Can the UK’s new Labour government boost trade with Latin America?

It’s been more than a decade since the then Conservative Foreign Minister, launched the ‘Canning Agenda’ to reset relations with Latin America. The effort correctly identified the potential for growth in Latin America, although the results were mixed. Now the election of a new Labour Party government opens up possibilities for refreshing relations between the UK and Latin America and the Caribbean (LAC).

There is enough ideological alignment, for instance, between the UK and LAC’s two biggest economies – Mexico and Brazil – to make greater co-operation a realistic prospect. However, it is notable that while the Labour Party manifesto talked of a strategic partnership with India, trade and investment in the Gulf, and a new approach to Africa, LAC was not mentioned at all. Electoral calendars, political uncertainty, fragmented legislatures, and the region’s propensity for pronounced political swings could also hamper progress.

New initiatives are needed if LAC-UK bilateral trade is to grow significantly, and there are possibilities. For instance, the Labour government’s idea of an international clean power alliance could lead to a mutually beneficial marriage of Latin American renewable energy resources and UK technology and innovation.

Another possibility is that, in the absence of a US-UK free trade agreement, British companies may find that investing in Mexico is a cost-effective access route into the US market.

At a time of growing protectionism, regulation, and supply-chain security concerns, Latin American countries could see a lighter-touch, free-trade leaning UK as an attractive partner, providing some welcome diversity to the US, EU, and China trade blocs.

Another scenario, however, is that, for the new Labour government faced with multiple pressing challenges, LAC could remain low down on the priority list and the region will continue to represent less than 5% of total UK trade.

Stagnant trade

A central problem for the new British government is that UK-Latin America trade has been largely stagnant over the last half century. Substantial time and political will is necessary to change this. UK exports to the region last year (2023) totalled £24.87billion, representing only 2.9% of total UK exports.

The top five LAC export markets for the UK were Brazil (22.9% of the regional total), followed by Cayman Islands (18.7%), Mexico (13.1%), Bermuda (12.2%), Guyana (5.5%), and Chile (4.9%). Top UK goods exports to LAC countries include gas turbines, packaged medicaments, hard liquor, and cars; with services exports largely comprising the banking and insurance sectors. The appearance of the tiny Cayman Islands and Bermuda in top five, is explained by financial service exports.

Imports from LAC in 2023 were £19.33bn or 2.15% of total UK imports. The main supplier countries were Brazil (24.4% of the regional total), followed by Mexico (17.3%), Bermuda (8.0%), Peru (7.5%), Argentina (6.2%), and Costa Rica (4.7%). Key UK imports from LAC include soya, gold, coffee, prepared meat, cereals, raw sugar, hydrogen, refined petroleum, and engine parts.

Historically, UK trade with Latin America, has been heading downwards. The share of total British exports going to Latin America was around 11% at the time of the First World War, dropping to 8.0% by 1938, and falling further, below the 5% mark to 4.5% in 1960. Since then, UK exports to LAC have languished. Imports from Latin America have followed a similar disappointing trajectory.

This century of decline in trade, as well as investment flows, reflects major trends including the rise of the US as a military and diplomatic superpower, and the emergence of China as a major trade and diplomatic competitor. Cultural factors mean many UK businesses hold back from seeking opportunities in the region.

An informal survey of commercial attaches conducted in 2021 cited many common themes, including a lack of familiarity with regional markets, a lack of contacts, insufficient information on regulation and local business culture, misperceptions and negative generalisations about Latin America, and the UK’s traditional focus on other emerging economies in the Middle East and Asia.

Three future scenarios

The UK’s limited trade performance in Latin America and the Caribbean would emphasize that these low numbers mean there is plenty of room for growth although there are at least three possible scenarios for the future of the UK–LAC bilateral trade and investment relationship.

Put bluntly, in the first of those scenarios not much changes: despite a new government in London, the current comparatively low level of engagement between the two sides will continue.

The second scenario could be described as one of ‘quiet improvement’. After an initial period necessarily focused on re-setting its relationship with the EU, it is likely that the UK will find a strong niche role in regional trade. At a time of growing protectionism, regulation, and supply chain security concerns, Latin American countries may see a ‘lighter touch’ free-trade leaning UK business partner as an attractive proposition adding welcome diversity to the US, EU, and China trade blocs. The gradual expansion of UK trade agreements within the region, including the Pacific-facing CPTPP, will also have a positive cumulative effect. In this scenario trade will grow from a low base in 2024-2029 perhaps close to the 5% of the UK total.

The third scenario is the most optimistic. It envisages growth being driven forward by two major global trends: the climate transition and nearshoring. Taken together these trends will accentuate a new type of energy transition based comparative advantage. LAC governments are acutely aware of growing climate change risks and will welcome UK expertise on building in resilience and exploring the potential for new technologies such as green hydrogen. Meanwhile the nearshoring boom in Mexico and elsewhere, in the absence of a US-UK trade agreement, will provide a low tariff way into the US market, still the world’s largest single economy.

For this scenario to work the new Labour government will have to be pro-active and demonstrate political will, for example by pushing forward with its idea of a ‘clean power alliance’. New private sector investment could in this scenario push trade with the LAC countries up beyond 5% of the UK total in the next 5-10 years.

To read the paper in full, visit Canning House.