Trade, geopolitics and automobiles, though seemingly disparate things, are interconnected in South America.

Billboards advertising new electric vehicles from the United States’ Chevy, China’s BYD, and Germany’s Audi line a street in Montevideo, Uruguay. This everyday sight, however, showcases a growing geoeconomic rivalry and the dynamics facing South America. The exponential rise of Chinese trade with South America, the turn toward the green transition, and the shift in US attitudes toward trade have created a complex arena in which South America plays a pivotal role. Not only has the region seen a rapid shift within its own trade partnerships, but it is also home to crucial resources and markets that countries from beyond the continent are trying to tap into.

These dynamics create new challenges and opportunities for policymakers across South America and beyond, as well as for businesses interested in engaging with the region. Evolving trends create opportunities to reimagine trade relationships across the Americas but also highlight the potential risks of countries getting trapped on the wrong side of a trade war.

South America and Trade Competition

South America has historically had substantial commercial relationships with the United States and the European Union. However, over the last two decades, trade dynamics have shifted markedly toward the East, with China becoming the largest trade partner for the continent. This economic realignment has not gone unnoticed, and concern is rising in both Washington and Brussels. One sector where Chinese trade has increased exponentially is in the automobile market—particularly as it relates to electric vehicles (EVs).

Chinese automakers, including BYD, Great Wall Motors, and Chery, have expanded their presence in South America’s rapidly growing EV market. EV sales in the region have increased twofold each year since 2016. BloombergNEF forecasts that in Latin America, EVs will account for between 10 and 20 percent of new passenger car sales by 2028. Costa Rica and Uruguay are at the forefront of this transition, with EVs accounting for 16 and 15.6 percent of the market, respectively. In addition to the economic scale of this shift, China has leveraged EVs to highlight its pride in regional trade negotiations and strategic expansion. In fact, outside the Quito hotel where Ecuadorian and Chinese officials celebrated the signing of their 2023 Free Trade Agreement, a Chinese CS55 Plus glistened next to a sign welcoming China to Ecuador.

Few developments exemplify China’s rise in South America as clearly as Brazil’s automobile industry. In 2024, Brazil was the world’s eighth-largest automaker with a production output of 2.55 million vehicles. While historically the Brazilian market was dominated by American, European, and Japanese companies, the sector has recently attracted substantial Chinese investment, notably from BYD.

BYD entered the Brazilian market in 2015 by establishing an electric bus chassis plant. After nearly a decade in the country, the company has also announced plans to open a new facility in Bahia in 2026. With an estimated investment of R$5.5 billion (approximately USD$1 billion)—the largest BYD investment outside China—the company is constructing a fully electric vehicle plant with an annual capacity of 150,000 units in the notable Camaçari complex—a plant built and operated by Ford from 2001 to 2021.

As part of this investment, BYD pledged to create 20,000 direct and indirect jobs in Bahia, supporting the state’s economic recovery following Ford’s departure. In addition to Brazil’s automotive manufacturing strengths, BYD is interested in Brazil as a strategic entry point to South America’s automobile market and the country’s abundant natural resources. In 2023, the company acquired lithium mining rights for two sites in a lithium-rich area, marking its expansion into mining within its largest market outside China. These developments will position BYD as a peer among established international competitors who have maintained a presence in the South American market for many years.

China’s automobile expansion into South America has sparked growing concern by Western countries, including those in the region. Earlier this year, Bahia’s Public Labor Prosecutor’s Office filed a lawsuit against BYD regarding allegations of human trafficking and labor conditions at the Camaçari complex construction site. Authorities have suspended construction at the plant.

Western Reactions

Although the second Trump administration is radically changing US trade policy, concerns about rising Chinese influence in South America have persisted since Obama. Politicians on both sides of the aisle have promoted policies to encourage nearshoring and US investment in the region as a tool for countering China—such as Trump 1.0’s America Crece Initiative, Biden’s Americas Partnership for Economic Prosperity, and the bipartisan Americas Trade and Investment Act. However, these efforts have not resulted in sustained increases in US engagement with the region.

The Trump administration’s current tariff policy—including the newly implemented 50 percent tariffs that apply to imports originating from Brazil—may run counter to nearshoring efforts. Given that most Latin American countries only faced the baseline 10 percent tariff rate, former Special Envoy for Latin America Mauricio Claver-Carone described “Liberation Day” as “a great day for America and a great day for the Americas.” However, these numbers have since gone up and are a dramatic increase for most countries in the region. Although it is too early to identify the regional winners and losers of these tariffs, J.P. Morgan Private Bank predicts notable effects on Brazil. They estimate that a 10-percentage-point tariff increase on Brazilian exports to the US could reduce Brazil’s GDP by 0.2 to 0.3 percent.

Europe does not offer a clear strategy for countering China either. While the European Commission remains committed to free trade—as demonstrated by the recently concluded EU-Mercosur agreement—EU member states lack a unified position on trade policy or China. For instance, France continues to express reservations about liberalizing its heavily subsidized agricultural sector, while Germany seeks to enhance competitiveness through improved access to international markets.

Moreover, although EU officials often discuss with concern China’s expansion into South America, Chinese automotive manufacturers have achieved notable progress in Europe. Unlike the United States and Canada, which have introduced significant tariffs to limit Chinese vehicle imports, these vehicles are increasingly visible across many European cities. Interestingly, similar to the sale of Bahia’s former Ford Camaçari complex, German automaker Volkswagen is currently negotiating the sale of two factories in Germany to BYD.

Strengthening Commercial Power as a Component of Diplomacy

The United States needs to improve how to leverage its corporate power and use diplomacy to enhance business and national interests—an idea perhaps best captured in the (misquoted) words of the former US automobile manufacturer turned Secretary of Defense, Charles E. Wilson: “What’s good for General Motors is good for America.”

There are a number of concrete economic policies that the United States could implement to help bolster its corporate power in South America. These could include tax and investment incentives for companies to not only engage in the United States but also seek to strengthen supply chains within the Americas. Another area that would be ripe to expand is in de-risking US investment in the region by developing investment insurance or revenue guarantees for companies that invest in areas critical to US national interests.

In addition to these, the United States could try to expand its free trade agreements with the region—an action that China has already sought to take advantage of. But more than these direct policies, if the United States wants credit for the work that its companies engage in abroad, leaders must make a concerted effort to showcase how US companies benefit other nations. China’s success in the region is not just about its direct engagement and increasing trade but also about its ability to market its partnerships in the region successfully to fully capture the imagination of the population and policymakers alike.

Furthermore, both US and European firms have a competitive advantage over China: popularity among workers. Market analyses consistently rank US and European multinationals among the best places to work in Latin America, with nine of the top ten best multinationals to work for in the region coming from the United States or Europe, while none of the top 25 are Chinese. In contrast, Chinese companies have developed a reputation for labor and human rights violations, as seen in cases across China, Africa, and Latin America.

Avoiding the Dependency Trap

South American leaders are also faced with an interesting challenge — how to ensure their own national development and take advantage of growing cleavages within the international trade system. South American countries have often suffered from dependency on other economic poles and have suffered the resulting booms and busts of commodity prices.

South American leaders have the opportunity to take advantage of the electric vehicle race and the broader green transition. One of the key elements necessary for ensuring the success of electric vehicles is ensuring the effective development of battery technology. At present, this requires the use of lithium batteries. Fortunately for South America, the region is particularly lithium-rich. According to most estimates, the Lithium Triangle—Argentina, Bolivia, and Chile—is home to nearly 60 percent of global lithium reserves. This could lead to massive investment in these nations and provide development opportunities.

However, leaders in these countries must also be careful not to fall into a new cycle of dependence and become overly reliant on a single resource extraction. Doing so may lead to a shift in trade dependency from the United States to another country and may create the risk of suffering from the boom-and-bust cycle. As such, leaders would do well to examine ways to ensure technological transfers, develop downstream production capabilities, and develop funds that reduce the risk of inflation and Dutch Disease.

Competition in the automobile—and particularly electric vehicle—industry is just the tip of the iceberg. The growth of China and the resulting pushback to globalization in the United States and Europe are leading to radical changes in the global trade regime. This will have important implications for companies seeking to invest in the Americas as well as governments seeking to compete in an evolving global arena.

For companies, the rapidly evolving trade environment creates opportunities and risks for investment in the region. While there are US efforts to promote nearshoring, the Trump administration’s approach has led to rapid fluctuations necessitating that companies carefully consider not only the domestic political risk of engaging in different countries, but the geopolitical risks associated with the US-Chinese rivalry and within US-Latin American relations. At the same time, companies may be able to take some comfort in the fact that Latin American and Caribbean countries are actively diversifying their trade relationships—reducing some of the risk emanating from uncertainty in DC.

At the same time, capitals across the Americas should continue to diversify their trade partnerships and showcase how this diversification minimizes risks for potential investors. Foreign Direct Investment remains critical for the region, and the shifting landscape may provide opportunities for critical sectors in some countries to thrive. However, care must be taken to ensure that countries do not get stuck in new cycles of dependency.

South America has become a beachhead of geoeconomic competition. This provides opportunities for potential investors and countries. However, navigating the current geopolitical environment is complex, and leaders—both in the public and private sectors—need to make sure that they are fully considering the different potential outcomes in the region and beyond.