Brussels has long neglected its Latin American partners. Now is the time to change that

When Russia embarked on its full-scale invasion of Ukraine last February, the European Union realized that Moscow’s aggressive act meant Brussels had to look elsewhere for economic partners.

South America should have been the first on Brussels’ speed dial number.

But in reality, the two continents tend to treat each other with a combination of indifference and contempt.

Latin American diplomats would say that Europe takes the region for granted, especially the former colonies. At the same time, the EU does not seem to have clearly worked out what it wants from its relationship with Latin America.

The detachment between the two blocs is summed up by the fact that the last EU-Latin America summit took place seven years ago, while a trade deal between the EU and the Mercosur union – made up of Argentina, Brazil, Paraguay and Uruguay – has stalled over more than two decades.

During the absence of Brussels, Beijing became Latin America’s best friend

However, if the EU is to break away from Russian energy and take charge of the clean energy transition, officials in Brussels will need to renew ties with their Latin American counterparts by forging new trade deals, as the region is home to several metals that are critical to building a green economy.

Demand for rare earths in the EU – already at its highest – is expected to increase fivefold by 2030, but Europe produces a negligible share of the minerals it needs in its race for renewables.

Chile, on the other hand, holds 42% of the world’s reserves of lithium, a key component of batteries for electric cars, and a quarter of its copper reserves, which are used in everything from power grids to turbines. Peru also owns almost a quarter of the world’s silver, which is essential for the production of solar panels and electric cars.

Reviving that old relationship would also allow the EU to diversify trade to avoid strategic dependencies with China, as concerns mount in Brussels over the bloc’s over-reliance on Beijing as a market for goods and raw materials for its green transition.

In turn, closer ties would also ease Latin America’s economic semi-stagnation, hard-hit by globalization, allowing European companies to shift production from China to America.

Another reason why the EU should strengthen ties with Latin America is to counter Beijing’s growing influence in the region. To avoid the same mistake made in Africa – where Chinese companies have monopolized cobalt mining, essential for electric vehicle batteries, accounting for an estimated one-eighth of the continent’s industrial production – the EU needs to step up its game.

Over the past decade, China has systematically built up its supply chain in these critical minerals. It increased its investments in Latin America by a factor of 26 between 2000 and 2020 and is now the main stakeholder in two of Chile’s ten largest lithium mines, as well as Mercosur’s largest single trading partner (and the second largest for Latin America as a whole).

In Brazil, China Three Gorges, the world’s largest supplier of hydropower, controls nearly half of its hydropower plants. At the same time, China’s State Grid Corp. is the country’s largest power generation and distribution company.

In addition, 19 governments in Latin America and the Caribbean have joined Xi Jinping’s signature Belt and Road Initiative, a nearly €1 trillion transcontinental trade and infrastructure network.

‘Pink wave’ from leftist leaders a chance to reset relations

However, after years of EU withdrawal, it seems that the political stars have banded together to enable a qualitative leap in relations between the bloc and Latin America.

Putin’s war in Ukraine and China’s rising authoritarianism have awakened Brussels to the huge challenges facing the bloc, and politicians are now rushing to strike new deals to secure raw materials.

Last December, the EU signed a trade deal with Chile that will allow it easier access to lithium, copper and other minerals vital to its renewable energy industry. Currently, 67% of Chile’s copper exports go to China, while only 5% goes to the EU.

Yet another disadvantage for Brussels can be seen from the fact that Chile’s raw materials are processed in China and resold at a markup, the difference often coming out of the pockets of Europeans.

However, some things have changed recently.

Chile’s left-wing president, Gabriel Boric, is trying to boost manufacturing jobs by reducing the country’s reliance on crude exports to China and instead moving more of the manufacturing process locally.

In addition, the victory of socialist Luiz Inácio Lula da Silva in Brazil’s presidential elections on 30 October has revived EU trade expectations for Latin America.

It was Lula’s return that also sparked talks on the EU-Mercosur trade deal, now set to be ratified by the end of the year – a pact that was blocked by European countries in 2019 after its predecessor, the far-right brand Jair Bolsonaro, allowed Amazon’s deforestation to rise by 59.5%.

Boric and Lula both belong to the so-called “pink wave” of left-wing Latin American heads of state who are at the helm of six of the region’s seven largest economies.

Strike the iron when it is hot

German Chancellor Olaf Scholz’s recent trip to the region was in many ways an opportunity for Europe to use this new era to its advantage.

In late January, he met with Boric to secure additional supplies of lithium needed for the electric car industry, promising in return to help Chile develop its processing industries. This week he spoke with Lula about Mercosur.

Others in the EU are also looking to strengthen relations: a mix of trade-friendly countries – Sweden and Spain – will hold the bloc presidency of the Council this year, and the need to break away from Russian gas and reduce Chinese dependence reduction is great. top of the agenda, which will undoubtedly encourage officials to forge new deals.

Yet none of this will happen if Europe does not strike while the iron is hot.

Given the increasing geopolitical challenges and the urgent need to accelerate the energy transition, Brussels needs a deep reset of policies towards Latin America. It’s time to open a political dialogue and diversify friendships.

Carla Subirana is an economist who has worked as a policy analyst for the Bank of England and Europe analyst for Economist Intelligence.

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