(Jan 12): The European Union and Mercosur have delivered their long-sought trade pact, along with a political statement few could have imagined when talks began 25 years ago.
The deal with the South American bloc of Brazil, Argentina, Uruguay and Paraguay will create a free-trade area large enough to rival the decades-old North American arrangement now known as USMCA. Beyond commerce, it is a major geopolitical win for the EU, strengthening its foothold in a resource-rich region increasingly contested by the US and China.
For European Commission president Ursula von der Leyen and leaders like Brazil’s Luiz Inacio Lula da Silva, the agreement is meant to signal independence from the world’s two largest economies — and to show that broad multilateral deals remain possible in a global order upended by Donald Trump.
“A historic day for multilateralism,” Lula, as the Brazilian leader is known, said in a social media post Friday. “A victory for dialogue, negotiation and the bet on cooperation and integration between countries and blocs.”
The 80-year-old Lula has spent much of his second stint as president attempting to finalise the deal that was initially conceived just before he first took the helm of Latin America’s largest economy in 2003.
He’d hoped to sign it in December, but it failed to overcome concerns about environmental protections and agrifood standards, along with opposition from large farming nations like France and Italy.
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The setback put the agreement at risk of total collapse: Lula, who spent the last half of 2025 battling Trump over 50% tariffs imposed on Brazilian goods, said it was now or never, while the chief of the European Parliament’s trade committee warned that further delays were a death knell.
In the end, safeguard measures offered to European farmers helped sway Italian Prime Minister Giorgia Meloni, whose support left France’s Emmanuel Macron without sufficient backing to block it at a meeting of EU ambassadors last week.
The deal, which still needs European Parliament approval, will gradually erase tariffs on a range of agricultural goods from South America, expanding markets for the four Mercosur nations while granting Europeans easier access to meat and other products. The elimination of levies on cars, machinery and other products could give a jolt to industrialisation efforts in Brazil and its neighbours.
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Bloomberg Economics estimates it will provide a boost of as much as 0.7% of GDP to Mercosur nations by 2040, and 0.1% for Europe. But its economic benefits may pale in comparison to its broader potential.
Europe has found itself in an increasingly antagonistic relationship with both the US and China since Trump’s return to power. It spent 2025 in an escalating trade battle with China, while Beijing’s plans for tighter controls on rare earths and other critical minerals exposed vulnerabilities of European industry.
The EU also accepted a trade deal with Trump in which it agreed to tariffs on most exports, even as it removed duties from American industrial goods.
Its fortunes in the Americas have been on the decline, with the EU share of Mercosur trade falling to 14% from 23% in 2001. China’s grew to nearly a quarter from 3% over that span, according to Bloomberg Economics.
The accord, however, will expand the EU’s trade network in Latin America to 97% of the region’s economy, far greater than the 44% enjoyed by the US and 14% from China, according to Banco Santander SA.
That will give Europe the chance to prove it’s a dependable partner that can act as a credible alternative to the US and China, a major selling point for South America at a time when Trump’s revival of the Monroe Doctrine — and his toppling of Venezuela’s Nicolas Maduro — threatens to pressure Chinese investments in the region.
Deeper economic ties will likely stretch beyond the agricultural products that have caused an uproar among European farmers. Argentina and Brazil are home to sizable lithium supplies, and the latter holds 14% of planetary manganese reserves, the sort of resources key to Europe’s digital and environmental transition plans.
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Lithium-rich Bolivia is also in the process of joining Mercosur, and new President Rodrigo Paz has pledged to review exploration contracts with China and Russia. While it’s not currently party to the deal, Bolivia’s rare earths also offer “tremendous opportunities,” German Foreign Minister Johann Wadephul said ahead of a visit in November.
Mercosur nations see Europe as a potential new source of investment that nations like Brazil — home to the world’s second-largest rare earth reserves — need to actually produce them.
“We need active industrial policies, not to keep exporting rocks and raw materials,” Bolivian Foreign Minister Fernando Aramayo said in an radio interview in December, after attending the Mercosur summit in Brazil.
Mercosur will no doubt use the agreement as a platform to highlight its own credibility as it pushes to diversify trade partnerships through new or expanded deals with nations like Japan, the United Arab Emirates, India and Indonesia.
It’s also a well-timed win for Lula as he seeks to cement his legacy as one of Latin America’s most consequential leaders in a re-election fight later this year.
While it’s unlikely to convince Brazil’s generally conservative farmers to support him, Lula can point to it as evidence of his ability to command regional affairs just days after the US strikes on Venezuela left him on the back foot politically and on the world stage.
“This comes as very timely news for Lula,” said Jimena Zuniga, Latin America geoeconomics analyst for Bloomberg Economics. “The capture of Maduro could leave him a bit offside in the regional arena, since he’s always tended to emphasize sovereignty over democracy in his rhetoric on Venezuela. Good news out of Europe can help him preserve his standing as a world-savvy and effective regional leader.”
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