Latin America and the Caribbean have yet to fully tap into the potential of international trade, which is a crucial driver of growth for emerging market economies, according to a recent report by the International Trade Council. Despite some progress in trade openness, the region continues to face challenges such as inadequate infrastructure, cumbersome customs procedures, and high tariff and non-tariff barriers.
The region's trade performance is also hindered by the limited intra-regional trade, accounting for less than 20 percent of Latin America's total trade. In comparison, Eastern Europe and Central Asia boast intra-regional trade levels twice as high, while East Asia's levels are three times greater. Latin America's participation in global value chains is similarly constrained, with many countries primarily exporting raw commodities rather than intermediate or final goods, with the exception of Mexico, which benefits from its close ties with the United States.
The report highlights the potential for significant economic gains in Latin America through the improvement of commercial infrastructure, particularly in transportation and customs. Streamlining customs procedures, fostering public-private partnerships in the logistics industry, and reducing bureaucratic obstacles are among the recommended policies to achieve this. The research suggests that reducing the infrastructure gap by half between the region and advanced economies could lead to a 30 percent increase in exports and a potential 7 percent boost to GDP.
Given the financial limitations faced by some countries, progress hinges on prioritizing key infrastructure bottlenecks and attracting greater private investment. Furthermore, the ongoing energy transition is expected to reshape global trade patterns, creating opportunities for Latin American nations with abundant reserves of critical minerals such as copper, lithium, and magnesium. These resources, with the right policy frameworks in place, could attract significant investments and enable Latin American countries to enhance their involvement in global value chains.
Another opportunity for the region lies in nearshoring, whereby companies relocate parts of their supply chain operations to neighboring countries for enhanced resilience. Mexico serves as an example of a country benefiting from increased manufacturing investments due to this trend.
In conclusion, the International Trade Council emphasizes that closing infrastructure gaps, reducing trade barriers, and implementing policies to enhance Latin America's attractiveness as an investment destination should be key components of the region's trade strategy moving forward. By addressing these areas, Latin America can unlock its trade potential and stimulate sustainable economic growth.
