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The economic relationship between Canada and Latin America presents significant opportunities for growth. This potential is underpinned by several strategic advantages, including geographic proximity, existing trade and investment agreements, and complementary economies. Recent tariffs announced by the U.S. administration against both Canada and Latin America further underscore the potential to leverage these advantages to strengthen ties and promote mutual prosperity.
Strategic Advantages
Canada and Latin America are neighbors within the Western Hemisphere, which provides a natural advantage for enhancing economic ties. The relatively short distance between the regions lowers transportation costs and improves supply chain efficiencies. The coincidence of time zones facilitates managing investments between the two regions.
The economies of Canada and Latin America also complement each other well. Canada can offer capital, expertise and technology for energy, mining, and infrastructure projects to reignite Latin American growth. With its advanced industrial base and technology sector, Canada can also aid the expansion of other industries in Latin America. Meanwhile, Latin America has an abundance of natural resources useful to Canada and is an agricultural powerhouse. Canadian fertilizers and agricultural technologies can help to boost Latin America's output of soybeans, fruit and produce. Some Latin American countries have the potential to expand their role as manufacturing centres for Canadian businesses, while their markets provide export opportunities for Canada, especially in the face of newly imposed U.S. tariffs. Canada's economy also presents growth opportunities for leading Latin American companies, which likewise face U.S. tariffs, and Canada can serve as a hub for their further international expansion.
Canada has woven a dense web of trade and investment agreements in Latin America. Almost all of the major Latin American economies have bilateral or multilateral trade and investment agreements with Canada, in addition to double-taxation treaties. Meanwhile, Canada is working on a trade agreement that would include Brazil and Argentina. Canada, Mexico, Chile and Peru are also partners in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), alongside other Asia-Pacific countries.
Unfulfilled Potential
Despite the foregoing advantages, the economic relationship between Canada and Latin America is modest.
In spite of geography, Canada is not a top trading partner for Latin American countries. Even the trading relationship between Canada and Mexico, its key Latin American partner, is underwhelming. The United States has typically served as the primary trade hub for the three North American countries, with trade between Canada and Mexico historically being secondary. More than two-thirds of Canada's two-way merchandise trade involves the United States, while only about 3% involves Mexico. Similarly, for Mexico, the overwhelming majority of its trade is with the United States. Canada accounts for only about 3% of Mexico's exports and 2% of its imports.
While Canadian investment is substantial in certain Latin American countries (such as Chile, where Canada is the top source of foreign direct investment), it is relatively limited in others. Additionally, Latin American investment in Canada is conspicuously low.
Outbound foreign direct investment by Latin American companies – the so-called "multilatinas" – has boomed in the past decade, but most of it has remained within the region, or gone to the United States. Brazilian investments in Canada – mainly in mining and agriculture – stand out as a partial exception; however, the overall stock of Latin American FDI in Canada remains very modest.
Canada and Latin America have a chance to strengthen their economic relationship. Trump's new tariffs may be a catalyst for investors and governments in both Canada and Latin America to act.
Responding to the U.S. Tariffs
New U.S. tariffs have created opportunities for Canada and Latin American countries to strengthen their economic partnerships. In response to these tariffs, both regions may increase trade with each other, redirecting exports away from the U.S. market. This strategic reorientation could help mitigate the impact of tariffs, diversify trade portfolios, and enhance economic resilience.
In addition, while some have called for Canada to shore up its economic relationship with the United States by seeking new bilateral North American trading arrangements (without Mexico), it might be argued that there is at least as much for Canada to gain by exploring new bilateral approaches to trade and investment between Canada and Mexico.
Moreover, while some Latin American countries may be tempted to try to deepen their integration with the United States by taking advantage of U.S. tariff rates for Latin American countries that are lower than those faced by most Asian competitors, this trade displacement could soon attract new U.S. scrutiny of Latin American exports. A better approach may be for Latin American countries to expand their trade amongst themselves and with other regions, including, particularly, with Canada.
Both Canada and Latin America could benefit from expanding two-way foreign direct investment . Canadian businesses have the expertise and capital to invest in Latin American markets, while Latin American firms can find opportunities in Canada's stable and prosperous economy. The Canadian government could also find that it could prove useful to more proactively seek Latin American FDI.
Conclusion
The potential to grow the economic relationship between Canada and Latin America is immense. By leveraging geographic proximity, complementary economies, and a robust network of trade and investment agreements, both regions can partially mitigate the tariffs newly applied by the United States and go on to build a future of expanded prosperity.
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