, leveraging USMCA's zero-tariff access and geographic proximity, Mexico has become the main beneficiary of Asian manufacturing relocating to the U.S. market. If the agreement is weakened, Mexico's FDI inflows may slow, and some production capacity may shift to the U.S. or Southeast Asia.

3. Other Latin American countries face substitution opportunities: Brazil's agricultural products (soybeans, corn, meat) and Chile's copper and lithium minerals are competitive in the North American market. If Mexican agricultural exports are restricted, South American countries may quickly fill the gap. Similarly, if Mexico's energy (oil and gas) loses preferential treatment, Canada or U.S. domestic supply will benefit, but intra-Latin American energy trade may shift toward Brazil, Argentina, etc.

Why is it happening? Who benefits?

Why is it happening?

The trade policy of the Trump administration has always centered on "America First." Although the USMCA was pushed forward during his first term, issues such as the U.S. trade deficit and outflow of manufacturing have not been fundamentally resolved over the years. Agriculture and energy are key political constituencies in the U.S. Midwest and South; Trump is applying pressure in these areas to gain support for the 2026 midterm elections. In addition, the concentration of global supply chains in Mexico has unsettled some U.S. industries, who prefer to bring production back to the U.S.

Which countries will benefit?

• Brazil: As the world's largest soybean exporter and a major meat supplier, if Mexico's agricultural exports to the U.S. are restricted by tariffs or quotas, Brazil will directly benefit. At the same time, Brazil is expanding its domestic oil and gas production, potentially attracting energy investment that would otherwise go to Mexico.
• Chile: In key mineral sectors such as copper and lithium, Chile has signed multiple free trade agreements with Asia and Europe. Uncertainty in the USMCA may lead more U.S. downstream companies to seek stable supply from Chile.
• Argentina and Peru: Argentina's lithium resources and corn, as well as Peru's copper and agricultural products, may attract new buyers amid the global supply chain adjustment.### Which industries will benefit?

• Agricultural exports: Soybeans, corn, and beef from Brazil and Argentina will fill gaps in the North American market.
• Critical minerals: The strategic position of essential resources for electrification, such as lithium and copper, will further strengthen, enhancing the bargaining power of Latin American resource-rich countries.
• Energy trade: Natural gas and oil from Brazil and Argentina may replace part of Mexico's export share to the United States.

What does this mean for the regional economy?

National dimension: Mexico faces challenges, South America sees a window of opportunity

Mexico's economy is deeply coupled with the United States, with manufacturing supply chains in automobiles, electronics, and home appliances highly dependent on zero-tariff exports to the U.S. If USMCA is damaged, Mexico's GDP growth could decline by 0.5-1 percentage point in the short term, and some foreign factories may suspend expansion plans. Meanwhile, South American countries will seize the opportunity to deepen agricultural and mining trade with the U.S., while accelerating free trade negotiations with the EU and China to diversify risks.

Industry dimension: Agriculture and energy bear the brunt, manufacturing faces divergence

• Agriculture: Over 70% of Mexico's agricultural exports go to the U.S., with corn, avocados, and tomatoes being highly sensitive. If the dispute escalates, Mexican farmers will be severely impacted, while U.S. consumers will face rising food prices.
• Energy: Mexico is a net importer of energy (especially natural gas) from the U.S., but it also exports crude oil. The USMCA's energy provisions involve resource ownership and investment protection; if renegotiated, they could affect Mexico's energy reform process.
• Manufacturing: The automotive supply chain is the first to be affected. Mexico produces approximately 3 million vehicles annually, 80% of which are exported to the U.S. If rules of origin are tightened, some factories may move back to the U.S. or relocate to Canada.

Investment dimension: Capital shifts from Mexico to South America

In recent years, Mexico's FDI has mainly come from the automotive, home appliance, and electronics sectors, with U.S. companies accounting for about 40%. Trade uncertainty will prompt multinational corporations to reassess risks and turn to countries with more stable politics and broader trade agreements. Brazil, Chile, and Colombia may become alternative choices, especially as Brazil's reindustrialization plan is attracting manufacturing investment.

Regional dimension: Latin American integration may accelerate

Faced with U.S. protectionism, Latin American countries have an incentive to strengthen internal economic cooperation. The Pacific Alliance (Chile, Peru, Colombia, Mexico) and Mercosur (Brazil, Argentina, Uruguay, Paraguay) may seek to align and reduce internal tariff barriers. For example, the automotive trade agreement being negotiated between Brazil and Mexico could be expedited by external pressure. Additionally, Latin American countries may collectively push for broader economic cooperation with China, the EU, India, and others.

Long-term outlook: Structural changes over the next 5-10 years1. North American Regional Supply Chain Shifts from "Nearshoring" to "Multi-Shoring": Mexico is no longer the only choice; Latin America will form multiple regional manufacturing centers. Regions such as northeastern Brazil, Colombia's Caribbean coast, and central Chile may emerge.

2. Key Resources (Lithium, Copper, Rare Earths) Become Latin America's New Geoeconomic Weapons: As the energy transition accelerates, resource-rich South American countries will take a more proactive position in global supply chains, enhancing their leverage in trade negotiations.

3. Latin America's Economic Center of Gravity Shifts South: Brazil, leveraging its advantages in agriculture, mining, and diversified energy, is expected to once again become the engine of Latin American economic growth, while Mexico's relative position declines.

4. Reshaping Digital and Green Trade Rules: The U.S. may require stronger labor and environmental provisions in the USMCA, pushing for the greening of Latin American manufacturing but also potentially increasing compliance costs.

5. Intra-Regional Trade Share Continues to Rise: Currently, intra-regional trade in Latin America accounts for only about 15% of its total trade, far below the EU (60%) and East Asia (50%). Over the next decade, this share is expected to rise to 25%, as the regional value chain transforms from a "bipolar" to a "network" model.