Last Friday, the European Union green-lit a trade agreement with the South American customs union Mercosur. The deal paves the way for the creation of one of the world’s largest free trade zones in terms of population, encompassing more than 700 million people. After 25 years of on-and-off negotiations, the timing of the EU’s approval underscores the compact’s geopolitical significance.
The agreement, which is due to be signed in Paraguay on Jan. 17, comes just as Washington is embracing a hard-power redux via the so-called Donroe Doctrine. The deal has become about much more than trade: It is a sign that Europe and much of South America are pursuing strategies to increase their economic and strategic autonomy in the face of U.S. protectionism and military threats. As the United States projects force via gunboats in the Caribbean and explicit threats against Greenland, both regions are instead choosing partnership.
EU-Mercosur talks began in 1999 but stalled amid a wave of leftist leaders in South America during the 2000s and early 2010s. With the arrival of more market-friendly presidents in Argentina in 2015 and Brazil in 2016, negotiations advanced, and an agreement in principle was reached in 2019. This time, however, ratification stalled amid pushback from European protectionists.
The deal looked all but dead as former Brazilian President Jair Bolsonaro—a far-right climate change denier—became a persona non grata across Europe during his 2019-23 term. In response to environmental groups’ concerns that the pact would fuel deforestation in the Amazon or weaken the EU’s climate standards, the bloc in 2023 added tougher green provisions. That move nearly derailed the talks; Mercosur leaders bristled at what they saw as European overreach before later reaching a compromise.
As negotiations languished, China rapidly increased its economic footprint in South America. The EU’s share of Brazilian exports, for example, fell from 28 percent in 2000 to just 16 percent by 2019, while China surged to become Brazil’s top trading partner in 2009; today, it buys roughly 30 percent of Brazilian exports.
Several factors converged to revive the agreement. During U.S. President Donald Trump’s first term, his trade wars and neoimperialist bluster—he already had Venezuela and Greenland in his sights back then—helped jolt Europe and South America to reduce their reliance on an unpredictable United States. Washington’s retreat into zero-sum nationalism made strategic autonomy more than a buzzword—it became an economic necessity.
Absent a deal, Europe risked drifting further to the margins in South America’s economic landscape. In the same way, South America’s declining economic relevance in Europe limited its options amid growing competition between Washington and Beijing.
European officials diversified trade partnerships, accelerating talks with Mercosur as well as other players such as Japan. Mercosur nations came to see an EU deal as a hedge against being squeezed by great-power rivalry. This shift was particularly notable after Brazilian President Luiz Inácio Lula da Silva’s return to office in 2023.
As of this month, a majority of EU governments have agreed to proceed with the Mercosur deal. Even Italy, once skeptical, came on board after securing concessions such as farm market safeguards and promises of fresh agriculture funding, providing the margin needed for approval in the European Council. France and Poland remained vocally opposed.
These developments cap off a dramatic month for Latin America, where the region has been confronted with three starkly different engagement strategies by foreign powers.
In December, the United States released its latest National Security Strategy, openly reasserting a Monroe Doctrine-style claim over the Western Hemisphere, framed as a matter of national security and resource control. A week later, Beijing released a comprehensive white paper for Latin America that avoided naming the United States but sharply criticized “hegemonism” and “unilateral bullying,” instead offering long-term cooperation in infrastructure, energy, technology, finance, and defense. Europe’s trade moves complete this triangle.
For Mercosur nations—Argentina, Brazil, Paraguay, and Uruguay—the EU deal is less about an overnight export boom and more about geopolitical leverage. (Bolivia joined Mercosur in 2023 and is expected to become a party to the EU agreement in the coming years.) Both regions’ exports to Asia are far higher, and Mercosur only absorbs about 2 percent of the EU’s total exports. Still, stronger links with Europe create a third pillar to complement ties with the United States and China; South American governments won’t be forced into a binary choice between Washington’s pressure and Beijing’s pull.
The agreement also holds value for Mercosur as a bloc. In recent years, South American integration has stagnated, and intraregional trade has declined, with members drifting in different ideological directions. Some countries questioned Mercosur’s continued relevance as they explored unilateral trade deals (Uruguay with China, for instance) or flirted with leaving the bloc altogether. By tying Mercosur to the EU in a formal pact, the five-nation grouping regains purpose and cohesion. The deal also bolsters the diplomatic credentials of Brazil, which sees itself as a regional leader.
For Europe, the agreement offers a partial hedge in the global scramble for rare earths and other critical inputs. Brazil alone controls more than 20 percent of global critical mineral reserves, including rare earths essential for advanced manufacturing, clean energy technologies, and military applications, while Argentina and Bolivia possess important lithium reserves. As governments around the world seek to reduce their dependence on China as a source of critical minerals, codifying access to South American supply chains has become a strategic asset in addition to a commercial one.
On a deeper level, the timing of the EU-Mercosur pact makes it a symbolic rebuttal to the narrative of inevitable deglobalization. Over the past several years, a wave of populism and protectionism—from Brexit to Trump’s tariffs—has cast doubt on the future of open markets. Many analysts feared that the world was headed toward decoupling and rival economic blocs. The EU-Mercosur agreement offers a counterpoint. It demonstrates that, even in 2026, the global north and global south can choose cooperation over confrontation.
For all the fanfare, the deal is not entirely over the finish line yet. The European Council has authorized it, and the president of the European Commission is set to sign it, but it still requires final approval in the European Parliament and Mercosur member states’ parliaments. Powerful agricultural lobbies in countries such as France remain staunchly opposed, fearing competition from South American beef and crops. Yet while French farmers can be expected to stage further protests—from tractor blockades in Paris to furious lobbying—it seems increasingly unlikely that they will be able to derail the deal’s ratification.
If fully realized, the EU-Mercosur agreement will be the largest trade deal either bloc has ever implemented. But its significance goes well beyond economics. It demonstrates that Washington’s unpredictability can have unintended positive effects—spurring other powers to forge new alliances and invest in diplomacy. In the long shadow of the Donroe Doctrine and Trump’s incessant threats against EU member Denmark, that is no small feat.