On AI and energy: ‘Infrastructure is destiny‘

In the first panel of the Forum, “Thinking big and building bigger,” Global Energy Center (GEC) Senior Director and Morningstar Chair Landon Derentz led a conversation on meeting the energy demands needed to power AI. The discussion featured Mariam Almheiri, group chief executive officer of 2PointZero and chair of the international affairs office of the Presidential Court of the United Arab Emirates (UAE); Chris James, founder, chief investment officer, and chairman of Engine No. 1; Chris Lehane, OpenAI’s chief policy officer and vice president of global affairs; and Chase Lochmiller, co-founder, chief executive officer (CEO), and chairman of Crusoe. 

“AI and energy are inextricably linked,” began Derentz, outlining the challenge that industry and policymakers face in needing to “smash through the bottlenecks” to enable technological progress. Lehane reflected on the energy-related challenges OpenAI grappled with as it became the fastest digital platform in history to reach 100 million users. On lessons learned, Lehane stated that “infrastructure is destiny,” and that AI breakthroughs can only happen when providers are able to bring together “chips, data, talent, and energy” to facilitate this game-changing technology. Lochmiller suggested that AI can help unlock a “new era of abundance”—but before material abundance can be reached, energy abundance is needed to make that a reality.  

James continued by defining the obstacles in meeting AI’s energy demands. “Energy is a fairly linear system, but the demand for compute is exponential.” James advised that if policymakers and industry can overcome bottlenecks such as project permitting, outdated regulations, and credit availability, they can foster “an enormous amount of reindustrialization across the United States.”  

Almehri then contextualized the international trends that preceding speakers had identified. “When I think of creating AI clusters, there are certain elements that regions have to combine,” she said, ranging from their ability to channel strategic investments to having adequate infrastructure and energy. Citing the UAE’s relevant advantages, Almehri counseled that “for this AI megatransition, we need a transformation on the energy side”—to do that, she continued, requires partnerships. 

Derentz continued by asking panelists about the timelines, regulatory hurdles, and geopolitics associated with AI growth. “The age of intelligence is incredibly resource intensive,” noted Lehane, “and this resource intensity is where we’re seeing bottlenecks.” Lochmiller cited Crusoe’s work in Texas as showing not only that “every aspect of the economy is required,” to realize AI’s potential, but that “every aspect of the economy will benefit.” Regarding international AI rivalry, Almehri highlighted that while the UAE has “made it clear to everyone that we are partnering with the United States,” it is important for major players to cooperate on global tech governance and “work together to build standards.”  

Derentz concluded by asking participants the top of the policy wish list. They identified regulatory adaptability, innovative capital solutions, public-private partnerships, and international collaboration. Most fundamentally for the future of AI, is a change in perspective. “It’s a mindset,” said James. “This country is at its best when it thinks big, acts big, and builds big: we need to get back to that.” 

Pathways to industrial competitiveness and trade

The panel “Pathways to industrial competitiveness and trade,” moderated by Saphina Waters, director of stakeholder engagement and communication at the Oil and Gas Decarbonization Charter (OGDC), explored the complex intersection of trade, competitiveness, and climate policy—something panelists described as a puzzle with one thousand pieces. 

Emphasizing the urgent need to reshore US manufacturing, Sarah Stewart, CEO of Silverado Policy Accelerator, called for an aggressive agenda to “build, protect, and promote” that aligns policy tools with clear construction objectives.  

Sasha Mackler, senior vice president and head of strategic policy at ExxonMobil Low Carbon Solutions, noted that the company is focused on strengthening domestic manufacturing and expanding energy exports. He stressed that climate policy must evolve from being just a matter of regulation to one integral to business models. 

Participants criticized the absence of a clear, concise, and universally accepted carbon accounting system. Without that system, panelists said international collaboration is hindered and domestic implementation becomes more challenging and that a harmonized, interoperable framework would help simplify climate-related policy and economic planning. 

On the European Union’s Carbon Border Adjustment Mechanism (CBAM), Stewart expressed concerns about potential discriminatory effects. She argued that while identical systems are not necessary, interoperability is essential to ensure fairness and global cooperation. 

The panelists argued that creating a level playing field for US manufacturers is not just a climate issue—it is a matter of national and economic security. They held that ensuring American industries are not unfairly disadvantaged must be a policy priority. 

The makings of a manufacturing powerhouse

The panel “The makings of a manufacturing powerhouse: Legacy strength and new frontiers,” moderated by Neil Brown, nonresident senior fellow at the GEC and managing director of KKR Global, explored how manufacturers are navigating today’s complex geopolitical landscape, focusing on capital flows, project financing, and talent development. 

One of the central topics of discussion was the strategic role of emissions accounting. Karthik Ramanna, co-founder and principal investigator at the E-Liability Institute, suggested that when carbon accounting is viewed merely as a reporting requirement, it tends to become a burden. He argued, however, if reframed as a tool for product differentiation, it can become a source of value creation. Brandon Spencer, president of the motion business area at ABB, added that using emissions data in a strategic—not just operational—way can become a real competitive advantage for companies. 

Catherine Hunt Ryan, president of manufacturing and technology at Bechtel, presented a two-part framework for managing complexity: “what to continue” and “what to consider.” Companies should prioritize core competencies, she said, particularly in engineering and subject-matter expertise, while also identifying and managing critical supply chains and building data-driven execution models. At the same time, organizations must consider their ability to embrace change in a dynamic global environment. 

Looking ahead to the next decade, the panel discussed which regions are likely to emerge as manufacturing leaders in this new geopolitical context. Julian Mylchreest, executive vice chairman at Bank of America, remarked that the United States is well positioned to be among the winners. 

Leveling the global playing field

In a leadership spotlight moderated by Dan Brouillette, former US secretary of energy, Sen. Bill Cassidy (R-LA) emphasized that the world must adapt to new geopolitical realities. China has gained a competitive edge by not enforcing environmental or pollution standards, allowing it to strengthen both its economy and military. Meanwhile, the United States and European Union have adopted stringent climate regulations, putting their industries at a relative disadvantage. Cassidy also argued that differing regulatory regimes have created an unfair global marketplace. He proposed leveling the playing field with a US version of CBAM: a foreign pollution fee. This fee would apply to imports from countries that do not adhere to US environmental standards, helping to protect domestic industry and workers. 

Cassidy highlighted the strategic importance of producing natural gas domestically. He noted that natural gas supports manufacturing, replacing coal and thereby reducing emissions. Moreover, argued Cassidy, by producing gas domestically, the United States can support economic policies, which supports US working families. 

Unlocking energy abundance to enable equitable access

To wrap the first day’s panels, Phillip Cornell, GEC nonresident senior fellow and principal at the Economist Impact, moderated a discussion on creating abundant, affordable, and reliable energy to sustain economic growth, foster innovation, and promote national security. The panel featured Jude Kearney, member of the board of advisors at the African Energy Chamber; Tarik Hamane, CEO of Morocco’s National Office of Electricity and Drinking Water; Thomas R. Hardy, acting director of the US Trade and Development Agency (USTDA); and Bob Pérez, Baker Hughes’ vice president for strategic projects. 

Cornell framed achieving abundance as “one of the most consequential energy questions of our time.” With 800 million people across the globe still lacking access to electricity while technology-related demand grows rapidly, Cornell said it is crucial to “build systems that can deliver energy abundantly, equitably, and affordably.”  

Hardy discussed USTDA’s role in fostering energy abundance through international partnerships. While administrations change, Hardy noted, USTDA continues to work on projects that contribute to US security and prosperity, “working with our partners and meeting them where they are” to grow different forms of energy supply. 

Next, Kearney elaborated on Africa’s role in achieving abundance. Advising that access is key, he highlighted the need for an “abundance of thoughtfulness and good governance.” Pérez, offering a private sector view, added that the formula for abundance, ultimately, is rather simple: “I’ve never seen a good project not get money,” he said, “the question is how you get to a good project.”  

Finally, Hamane expanded on the theme of partnerships by sharing lessons from Morocco. The country has achieved near-universal rural electricity access, up from less than a quarter only three decades ago. As Morocco looks to build infrastructure that can connect its growing renewable production to new markets in Europe and Africa, Cornell concluded by lauding these projects as a “a physical manifestation of the integration needed to achieve abundance.”   

2PointZero, ABB, Baker Hughes, Bank of America and ExxonMobil are sponsors of the Atlantic Council’s Global Energy Forum. More information on Forum sponsors can be found here. 

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

Paddy Ryan is a former assistant director with the Atlantic Council Global Energy Center. He is a senior writer/editor at the University of California Institute on Global Conflict and Cooperation.

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EnergySource is the Global Energy Center’s (GEC) online publication providing commentary and analysis on developments in the energy and climate sector from a wide-array of thought leaders, politicians, and experts.

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EnergySource Jun 2, 2025

MDBs must finance nuclear power—or Russia and China will

By Juzel Lloyd

The growing influence of Russia and China in global nuclear energy financing threatens to reshape the future of energy geopolitics. To address this, multilateral development banks must recognize nuclear energy as a vital tool for expanding energy access, and modernize outdated policies to support deployment.

China Energy & Environment

EnergySource Jun 16, 2025

US global leadership in the age of electricity

By Robert F. Ichord, Jr.

Amid shifting geopolitics and the emerging “age of electricity,” the United States has an opportunity to assert global leadership in energy and security. Through foreign policy, the Trump administration can leverage US strengths in natural gas, nuclear power, and emerging energy technologies to engage allies in building a secure and resilient global electricity system.

China Energy & Environment

EnergySource May 21, 2025

Replace the Inflation Reduction Act with FUEL-AI

By Joseph Webster

To compete in the global AI race, the United States must dramatically expand its power supply. Replacing the Inflation Reduction Act with the FUEL-AI Act would reorient energy policy toward national security, fast-tracking domestic energy production and infrastructure to power America’s AI future.

Energy & Environment Energy Transitions

The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

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The post The energy system is more complex than ever: navigating AI, competitiveness, and growth appeared first on Atlantic Council.

The White House has tied potential tariff relief to the elimination of tariff and nontariff barriers identified in the Office of the US Trade Representative’s 2025 National Trade Estimate Report on Foreign Trade Barriers (NTE Report). While the administration’s plan may be a well-intentioned attempt to increase US exports to the region in general, it overlooks a critical reality: Many of the so-called “barriers” are rooted in complex legal systems that cannot be easily dismantled without legislative or judicial processes. Pressuring countries to enact sweeping reforms in uncertain political environments could destabilize fragile democracies and weaken strategic partnerships, particularly at a time of growing global competition.

Profitable economic relationships

Despite ongoing challenges, Latin America has proven to be a successful economic partner for the United States. Washington enjoys trade surpluses with most Latin American countries that have existing agreements. According to US Census Bureau data, in 2024, US exports to CAFTA-DR nations totaled $47 billion, compared to $36.6 billion in imports.

Several examples illustrate this point. Colombia has consistently posted a surplus in industrial goods since 2012, driven by exports of machinery, vehicles, agrochemicals, and pharmaceuticals. Very recently, the United States has gained a trade surplus in agricultural goods with Colombia. Peru and Chile are also vital markets for US technology, medical equipment, and engineering services, due to their dynamic mining and agricultural sectors.

Moreover, many larger US companies have made significant investments across Latin America—investments made viable by the legal certainty that free trade agreements provide. 

Complexity, not obstructionism

It is worth zeroing in on the “barriers” the White House aims to remove. The 2025 NTE Report outlines a variety of trade “barriers,” ranging from health policies to customs procedures. Yet many of these are embedded in domestic legal frameworks and cannot be removed through executive fiat. In Colombia, for example, lifting certain phytosanitary restrictions requires prior consultation with indigenous communities, as mandated by the country’s constitutional court. In the Dominican Republic, altering labeling or certification norms requires legislative action. In Honduras, reforms to intellectual property laws must pass through cumbersome legislatures facing intense social scrutiny.

These legal and institutional realities should not be viewed as roadblocks but as features of functioning democracies. The United States expecting immediate compliance is not only unrealistic; it risks backfiring.

Still, there are areas where progress can be swift and impactful. Many Latin American governments are already working to streamline health registration processes, modernize customs systems, and improve transparency in public procurement. For instance, Peru’s National Customs Superintendency has digitized import procedures, significantly reducing clearance times. Guatemala’s Ministry of Economy has pushed for regulatory alignment with international food safety standards, boosting trade efficiency.

These efforts reflect a clear political will to cooperate and offer the Office of the US Trade Representative a path to pursue measurable outcomes without demanding sweeping structural reforms upfront. Furthermore, these efforts are a clear message that FTA partners in the region are facilitating trade with the United States by avoiding unnecessary red tape procedures while also complying with WTO standards.

A strategic imperative: Latin America vs. Southeast Asia

Meanwhile, Southeast Asia is emerging as a strong competitor for US investment, bolstered by market-friendly reforms and frameworks such as the Indo-Pacific Economic Framework. Vietnam, Thailand, and other countries in the region are actively positioning themselves as preferred US trade partners in that part of the world, but with the caveat that none of them currently has an FTA with the United States.

There is no doubt, however, that China is wielding its geopolitical influence to use neighboring countries to export its goods to Latin America. From there, China takes advantage of the current network of trade pacts in Latin America to distort the rules of play of many products covered under FTAs. The triangulation of goods from third countries can often circumvent proper country-of-origin rules, undermine trade facilitation efforts in the region, and contribute to unfair trade practices.

US trade partners in Central and South America cannot afford to fall behind. The region’s comparative advantages—geographical proximity, shared legal traditions, integrated supply chains, and democratic values—are unmatched. Unlike Southeast Asia, Latin America shares a common geopolitical space with the United States, in addition to their shared economic security interests.

It is time for US stakeholders to fully recognize the strategic value of Latin American partners. Providing support for viable reforms, offering technical cooperation, and showing flexibility in tariff negotiations can help ease current trade tensions and solidify the US presence in a region where China is seeking to expand its influence.

Thankfully, an appropriate framework for institutional trade cooperation is already in place. These agreements don’t require reinvention—only thoughtful adjustment. To give one clear example, free trade commissions established under free trade agreements—such as CAFTA-DR and the free trade agreements with Colombia and Peru—play a critical role in ensuring adherence to agreed commitments and resolving disputes effectively and diplomatically. These bilateral committees, which offer the possibility of engaging separately in previous consultations with the private sector, provide a structured forum for addressing trade issues, implementing dispute resolution mechanisms, and updating the technical provisions of agreements as trade dynamics evolve.

Under CAFTA-DR, the committees have helped resolve disputes concerning agricultural market access and rules of origin. In the case of Colombia, the committee has facilitated dialogue on labor practices and sanitary barriers affecting US agricultural exports. With Peru, the committee has been instrumental in addressing environmental concerns, particularly those related to illegal logging.

By providing an institutionalized channel for engagement, these bodies help prevent diplomatic tensions and foster mutually beneficial outcomes, thereby enhancing stability and predictability in trade relations. The United States should look to make the most of these important committees.

In an increasingly fragmented global landscape, deepening ties with existing partners is the most direct and effective path to advancing US economic security and strategic interests. The best way to foster sustainable growth for US exports to the region is for the United States to seek predictable rules of engagement with its trading partners in the Western Hemisphere.

Enrique Millán-Mejía is a senior fellow for economic development at the Adrienne Arsht Latin America Center. He previously served as a senior trade and investment diplomat of the government of Colombia to the United States between 2014 and 2021.

The post What should Trump do next on trade? Optimize existing US trade agreements in Central and South America. appeared first on Atlantic Council.

The Trump administration has launched an investigation under Section 232 of the Trade Expansion Act into the impact of semiconductor imports on national security, a step toward imposing tariffs. But if it moves ahead with tariffs on all semiconductor imports, the United States would raise hardware costs for US AI firms, punish important partners such as Mexico and Taiwan, and lower prices for Chinese competitors. Tariffs targeted at China have their uses in the US-China tech competition, but they shouldn’t be applied haphazardly to US allies and partners.

Semiconductors and dual-use imports

Today, the United States and like-minded allies and partners are competing with China in AI, or what AI entrepreneur Dario Amodei and former US Deputy National Security Advisor Matt Pottinger have described as possibly “the most powerful and strategic technology in history.” AI-related imports enable US AI companies to access cost-effective inputs and continue to outpace Chinese competitors. Since AI is an emergent technology with such large potential utility and consequences, it would be a mistake to allow China to define the rules of engagement.

Components are a key cost driver for training AI models. Key AI-related component imports include processing units, such as graphics processing units (GPUs) and central processing units (CPUs), and printed circuit assemblies (PCAs), all of which could be targeted by Section 232 tariffs. GPUS are one of the most popular computing technologies to run AI models due to their ability to train massive models and speed up inference at scale; they’re also used on board autonomous vehicles. Similarly, PCAs are critical because they house and interconnect critical components like GPUs, CPUs, memory, and networking chips inside servers and data center infrastructure. AI is a critical source of demand, although chips and printed circuits are also used by a variety of non-AI applications, including cars, computers, washing machines, routers, etc. Imports of processing units and PCAs have surged in recent months due to both AI-driven demand and companies seeking to get out ahead of tariffs.

PCA unit imports have more than quintupled since 2021, with no productivity changes to explain the jump—pointing to greater hardware needs. Consequently, if PCA prices rise due to tariffs, the US AI buildout could slow.

Two economies are prominent partners of dual-use technology, with both military and civilian applications, for the US AI sector. The first, Taiwan, not only ships leading-edge GPUs to the United States, but the Taiwan Semiconductor Manufacturing Company has committed to investing a cumulative $165 billion in the US tech sector. The second, Mexico, is the largest single aggregate supplier to the United States of GPUs and CPUs, as well as PCAs, by value. Tariffs on semiconductor inputs would punish US partners while limiting the access of US firms to the global market.

Indeed, hardware is a significant cost driver for US AI. Researchers for Epoch AI and Stanford University have found that AI accelerator chips and other server component costs comprise about half of all costs for training and experiments of machine language models. Moreover, building AI models is highly capital intensive: hyperscalers committed $200 billion in twelve-month trailing capital expenditures in 2024; Morgan Stanley projects hyperscaler capital expenditures could reach as high as $300 billion in 2025. Significantly, since hardware acquisition costs are “one to two orders of magnitude higher than amortized costs,” higher prices via tariffs could deter new AI entrants, slow adoption, and stymie dynamism. 

Unintended tariff consequences on the Chinese tech sector

While heavy tariffs would harm the US tech sector, they are unlikely to impede China in the AI race. In fact, tariffs could indirectly encourage tech transfer to China by pushing other countries, especially in Southeast Asia, to work more closely with Beijing. In mid-April, after US President Donald Trump’s announcement of global “reciprocal” tariffs and the subsequent ninety-day pause, Chinese President Xi Jinping visited Vietnam, Malaysia, and Cambodia, saying he would “safeguard the multilateral trading system.” China left these meetings with several memorandums of understanding on investment and trade, including a call to increase AI cooperation with Malaysia.

The mention of AI cooperation was striking and potentially significant. Export controls of US-designed semiconductors to China have been leaky: There is some evidence of GPU transshipment to China through Southeast Asia, notably Malaysia. The Wall Street Journal also reports that Chinese engineers are using Malaysian data centers to train AI models. Meanwhile, the export of GPUs and other computer hardware containing semiconductors from Taiwan to Malaysia reached $307 million in April (more than half the value of the same exports for all of 2024). Remarkably, Taiwan’s GPU and CPU exports to countries in the Association of Southeast Asian Nations (ASEAN) hit a record high in April—surpassing exports to the United States by value for the first time on record.

The increase in Taiwan’s semiconductor exports to ASEAN does not, by itself, demonstrate transshipment to China: Malaysia is becoming an increasingly popular spot for international data centers because of the country’s cheap real estate and its proximity to Singapore. It’s possible that the GPUs and CPUs were consumed in the domestic market. Still, it’s worth noting that recent data center entrants in Malaysia include Chinese firms. If US tariffs make countries like Malaysia more willing to work with China, that could increase the risk of US export controls being violated.

 If not tariffs, then what?

Given that non-China tariffs appear likely to harm the US tech sector and could strengthen Chinese tech firms via technology leakage, US policymakers should consider alternative tools.

The United States has been able to slow the Chinese tech sector by imposing a series of bipartisan export controls that limit Beijing’s access to high-end semiconductors. Last month, the Bureau of Industry and Security rescinded the AI Diffusion Rule, which strengthened chip-related exports. Some criticize the framework for casting too wide of a net, while others hold that export controls are a crucial economic statecraft tool for protecting US national security interests and preventing technological acquisition by strategic rivals.

Export controls are vital and necessary, but they are not a silver bullet. To outcompete China, the United States must strengthen its own capabilities, including by incentivizing manufacturing and know-how in semiconductors and other strategic technologies. This is precisely the rationale for the bipartisan CHIPS and Science Act, which was signed into law in August 2022. Tariffs alone do not provide enough support to incentivize foreign investment and domestic capacity in chip technologies. While Congress and the White House should make adjustments to the CHIPS and Science Act where appropriate, the program’s overall aims should be maintained.

No one should be unclear on the stakes, amid the global race toward artificial general intelligence (AGI)—or artificial intelligence equal to or exceeding human capabilities. Whether the race is a sprint, a marathon, or something else entirely, the technology’s productivity gains will likely prove sizable. AGI also holds obvious potential risks, but it is in the United States’ best interest to be at the forefront of setting standards and developing the regulatory environment. Accordingly, it is important for the United States to maximize its chances of obtaining this technology and integrating it before China does by securing vital, high-end semiconductors ahead of its rival.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and the Indo-Pacific Security Initiative. He also edits the independent China-Russia Report.

Jessie Yin is an assistant director at the Atlantic Council’s GeoEconomics Center. This article reflects their own personal opinions.

The post Why tariffs on AI hardware could undermine US competitiveness appeared first on Atlantic Council.

The latest Americas economies in-depth infographic breaks down how key indicators across the region have changed in just six months. From cooling inflation to rising debt, and from export slowdowns to diverging national growth stories, the picture is far from uniform.

Behind these numbers are big global trends: falling commodity prices, questions around the path of US interest rates, and doubts about China’s growth momentum. These forces are reshaping outlooks across Latin America and the Caribbean—raising the stakes for economic reform, trade diversification, and smarter fiscal management.

Explore how LAC economies are adapting, where the risks and opportunities lie, and what to watch for in the months ahead.

The post Americas economies in depth: LAC’s economic outlook in mid-2025 appeared first on Atlantic Council.

Reauthorizing the DFC is vital to ensuring the United States is not outcompeted by China in its hemisphere. It is essential for supporting US jobs, creating markets for US exports, advancing energy independence, and linking foreign policy outcomes directly to economic benefits for American workers. Congress must act decisively to secure America’s economic interests and leadership in the Western Hemisphere.

How to update the DFC to further advance US foreign policy priorities in Latin America and the Caribbean

Created in 2018 under the BUILD Act, the DFC merged the Overseas Private Investment Corporation (OPIC) with USAID’s Development Credit Authority. This restructuring introduced a more agile and powerful tool for advancing US development objectives while strategically countering rivals, especially China.

As Congress prepares to revisit the DFC’s authorizing legislation, it should prioritize ensuring that the agency can effectively mobilize private capital for high-impact investments in infrastructure, minerals, energy, technology, and healthcare. These sectors are essential to strengthening the United States domestically—a key criterion set by the current administration for all agencies pursuing foreign policy initiatives. For example, investments in rare earth mineral exploration in the region not only secure preferential access for the US to the resource but can also generate US jobs in areas such as classification, storage, distribution, and processing.

The DFC must also reposition itself with enhanced tools, such as capital financing and technical assistance, so it can lead strategic investments. These investments should prioritize relocating supply chains for critical minerals, semiconductors, pharmaceutical inputs, and digital connectivity throughout Latin America and the Caribbean. Strengthening strategic alliances with like-minded countries and the private sector is essential to expand the DFC’s role in sectors vital to US economic and national security.

Key takeaways:

• Strategic alignment: The US International Development Finance Corporation (DFC) is a crucial agency for advancing US foreign policy objectives, promoting job creation and development, fostering economic partnerships, and supporting strategic allies. It aligns with forward-looking initiatives from the Trump administration, such as América Crece 2.0, which emphasizes private-sector-led growth. But DFC’s first reauthorization provides a unique window for updates to enhance effectiveness and alignment with US foreign policy priorities. Congress has until October to approve a reauthorization bill, but the decreasing availability of funds presents an urgency for approval.
• Geopolitical competition: The DFC can and should act as a strategic counter to the rising global competition for influence across the world, and particularly, in many of the developing nations that have continued to join China’s Belt and Road Initiative. The DFC offers a transparent, market-based alternative to opaque, state-driven financing models that come with political strings attached.
• Economic security: By investing in critical infrastructure and critical rare earth minerals, cybersecurity, energy, and healthcare in Latin America and the Caribbean (LAC), the DFC can enhance US economic security by strengthening alliances with like-minded countries to serve as a counterweight to aggressive Chinese actions that seek to dominate key sectors for the US economy and US supply chains while reinforcing the value of US-led investment.

Report May 29, 2025

Why Latin America and the Caribbean matter for OECD countries

By Jason Marczak, Martin Cassinelli

Latin America and the Caribbean are increasingly vital partners for OECD countries, offering critical minerals, food security, and clean energy assets. With democratic institutions, open markets, and active multilateral engagement, the region supports global resilience. Strengthened OECD–LAC cooperation can advance shared goals in economic security amid shifting global dynamics.

Americas Caribbean

Atlantic Council Strategy Paper Series Feb 12, 2024

A strategy to counter malign Chinese and Russian influence in Latin America and the Caribbean

By Matthew Kroenig, Jason Marczak, Jeffrey Cimmino

As strategic competition with China and Russia continues to intensify, the United States and its allies need a strategy for countering the malign influence of authoritarian rivals in the Western Hemisphere. This Atlantic Council Strategy Paper proposes a path forward for the United States and its allies to do that.

China Economy & Business

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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The post Why Congress must reauthorize the US Development Finance Corporation appeared first on Atlantic Council.

However, the uninterrupted flow of trade in the food and agriculture that feeds humanity is not guaranteed. The hemisphere’s leaders must think strategically and identify opportunities to strengthen the region’s agri-food architecture. 

The Scowcroft Center for Strategy and Security’s Food Security: Strategic Alignment in the Americas project, conducted in partnership with The Mosaic Company, assesses the Western Hemisphere’s food security in a changing strategic landscape. The project draws upon perspectives from across the Americas to understand the challenges and opportunities facing regional and global agri-food systems.

On April 10, the Scowcroft Center’s GeoStrategy Initiative hosted the project’s first private roundtable, bringing together dozens of leading experts from across the Americas from an array of research institutions, universities, the agri-food industry, government, and multilateral institutions. The discussion focused on food security in Latin America, highlighting the importance of trade, geopolitics, climate change, innovation, and investment trends.

A season of change

The Americas are navigating novel geopolitical and geoeconomic conditions, with uncertainties introduced by proposed new tariffs that the United States has placed (and might yet place) on its hemispheric neighbors. A significant concern involves the impact that such tariffs could have on established agri-food trade relationships across the hemisphere. Should the United States, Canada, or Mexico implement high tariffs on agri-food products, one potential consequence could be large reductions in the levels of agri-food trade around the globe and in the Americas. At the same time, some South and Central American countries might benefit from enhanced exports to one or more of those three countries. 

There are just as many, if not more, opportunities throughout the region to enhance food security. Intraregional trade in agri-food products—including processed goods such as cereals, food residues, meats, fats and oils, food preparations, oilseeds, beverages, and dairy products—provides a significant opportunity for enhanced cooperation in the Americas. Studies by the Food and Agriculture Organization and the Inter-American Development Bank have projected that Latin America’s intraregional agricultural market has room to expand; they identified some sixty-seven agri-food products with potential for growth in the future, forecasting market growth of some $3 billion (from $21.6 billion to $24.7 billion). Latin America’s subregions have substantial capacity to expand agri-food exchange with one another, thereby improving competitiveness in global markets. For example, while 60 percent of South America’s food imports come from intraregional trade in Latin American and Caribbean markets, in Mexico and Central America, that figure is only 20 percent.

Policymakers in Latin America should facilitate intraregional trade through regional trade agreements that, among other things, dismantle the complex set of rules currently hindering integration. Greater investment in ports, rail, and roads can create more physical connectivity. And digital connectivity, which can ease exchanges of all types, such as trade logistics, should be enhanced as well. As food security will depend on the increase of crop productivity in the coming years, there are opportunities to deepen intraregional partnerships on agri-food sciences, which will support sustainable production growth in these countries.

A changing climate

Roundtable participants also stressed how the changing climate will impact agriculture in Latin America. The planet’s ongoing warming (above 1.5 degrees Celsius compared with pre-industrial levels) poses serious challenges to Latin American agriculture. Strategies to overcome climate impacts should include a focus on both adaptation and mitigation to ensure that the region’s agriculture remains viable. Policymakers should focus attention on how to make smallholder farmers more resilient given the disproportionately harsh climate impacts they face. One strategy is to provide low-interest loans and access to training and other services to smallholder farmers. Such actions can increase access to land, fertilizers, seeds, and tools while boosting incentives to implement innovative agriculture technology, ultimately increasing yields and market access.

Roundtable participants also observed that on- and off-farm innovation plays an important role in shaping Latin America’s agri-food sector, stressing the criticality of emerging technologies in a more sustainable and resilient food system. The central challenge, they asserted, involves crafting the strategies needed to finance and successfully scale new systems given their expense. Improvements in data collection and analysis enhance understanding of how climate change is contributing to pest outbreaks and crop diseases. Alternative chemical processes for creating fertilizers and seed certification programs might improve soil and plant resiliency. The adoption of low-carbon agriculture models, backed with government support within streamlined and science-based regulatory processes, could further align agricultural policy with climate adaptation and mitigation objectives.

These reforms are needed in part because Latin America continues to face problems related to food insecurity. While the region has seen declining hunger and food insecurity in recent years, in part due to investments in social protection systems, 41 million people across the region were still affected by hunger last year. Even in major food-producing countries such as Brazil and Argentina, which dominate South American production and exports of soybeans, wheat, corn, and rice, lower-income populations continue to struggle to gain access to sufficient amounts of healthy food. 

To overcome food insecurity while ensuring that Latin America’s agri-food systems are resilient and interconnected, the region’s farmers, farming associations, agri-food firms and processors, supply distributors, and policymakers must cooperate with new, innovative strategies. Agri-food frameworks that are predictable, transparent, and based on rules and science will help cement the region as economically diversified, climate adaptive, and innovative. The Americas must take advantage of its strengths in the agri-food space for preeminence on the global stage.

Peter Engelke is a senior fellow with the Atlantic Council’s Scowcroft Center for Strategy and Security as well as a senior fellow with its Global Energy Center.

Ginger Matchett is a program assistant with the GeoStrategy Initiative in the Atlantic Council’s Scowcroft Center for Strategy and Security.

The post How to improve Latin America’s agri-food security in a changing world appeared first on Atlantic Council.

Where should the US Congress put its attention?

The heterogenous nature of the Caribbean offers various opportunities to strengthen relations with the region and, by extension, advance US interests. From natural gas to geothermal energy, Caribbean countries offer new opportunities for US investment. Reducing crime and gang proliferation across the region can protect US citizens traveling abroad and stem the potential flow of illicit goods and services.

Energy security

The United States can strengthen its positioning in the Caribbean by supporting regional energy security. At current estimated reserves, Guyana, Suriname, and Trinidad and Tobago house almost 30 trillion cubic feet of natural gas, with further offshore exploration expected to increase the size of reserves. At the same time, other countries require reliable power generation–which can be provided by liquified natural gas (LNG) imports–to provide resilience to their electricity grids during natural disasters, improve economic competitiveness, and to underpin ambitions to add renewables to their energy matrix.

Here, the United States will find opportunities on three fronts. First, natural gas exploration opportunities, liquefaction infrastructure, and building pipelines and LNG storage are areas where US oil and gas companies and mid-size service-based companies can invest. Second, imported oil from Guyana, Suriname, and Trinidad and Tobago can be low-cost and competitive options vis a vis other suppliers to satisfy growing US energy demand and supplement domestic shale supply in Texas and Midwestern states. Finally, congressional members can work with the Southern Caribbean hydrocarbon producers to support energy security in Europe and lessen demand for Russian energy resources by increasing cargo exports to EU members.

Greater Caribbean energy security can also lead to lower electricity prices, which can benefit constituents of US congressional members traveling to the Caribbean and potentially reduce migration to the United States. Most of the region (except for Suriname and Trinidad and Tobago) pays some of the highest electricity in the Americas (see Figure 3), which is on average, double or triple what US consumers pay. At the same time, electricity costs can account for almost 70 percent of a hotel’s utility due to air conditioning, lighting, and heating, among others.

Therefore, to keep profits stable, the high costs translate to the consumer–in this case, US tourists. This means that by bringing down electricity costs and lowering the cost to travel and having overnight stays in the Caribbean, US tourists benefit and have more purchasing power to buy in-country goods (most of which are imported from the United States). Further, reducing electricity prices can stem Caribbean emigration flows to US shores given that high costs of living are a key migratory push factor.

Reducing violent crime and gang activity

Security concerns in the Caribbean are on the rise. Figure 4 shows that Caribbean countries have high homicide rates (per 100,000) relative to their Latin American neighbors. Rates have been on the rise due to increased gang proliferation and illegal imports of small arms–many of which originate from the United States. For example, countries like Trinidad and Tobago, declared a state of emergency late 2024 due to increased gang activity and the usage of high-powered assault weapons. Gang proliferation is also on the rise. While Caribbean countries do not house large gangs, smaller gangs pervade the region, using the informal ports of entry to move illicit guns, goods, and services. In 2021, Jamaica identified 379 different gangs with 140 named in 2023 for Trinidad and Tobago. The decentralized nature of criminal and gang networks in the region inhibits Caribbean governments and police forces’ abilities to combat gang operations. Further, gangs in the Caribbean, especially in Jamaica, are turf oriented. This allows smaller gangs to gain a foothold in local communities, sometimes acting as community leaders and providing needed social services and protection from rival gangs.

Addressing the Caribbean’s security challenges can protect US citizens traveling to the region and curb gang activity and illicit trafficking before they reach US shores. Travel destinations for US citizens, such as Jamaica and islands in the Eastern Caribbean are among the most violent in the region. Therefore, improving citizen safety in the Caribbean ensures US citizens’ safety as well. Given that gun-related activities are a primary driver of citizen insecurity, one solution is for US agencies to work closer with Caribbean defense and police forces to improve monitoring, tracking, and seizures of illegal small arms.

Further, stemming gang activity in the region can also disrupt transnational criminal organizations’ operations. Specifically, Caribbean countries are used as a transit point for drugs, many of which end up in the United States. Enhanced maritime security and interdiction in the Caribbean Sea can help interrupt illegal drug supply chains and weaken transnational criminal organizations. However, the capacity to monitor drug flows is a challenge. Partnerships with the United States to gain access to satellite imagery and drone technologies to identify drug shipment routes can provide Caribbean governments the needed tools to tackle drug flows.

Bottom lines

• The challenges facing Caribbean countries are growing and have consequences that are not constrained to the region’s geographic borders, likely to directly or indirectly affect US interests. This can be avoided if there are consistent and strong partnerships between the Caribbean and the United States. This can and should start with stronger US congressional engagement to the region.
• US congressional members should consider legislation that prioritizes a holistic strategy with appropriated resources to the Caribbean. While CBSI tackles security challenges, support is needed across the energy, infrastructure development, agricultural, and financial services, among others.
• Given the importance of the Caribbean to US interests, the House Foreign Affairs Committee should consider a hearing that highlights new opportunities to strengthen US interests in the Caribbean and the broader US-Caribbean partnership.
• Strengthening US-Caribbean ties start with building a foundation for a long-term partnership. US congressional engagement can help turn four-year policies into decades of friendship, all while protecting US interests along its “third border.”

Staff

Wazim Mowla

Fellow and Lead of the Caribbean Initiative

Adrienne Arsht Latin America Center

Caribbean China

Staff

Maite Gonzalez Latorre

Program Assistant

Adrienne Arsht Latin America Center

Americas Education

New Atlanticist Mar 25, 2025

The US needs to build a new Caribbean policy. Rubio’s trip to the region can be the first step.

By Wazim Mowla

US engagement with the Caribbean should prioritize energy investments and efforts to reduce violent crime in the region.

Caribbean Economy & Business

New Atlanticist Apr 29, 2025

What’s next for Trinidad and Tobago’s new prime minister?

By Wazim Mowla and Dale Ramlakhan

On April 28, Kamla Persad-Bissessar was elected as the next prime minister of Trinidad and Tobago. While she is returning to the role, she’ll find a country that is different from her first term.

Caribbean Elections

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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Click to jump to an expert analysis:

China: There is no cooling off this trade war

European Union: New US tariffs unaffected by the courts could have the biggest bite

United Kingdom: The UK-US deal continues to provide certainty and some unique advantages

Mexico, Canada, and the Americas: While some countries may be in less of a rush, USMCA negotiations will ramp up

India: Its special position means New Delhi should press ahead on a deal

China

European Union

United Kingdom

Mexico, Canada, and the Americas

India

Trump Tariff Tracker

The second Trump administration has embarked on a novel and aggressive tariff policy to address a range of economic and national security concerns. This tracker monitors the evolution of these tariffs and provides expert context on the economic conditions driving their creation—along with their real-world impact.

The post Experts react: How the world is responding to the courtroom drama around Trump’s tariffs appeared first on Atlantic Council.

As global dynamics evolve, Latin America and the Caribbean (LAC) are becoming increasingly important partners for the member countries of the Organisation for Economic Co-operation and Development (OECD). The region offers valuable assets, policy alignment in key areas, and opportunities for enhanced collaboration on shared challenges. 

This report outlines how deeper OECD–LAC engagement can contribute to mutual prosperity, resilience, and global stability.

The region’s assets support global economic security

LAC countries contribute significantly to global food and energy security, climate action, and economic resilience. The region plays an important role in clean energy development, particularly through renewable energy and emerging green hydrogen projects. It is a major global supplier of critical minerals—such as lithium, copper, and nickel—essential for the clean energy transition. LAC’s agricultural output is also vital to meeting increasing global food demand. Furthermore, its rich biodiversity and freshwater resources are essential to addressing long-term environmental and climate-related challenges.

Latin America and the Caribbean are home to a high concentration of electoral democracies and market-oriented economies, which share many of the values and institutional frameworks upheld by OECD countries. These shared principles form the basis for long-term partnership. In multilateral forums, LAC countries have acted as constructive and pragmatic voices, helping to bridge perspectives between developed and developing countries.

However, as the region continues to navigate growing interest from global powers, particularly through increased trade and investment from China, there is a clear call for OECD countries to reaffirm and deepen their engagement.

Key recommendations:

• Build resilient and responsible critical mineral supply chains by formalizing an OECD–LAC Critical Minerals Partnership that promotes investment, technology transfer, Environmental, Social, and Governance (ESG) standards, and infrastructure development to support sustainable mining and industrial upgrading across the region.
• Enhance global food security through targeted cooperation in agritech innovation, rural infrastructure, and trade logistics. Strategic investment in transport corridors, cold chains, and climate-smart agriculture can boost productivity and resilience in LAC’s agricultural sector, benefitting global markets.
• Strengthen global value-chain resilience by leveraging LAC’s trade agreements and geographic proximity to OECD markets. A dedicated OECD–LAC Value Chain Initiative could identify areas of comparative advantage, streamline regulations, and support industrial diversification in key sectors.

Issue Brief Dec 12, 2023

Galvanizing Spain’s presidency for the next chapter

By Ignacia Ulloa Peters, Diego Area, Felipe Félix Méndez

Spain’s presidency of the Council of the European Union in 2023 was a unique opportunity to deepen partnerships between the Euro-Americas. Through shared values, common interests, and complementary capabilities, the EU, US, and LAC have the potential to advance lasting solutions to the most pressing challenges facing these regions and the world.

Economy & Business Energy & Environment

New Atlanticist Sep 8, 2024

Argentina’s foreign minister: Why my country wants to join the OECD

By Diana Mondino

In seeking to join the OECD, Argentina is on a path to economic reforms and reputational benefits that can restore investor confidence in the country, writes Argentina’s minister of foreign affairs.

Americas Economy & Business

New Atlanticist Nov 19, 2024

How Brazil, Mexico, and Argentina approached this year’s G20

By Ignacio Albe

Disparate national priorities among Latin America’s three G20 members threaten to stand in the way of a common agenda.

Brazil Climate Change & Climate Action

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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The post Why Latin America and the Caribbean matter for OECD countries appeared first on Atlantic Council.

1. Why is Colombia joining the BRI?

Colombia’s decision to join the BRI appears less the result of a strategic foreign policy shift and more a reflection of domestic political needs and improvised diplomacy. In the lead-up to Petro’s visit to Beijing, tensions between him and Foreign Minister Laura Sarabia—particularly over the BRI—exposed the administration’s lack of internal consensus on China policy. Colombia did not have a clear framework for engaging China, and the memorandum of understanding (MOU) signed during the visit reflects that ambiguity.

The MOU itself is broad and general. It outlines cooperation across diverse sectors—connectivity, health, technology, green development, and trade—without tailoring to the specific contours of the Colombia-China relationship. There are no flagship projects or unique priorities; instead, it reads like a catch-all document with aspirational language. This generic approach suggests that Colombia is not yet in the driver’s seat when it comes to shaping its partnership with China. As things stand, China is likely to define future cooperation with Colombia under the BRI framework.

Aligning with the BRI offers Petro a symbolically strong, though substantively vague, diplomatic win amid mounting challenges at home. It also aligns with Petro’s broader ambition to project himself as a regional statesman. His remarks at the China-CELAC Forum were less about concrete proposals and more about positioning himself as a Latin American voice in global affairs.

Yet, this decision carries geopolitical risks. Petro spoke positively of the United States during his speech in Beijing and even called for a CELAC-US summit in an apparent attempt to reassure Washington. This cautious messaging suggests Colombia joined the BRI without preemptively managing the fallout with its principal strategic ally. The lack of a coherent China policy parallels an equally absent US engagement strategy, which is concerning given the potential sensitivities around growing China-Latin America ties, especially under the Trump administration.

Colombia’s entry into the BRI reveals more about its domestic political landscape and reactive foreign policy than any strategic realignment. It remains to be seen whether the country can translate this membership into tangible, sovereign-led development outcomes.

—Parsifal D’Sola is a nonresident senior fellow at the Atlantic Council’s Global China Hub and the CEO of the Andrés Bello Foundation–China Latin America Research Center in Bogotá.

China is already an important economic partner for Colombia. Economic ties between the two countries have been deepening for the past fifteen years and Petro inherited an economy that was already increasingly interconnected with China’s. While the United States remains the country’s main trading partner, January data showed Chinese products leading over US imports for the month. Ultimately, Colombia does not need to sign on to the BRI to continue deepening its commercial and investment relationship with China. In fact, doing so is a surefire way of losing friends in Washington at a time when the Trump administration is laser-focused on combating Chinese influence in the Western Hemisphere. So this is ultimately about domestic politics. An April survey by the leading pollster Invamer found that 62 percent of Colombians now have a favorable opinion of China, up 12 percent since February. This compares to just 40 percent that have a favorable opinion of the United States.

The MOU is wide-ranging. The focus goes beyond mere infrastructure to include topics such as technological exchange, decarbonization, and reindustrialization—but none of that comes with a clear commitment. Instead, the pillars mirror the main elements of Petro’s National Development Plan, suggesting this is merely a statement of intent from China to continue to play a role in Colombia’s economic development rather than a play to pry Colombia away from Washington’s sphere of influence.

This showcases the challenge that the United States faces in convincing Colombia of the value of US partnership. There was alarm in Washington over the fact that a Chinese firm inked a deal to construct and operate Bogotá’s first metro system. But no US firms placed bids on the metro system project or on any of Colombia’s large infrastructure projects in recent years. If Washington hopes to compete with China in the Western Hemisphere, it will have to credibly demonstrate a willingness to dramatically increase investment in infrastructure and other sectors that are attractive to Colombia and other governments across the region.

—Geoff Ramsey is a senior fellow at the Atlantic Council’s Adrienne Arsht Latin America Center.

Colombia’s announcement to join the BRI came in 2024 after Petro signaled that his administration would further open its markets to China and diversify its international partners to seek greater commercial and investment opportunities. Moreover, Colombia became one of China’s strategic partners during Petro’s 2023 visit to Beijing. In this sense, the official signing of Colombia’s participation during the China-CELAC Summit only reiterated previous plans to expand ties with China. Even before this announcement, Colombia had already welcomed several Chinese investments into the country, including Bogotá’s metro line, by China Harbour Engineering. While this move may raise some concerns over Colombia’s relationship with the United States, it is also a test of how Petro’s administration will balance relations with both Washington and Beijing as US-China tensions escalate.

—Victoria Chonn-Ching is a nonresident fellow with the Atlantic Council’s Adrienne Arsht Latin America Center, where she supports the Center’s China-Latin America work.

While some countries in the region remain cautious in their approach to China to maintain cordial relations with Washington, Colombia is embracing the opportunity to deepen ties with Beijing. Once hailed as a model of US bipartisan support in the hemisphere for its commitment to counterterrorism and anti-narcotics efforts, Colombia is now erratically pivoting under Petro. He has justified this shift by citing the strain placed on the US-Colombia Free Trade Agreement by the Trump administration’s imposition of “reciprocal tariffs.” These tariffs have effectively altered the commercial agreement’s 0 percent tariff baseline, imposing a 10 percent duty on non-mining and energy products. This affects the competitiveness of key Colombian exports to the US including coffee, cut flowers, avocados, mangoes, blueberries, peppers, light manufacturing goods, and apparel. Petro claims that China might now buy all these goods without conditions, but Beijing will not grant this for free.

Petro suggested that the free trade agreement with the United States needs to be renegotiated because it left Colombia with a trade deficit. But Colombia’s trade deficit with China is over thirteen billion US dollars per year, so it is not clear if the accession to the BRI will be an appropriate answer to this populist complaint.

—Enrique Millán-Mejía is a senior fellow for economic development at the Adrienne Arsht Latin America Center. He previously served as a senior trade and investment diplomat of the government of Colombia to the United States between 2014 and 2021.

2. What signals did we get from the rest of the region about China during the summit?

The latest China-CELAC Forum followed a familiar pattern: strong symbolism, minimal substance. While participation was notable—seventeen foreign ministers and three heads of state attended—the event was more a showcase of diplomatic optics than a venue for concrete policy advancement. Lofty rhetoric dominated public pronouncements, but there was little in the way of actionable deliverables or follow-through mechanisms.

The headline announcement—a $9.2 billion credit line for the region—made waves, but details remain scarce. No specifics were offered regarding how the funds will be distributed, which countries will benefit, or what the timeline looks like. Given China’s track record of making high-profile pledges that don’t always translate into implementation, it’s prudent to temper expectations.

The clearest signals came not from the multilateral setting but from bilateral tracks—especially Brazil and Chile. Both countries sent their presidents accompanied by large, high-level delegations. The presence of Brazilian President Luiz Inácio Lula da Silva, alongside nine of his ministers, underscored Brazil’s intent to deepen ties with China through structured, bilateral channels. The contrast with his visits to the United States is stark: all of Lula’s trips to Washington have involved significantly smaller delegations, often limited to a handful of advisers. That disparity speaks volumes about where Brazil sees its strategic priorities.

Chile followed a similar playbook, arriving in Beijing prepared to engage substantively. These engagements signal that China is increasingly prioritizing bilateral diplomacy over regional multilateralism when it comes to tangible cooperation. Countries with a clear agenda and internal coordination—like Brazil and Chile—are well-positioned to benefit.

The forum revealed more about China’s dual-track approach—multilateral symbolism paired with bilateral pragmatism—than about any coordinated regional response to China’s rise.

—Parsifal D’Sola

3. What are the diplomatic implications of the summit for China?

This week’s China-CELAC summit in Beijing underscores China’s expanding ambitions to exert greater influence in Latin America and the Caribbean. What were once isolated engagements with select countries have evolved into a substantive effort to shape economic development, forging geopolitical alliances in some cases and ideological ones in others. This shift is evident in China’s pledge of substantial financial support—$20 billion for infrastructure, $10 billion in concessional loans, and a $5 billion cooperation fund—solidifying China’s increasing role as a development partner in the region.

Initiatives such as the “1+3+6” cooperation framework and Colombia’s decision to join the BRI reflect a broader trend among Latin American countries seeking to diversify their economic partnerships beyond traditional Western allies. Beyond economic cooperation, China is also strengthening collaboration in technology and legal frameworks. Projects like the China-LAC Technology Transfer Center and the China-Brazil Earth Resources Satellite program demonstrate Beijing’s intent to integrate the region into its innovation ecosystem. The inaugural China-CELAC Legal Forum further institutionalizes these ties, fostering cooperation in areas such as digital law, finance, and governance.

Diplomatically, China’s growing presence poses a direct challenge to US dominance in the region. China is also leveraging the summit to diplomatically isolate Taiwan by engaging with countries such as Haiti and Saint Lucia—two of Taiwan’s remaining allies—further undermining Taipei’s international recognition.

China is also expanding its soft power through scholarships, training programs, and youth exchanges designed to cultivate relationships with future regional leaders. The summit reflects China’s aim to foster a multipolar global order, employing economic incentives, diplomatic engagement, and cultural diplomacy to establish itself as an indispensable partner to Latin America and the Caribbean.

—Enrique Millán-Mejía

The summit provided new indications that LAC countries must continue to collaborate on economic issues, particularly in the context of a lack of investment in regional infrastructure and ongoing pressure from the United States, which is engaged in a global trade war.

At the opening of the event, Xi emphasized his role as a reliable partner for LAC countries in the face of “geopolitical confrontation” and “protectionism,” a clear criticism of the United States. Xi also proposed initiatives to “build a Sino-Latin American community with a shared future” and pledged $9.2 billion in development credits for the LAC region. The delegations of the thirty-three CELAC countries responded positively, but there are still few details about how and when it will be spent.

But the announcement represents a further development in China’s interest in LAC. The region is a key target for Beijing, which is already the primary trading partner of Brazil, Peru, and Chile. Indeed, trade between China and the LAC countries surpassed $500 billion for the first time last year, a figure forty times higher than at the beginning of the century.

In contrast, despite the commitment of CELAC to regional integration, its members have taken different approaches to Beijing. While Colombia signed an agreement to join the BRI, Brazil has long avoided making such an association despite strengthening Brazil-China ties.

The United States’ more aggressive approach to Latin America has prompted several Latin American and Caribbean countries to seek closer ties with China, a phenomenon that emerged during US President Donald Trump’s first term. However, the practical implications of this enhanced relationship with Beijing over the next few years, and the potential costs for the region, remain uncertain.

—Thayz Guimarães is a visiting fellow for the China in Latin America Program at the Atlantic Council’s Global China Hub and a foreign desk reporter at the Brazilian newspaper O Globo.

4. What are the implications for the United States?

The summit demonstrated China’s aims to strengthen ties and be seen an attractive partner for the region by highlighting its support for multilateralism and opposition to protectionism. For many countries in the region, China has become a key partner, albeit one that is treated with caution and reluctance. Nevertheless, as US-China competition continues, LAC countries may have to face the challenge of balancing the pursuit of their own interests as Washington seeks reengagement with the region and China increases its efforts to present itself as a more reliable partner.

—Victoria Chonn-Ching

As China deepens its ties with LAC countries through trade, it challenges the United States’ historical dominance in the Western Hemisphere. On the diplomatic front, the summit proves China’s ability to present itself as an alternative partner that offers less conditional support compared to the United States, which sometimes links aid to governance reforms or democratic norms. This approach resonates with some leaders, especially in LAC countries that are disenchanted with US foreign policy. For the United States, failure to recalibrate its approach to regional diplomacy risks further alienation and erosion of soft power in its traditional sphere of influence.

The United States faces a strategic imperative to strengthen its alliances in the region. Washington should pursue this through renewed diplomatic efforts, competitive investment initiatives, and cooperative programs that address shared challenges such as renewable energy, illegal migration, and economic inequality.

—Enrique Millán-Mejía

The post Four questions (and expert answers) about the China-Latin America summit appeared first on Atlantic Council.

This is Haiti’s fourth year without a president, its ninth year without holding presidential elections, and its second year without a single democratically elected official in power. Since the assassination of President Jovenel Moïse in July 2021, the country has witnessed a litany of crises—security, humanitarian, and political—that have internally displaced over one million Haitians, more than half of whom are children. Weakened state institutions and an under-resourced national police force have left Haitians to confront these challenges with little to no support from their government. While resilience has long been a defining trait of the Haitian people, forged through more than two centuries of adversity, the past several months have tested that endurance to its limits. Gangs have made staggering advances into densely populated areas of the capital and previously sheltered rural regions, driving a surge in violence that has claimed over 1,500 lives since January 1.

Experts warn that the total collapse of Port-au-Prince is now closer than ever. What happens if the capital falls to the gangs? Beyond a seismic humanitarian crisis, the Transitional Presidential Council—a provisional governing body formed in April 2024 with the support of the Caribbean Community and the United States—would likely unravel, taking with it any remaining hope for constitutional reform, credible elections, and a functioning central government. And as gangs expand their control beyond urban strongholds and into the countryside, the entire nation would teeter on the edge of state collapse.

While there are no immediate solutions to the crisis in Haiti, there are several tangible steps the United States can take to ameliorate the suffering of the Haitian people and help facilitate the country’s recovery. Failing to do so risks allowing the crisis to not only worsen, but spill over into the United States and throughout the region.

Ripple effects

The paramount consequence of Haiti’s potential collapse into a failed state would be the devastating loss of life and the shattered futures of hundreds of thousands of Haitians. But this fallout would not be contained within the country’s borders—the United States and the broader Caribbean Basin will inevitably feel the ripple effects of the crisis as well.

A humanitarian disaster of this scale would trigger a dramatic surge in migration to countries across the region, including to the US southern border. This coincides with the Trump administration’s revocation of Temporary Protected Status for 200,000 Haitian refugees, forcing deportations at a moment of maximum instability. The Dominican Republic, Haiti’s closest neighbor and a key US ally, would also face intensified pressure—both from refugee flows and the risk of cross-border violence. In the total absence of a functioning state, Haiti could become a staging ground for terrorist activity, drug markets, and transnational criminal networks already active in the region, further destabilizing the Caribbean Basin. With this level of insecurity just miles from the United States’ shores, the situation represents a five-alarm fire for US national security.

US foreign policy in Haiti has long been marked by intervention, mismanagement, and short-term fixes. Many experts fear that the designation of Haiti’s gangs as foreign terrorist organizations falls into the same pattern—failing to address the root causes of gang violence or consider the impact on civilians who rely on aid. And as the failure of the Kenyan Multinational Security Support mission to restore security to Haiti has made clear, even efforts with significant US backing have proved inadequate to the challenges of the moment. Past US interventions and policies toward Haiti have fueled suspicion among many Haitians and hopelessness among many US policymakers. Yet while the US government bears significant responsibility for this skepticism, it also possesses the influence to effect positive—even if incremental—change for Haiti.

How the US can help right now

The US government can take several steps in the near term to bring back a modicum of stability and prepare the nation for “the day after.” Many of the necessary policies already exist—they simply require reauthorization or targeted revisions to be effective.

Although Haiti is widely recognized as the poorest country in the Western Hemisphere, the United States remains the largest market for its most profitable sector: textiles. Thanks to bipartisan legislation passed by Congress in 2006 and 2010, known as the HOPE and HELP acts, which established preferential trade terms for the sector, Haiti’s apparel exports to the United States surged from $231 million in 2001 to $994 million in 2021. Although the crisis has severely undermined textile production, these exports provide a resilient economic lifeline for what remains of Haiti’s formal economy. However, unless reauthorized, these trade preferences are set to expire in September. Rather than imposing tariffs that further destabilize Haiti’s fragile manufacturing sector, Congress should move quickly to preserve the near-shoring of US manufacturing imports by passing HR 1625—the Haiti Economic Lift Program Extension Act of 2025, sponsored by Representative Gregory Murphy (R-NC).

The withdrawal of the US Agency for International Development (USAID) raises many questions about the future of development organizations in Haiti, as hundreds of life-saving programs are put on indefinite hold. Several voices within the Haiti policy community note that the agency’s work, despite its best intentions, sometimes created an overreliance on foreign aid within Haitian institutions. Over a century of this dynamic led Haiti to become, in the words of Haiti expert Jake Johnston, an “aid state.”

In the wake of USAID’s departure, the United States has the opportunity to sculpt a more effective aid strategy that puts the onus of development work in the hands of an ever-resilient Haitian civil society, not just foreign contractors. This strategy proved successful in the implementation of the President’s Emergency Plan for AIDS Relief program. And this approach serves as the foundation of the Global Fragility Act (GFA), a law passed by Congress during US President Donald Trump’s first term that prioritizes localization and reorients US foreign policy strategy in fragile states toward preventing conflict rather than reacting to it. Haiti was designated one of the GFA’s ten priority countries and the Biden administration made meaningful strides toward developing a strategy that prioritizes engagement with a broad range of trusted local partners. Renewing the GFA could build on this groundwork by channeling substantial resources into empowering local partners, thus fostering greater self-reliance within Haitian institutions. Representatives Sarah Jacobs (D-CA) and Michael McCaul (R-TX) have introduced a bill to reauthorize and strengthen the GFA. Yet despite the Trump administration’s support for aid localization, momentum for renewing this policy has faltered in both the legislative and executive branches, leaving its future in peril.  

A whole-of-government approach

As Georges Fauriol, an expert on the Caribbean, has described US policy toward Haiti, “the challenge is not so much the absence of a strategy as its disaggregated character.” Whether it be the State Department, the Office of the US Trade Representative, or the Department of Defense’s US Southern Command, the US government possesses no shortage of entities that conduct Haiti policy—not to mention the influence of external interest groups such as those in the US Haitian diaspora.

Although working toward the same mission, these initiatives tend to operate in silos and do not come together to form a cohesive strategy for the long-term stability of the country. This dynamic was evident during the US response to Haiti’s devastating 2010 earthquake, as US Southern Command-led military relief operations and USAID disaster initiatives often struggled with unclear divisions of responsibility, resulting in operational inefficiencies. The GFA and policies such as the Caribbean Basin Security Initiative aim to establish a whole-of-government approach to address this issue. Rather than launching new initiatives for each emerging crisis, the Trump administration should also appoint a special envoy to coordinate and leverage existing Haiti policies within the various branches, helping to shape a more coherent foreign policy for the island and the broader region.

The severity of Haiti’s ongoing crisis makes envisioning “the day after” a challenge. Yet, for countless Haitians, whether living in Haiti or abroad, this vision is worth fighting for, just as it has been during past periods of turmoil. The United States has a strategic interest in advancing a Haiti policy focused on long-term stability rather than short-term fixes. No single policy or initiative will solve the security, humanitarian, and economic challenges that have engulfed Haiti for the past four years. But failing to act at all would further jeopardize the stability of Haiti, the United States, and the region as a whole.

Camilla Reitherman is a young global professional with the Atlantic Council’s Millennium Leadership Program.

The post There is no easy fix for Haiti’s crises. But here’s where the US can start. appeared first on Atlantic Council.

On May 3, Forward Defense director Clementine Starling-Daniels and assistant director Theresa Luetkefend were quoted in a WMAL article titled “In Great Power Competition, Special Ops to Play Key Role.” The article highlights their argument that, after two decades primarily focused on counterterrorism and direct-action missions during the Global War on Terror, today’s peer and near-peer competition demands a broader application of US special operations forces’ core activities.

Staff

Clementine G. Starling-Daniels

Director, Forward Defense

Forward Defense Scowcroft Center for Strategy and Security

Security & Defense NATO

Staff

Theresa Luetkefend

Assistant Director

Forward Defense Scowcroft Center for Strategy and Security

Defense Policy German

Forward Defense, housed within the Scowcroft Center for Strategy and Security, generates ideas and connects stakeholders in the defense ecosystem to promote an enduring military advantage for the United States, its allies, and partners. Our work identifies the defense strategies, capabilities, and resources the United States needs to deter and, if necessary, prevail in future conflict.

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The post Starling-Daniels and Luetkefend quoted in WMAL article titled “In Great Power Competition, Special Ops to Play Key Role” appeared first on Atlantic Council.

The election of a pope thrusts a previously little-known figure onto the world stage and places significant geopolitical influence in his hands. As head of state of the Holy See, the pope oversees a vast diplomatic network and holds a moral authority that resonates across both the spiritual and political spheres. Each new pontiff brings a unique imprint to the role. Pope Francis, for instance, drew deeply from his experience working with marginalized communities in Argentina—a perspective that shaped the priorities and tone of his papacy from the beginning. In his first speech to the world as the new pontiff, Pope Leo XIV addressed the crowds in Spanish and greeted “his beloved Diocese of Chiclayo in Peru,” perhaps an early sign that his US–Peruvian identity will leave an imprint on his papacy.

This unique combination of identities could represent more than just mere symbolism. It may also help Pope Leo XIV reframe the US–Latin American relationship in more humane and values-driven terms. To do so, he will need to pick up where Pope Francis’s social justice work left off, but better communicate the shared humanity of people across the hemisphere to a US audience, who increasingly disapproved of Pope Francis and his views during his papacy.

Two decades in Peru

As a missionary and priest in towns and cities across Peru, Pope Leo XIV worked with marginalized communities during some of the country’s most turbulent decades. The 1980s and 1990s in Peru were marked by hyperinflation, an internal armed conflict between Maoist guerrillas and the Peruvian military that left an estimated seventy thousand people dead, and a dramatic erosion of the rule of law. During this period, he became a vocal advocate for vulnerable populations and sought to hold those in power accountable for the lives lost amid the violence and political breakdown.

In 2015, Pope Francis appointed him apostolic administrator of the Diocese of Chiclayo, a coastal city in Peru, a role he held until 2023. In this position, he became known for his closeness to rural communities and his support for social programs, including efforts to combat child malnutrition. As more than 1.5 million Venezuelan migrants escaped to Peru seeking asylum during his eight years in the Diocese of Chiclayo, Prevost showed care and defended their right to migrate. In 2023, he also publicly condemned the violent crackdown by Peruvian security forces against protesters, reinforcing his long-standing commitment to human dignity and justice. To this day, many Peruvians remember him as a priest who never hesitated to walk alongside the country’s poorest and most forgotten.

The unlikely blend of US and Latin America

One of the most distinctive aspects of Pope Leo XIV’s leadership may be his ability to bridge two regions across the same hemisphere. Within the Vatican, he was informally known as the “Latin American Yankee,” a nickname that captures both his dual identity and his capacity to bridge a hemisphere that increasingly finds itself at odds. While the Catholic Church is rarely seen as a central force in US–Latin American relations—with the notable exception of Archbishop Óscar Romero’s outspoken role in El Salvador’s civil war between the US-backed right-wing government and leftist guerrillas in the 1970s—it retains profound cultural and political influence in both places. The church shapes civic life, public debate, and electoral outcomes.

A pope who understands both the hopes of a campesino (small-scale farmer) in northern Peru and the concerns of a middle-class worker in the US Midwest is uniquely positioned to act as a moral and diplomatic bridge. To do so, he will need to carefully weigh his rhetoric on US politics, particularly on immigration, and forge a message of peace that cuts across political divides in the United States—no small feat at a time of increasing political polarization. As a result, Pope Leo XIV could help inspire a shift toward a US–Latin American relationship grounded not just in transactional interests, but in dignity, shared values, and common humanity.

Martin Cassinelli, a native of Peru, is an assistant director at the Atlantic Council’s Adrienne Arsht Latin America Center.

The post The new pope is American. He is also Peruvian. Why does it matter? appeared first on Atlantic Council.

Such data gives a different perspective on the United States’ trade relationships. Countries in Latin America and the Caribbean (LAC), especially Mexico, import US goods at levels more typical of high-income countries, outperforming countries with similar income and development levels located in other regions.

This infographic highlights LAC’s unique role as a high-value market for US products. With strong trade ties and deep supply-chain integration, the region could help the United States advance its economic goals.

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The guest list for Friday’s Victory Day parade on Red Square reflects the dramatic geopolitical realignments that have taken place since 2022, and underlines the widening rift between Putin’s Russia and the democratic world. Prior to the invasion of Ukraine, Putin’s showpiece annual parade had been attended by many Western leaders including US President George W. Bush. This year, however, the guest of honor will be Chinese President Xi Jinping. He will be joined by the Brazilian president along with a host of Central Asian and African leaders. The sole representative from the European Union will be Slovakian Prime Minister Robert Fico.

Visiting dignitaries will be treated to a bold demonstration of modern Russia’s military might. The mood is expected to be far detached from the kind of somber tones more typically associated with World War II memorials elsewhere. Friday’s parade has been been carefully choreographed to emphasize Russian strength while projecting Putin’s supreme confidence in eventual victory over Ukraine.

The link to today’s war will be hammered home by the participation of numerous Russian military units accused of committing war crimes in Ukraine. Putin may also choose to surround himself with alleged war criminals from the ranks of his invading army, as he did last year. In his official address, it will be genuinely shocking if Putin does not attempt to draw direct parallels between the struggle against Nazi Germany and his own ongoing war in neighboring Ukraine.

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Even without the involvement of Russian troops fresh from the front lines of the current war, it would be virtually impossible to separate Putin’s parade from the Kremlin propaganda justifying the invasion of Ukraine. Ever since Russia first set out to subjugate Ukraine more than ten years ago, the Kremlin has portrayed its escalating invasion as a continuation of the World War II fight against Germany, with Ukrainians cast in the role of modern-day successors to the Nazis. Despite an almost complete lack of evidence to support these absurd and obscene claims, the “Nazi Ukraine” narrative continues to resonate among a Russia population that has been utterly saturated in an extreme form of World War II mythology that often borders on religious fanaticism.

From the very first years of his reign, Putin has sought to place the Soviet Union’s World War II experience at the very heart of modern Russia’s national identity. For the Kremlin, this emphasis on the immense suffering and ultimate triumph of the Soviet war effort has served as the ideal ideological antidote to the horrors of Stalinism and the humiliations of the Soviet collapse. It has proved a highly effective strategy, helping to rebuild Russia’s battered national pride and giving new meaning to the country’s twentieth century totalitarian trauma.

Putin’s war cult has centered around Victory Day, which has emerged over the past 25 years as by far the most important holiday on the Russian calendar. Many outside observers assume Victory Day always enjoyed similar prominence, but that is not the case. In fact, Stalin himself discouraged commemorations and made May 9 a working day in 1947. It remained so until the mid-1960s, when Victory Day was declared a public holiday. Nevertheless, there was none of the pomp and fanfare currently associated with the anniversary of the Nazi surrender. In the 46 years between the end of World War II and the fall of the Soviet Union, Moscow hosted a grand total of just four Victory Day parades.

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Putin’s cynical exploitation of World War II has also shaped Russian rhetoric on the international stage. This has been most immediately apparent in relation to Ukraine, which Kremlin propaganda has consistently portrayed as a Nazi state. Russia’s lurid claims have proved remarkably resistant to reality, with even the 2019 election of Jewish candidate Volodymyr Zelenskyy as president of Ukraine failing to force a change in tactics. Instead, Putin and other leading Kremlin officials have resorted to ever more ridiculous mental gymnastics as they have struggled to explain how a supposedly Nazi country could elect a Jewish leader. In one particularly notorious incident during the first months of the invasion, Russian Foreign Minister Sergei Lavrov dismissed Zelenskyy’s Jewish roots by declaring that Adolf Hitler also had “Jewish blood.”

When Putin announced the full-scale invasion of Ukraine on the fateful morning of February 24, 2022, it came as no surprise that he identified “denazification” as one his two key war aims. The true meaning of this chilling phrase has since become abundantly clear; “denazification” is actually Kremlin code for “de-Ukrainianization,” and reflects Putin’s end goal of a Ukraine without Ukrainians.

In areas of Ukraine that have fallen under Kremlin control since the start of the invasion, the occupation authorities are systematically wiping out all traces of Ukrainian history, culture, and national identity. Thousands of children have been abducted and subjected to indoctrination in a bid to rob them of their Ukrainian nationality, while anyone seen as potentially loyal to Ukraine has been detained and dispatched to a vast network of prisons where torture is reportedly routine. Europe has not witnessed atrocities on this scale since World War II.

For decades, most European countries have marked the end of World War II with solemn memorial services while collectively vowing “never again.” Under Putin, Russians have come to embrace an altogether more menacing form of militant remembrance accompanied by the unofficial slogan “we can repeat it.”

Putin has already succeeded in weaponizing the memory of World War II to consolidate his grip on power, garner domestic support for his expansionist foreign policy, and dehumanize his enemies. He is now poised to use this week’s Victory Day parade in Moscow to legitimize the criminal invasion of Ukraine among his foreign guests and place it in the same context as the fight against Hitler. This is staggeringly disrespectful. It is also historically illiterate. If anyone today is guilty of echoing the crimes of the Nazis, it is Putin himself.

Peter Dickinson is editor of the Atlantic Council’s UkraineAlert service.

Further reading

UkraineAlert Mar 25, 2025

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By Serhii Kuzan

Any discussion on the future course of the war against Russia and the terms of any peace deal must take into account the fact that Ukraine is a now major military power in its own right, writes Serhii Kuzan.

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Vladimir Putin is now so emboldened by Western weakness that he believes he can personally pause the war to host a military parade on Red Square before resuming his invasion three days later, writes Peter Dickinson.

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As the world prepares to mark the eightieth anniversary of the victory over Nazi Germany, the shadow of events leading up to World War II hangs over efforts to end Russia’s current invasion of Ukraine, writes Oleksandr Merezhko.

Conflict European Union

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Putin’s parade cynically exploits WWII to justify his own criminal invasion appeared first on Atlantic Council.

Persad-Bissessar will face significant challenges ahead. This past year was the deadliest in Trinidad and Tobago’s modern history, with a homicide rate of 45.7 per 100,000. That puts it at the fifth-highest in Latin America and the Caribbean. Growing gang violence and illegal small arms inflows from the United States and Venezuela are primary factors, even leading the then prime minister, Keith Rowley, to issue a state of emergency late last year.

Getting crime and violence under control must be a priority. The new government will have to address internal security concerns, such as gang activity, while protecting the country’s borders and informal ports of entry from illicit trafficking. A first step can be working with partners such as the United States, the United Kingdom, and Canada to invest in maritime interdiction capabilities. This would build off of the $500 million memorandum of understanding signed between Trinidad and Tobago and the United States in 2024.

Next, declining natural gas production threatens Trinidad and Tobago’s energy security. Natural gas is the bedrock of the country’s economy. It provides low electricity costs for its citizens and, through its petrochemical industry, is responsible for more than 80 percent of the country’s export revenues. However, over the past fifteen years, Trinidad and Tobago has struggled to tap into new natural gas reserves. Few awards are given to bidders during offshore auctions—zero were awarded between 2015 and 2022—and there are limited financial incentives to encourage further exploration by oil and gas operators. 

Here, there are two areas Persad-Bissessar can focus on. First, she can work to fast-track development of commercially viable natural gas fields through tax concessions and subsidies. Second, she can take steps to diversify the energy matrix by investing in renewables. Trinidad and Tobago is primed to be a renewable energy leader in green hydrogen, onshore and offshore wind, and utility-scale solar. The country has a large electricity grid and population relative to its Caribbean neighbors, meaning that investors can invest at scale in a country that already has a track record of developing power generation projects. 

Finally, Persad-Bissessar will become prime minister as the international system is entering a new era. Small countries do not develop in a silo. Instead, they need international partnerships. Trinidad and Tobago should start by strengthening its relationship with the United States. To do that, Trinidad and Tobago should seek out financial and technical assistance through the US Department of Defense and US Southern Command, which will be essential to enhancing the country’s capacity to address gang activity and protect its ports from illegal arms inflows. 

Therefore, Persad-Bissessar should consider making Washington, DC, her first foreign trip as prime minister. US Secretary of State Marco Rubio’s recent trip to the Caribbean is a signal that the region is unlikely to be an afterthought for the United States, at least in the near term. Persad-Bissessar has a unique opportunity to capitalize on this attention and use a diplomatic visit to shore up support from the United States, engage members of the US Congress, and present the country’s natural gas and renewable energy potential as investment destinations for US businesses. 

Persad-Bissessar has a tough task ahead. Energy security, citizen safety, and strong international partnerships are a must, but these challenges cannot be tackled alone. An all-hands-on-deck approach that includes working closely with the private sector and nongovernmental organizations can help Persad-Bissessar build a more secure and prosperous future for Trinidad and Tobago.

Wazim Mowla is the fellow and lead of the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center. 

Dale Ramlakhan is a nonresident senior fellow at the Caribbean Initiative.

The post What’s next for Trinidad and Tobago’s new prime minister? appeared first on Atlantic Council.

In early March, Ukraine agreed to an American proposal for an unconditional ceasefire. Almost two months later, Russia still refuses to follow suit. As a result, many observers are drawing the obvious conclusion that Russia rather than Ukraine is the primary obstacle to peace. In an apparent bid to counter this growing consensus and distract attention from Russia’s reluctance to end the war, Putin has recently begun declaring his own brief ceasefires. His first step was to announce a surprise 30-hour Easter truce during traditional Orthodox religious festivities in Russia and Ukraine. Putin is now proposing a three-day break in hostilities to mark Victory Day on May 9.

The timing of Putin’s latest truce is particularly interesting. Critics note that his Victory Day ceasefire coincides with a major military parade in Moscow to mark the eightieth anniversary of the Soviet victory over Nazi Germany. Putin is expected to host a number of high-ranking foreign dignitaries at the event, including the leaders of China, Brazil, and India. Needless to say, it would be hugely embarrassing for the Kremlin dictator if his propaganda parade was overshadowed by Ukrainian airstrikes in Moscow or elsewhere in Russia.

Many have already noted the cynicism of Putin’s proposal. Ukrainian President Volodymyr Zelenskyy reacted by reaffirming his commitment to an unconditional 30-day ceasefire while accusing the Kremlin of trying to “manipulate the world” and “deceive the United States” with empty ceasefire stunts. “We value human lives, not parades,” he stated. Officials in Brussels were similarly critical of the Kremlin. “Russia could stop the killing and the bombing at any time, so there’s absolutely no need to wait until May 8,” commented European Commission spokesperson Anita Hipper. Meanwhile, the Trump White House responded by emphasizing the need for a “permanent ceasefire.”

As the world watches the Russian invasion of Ukraine unfold, UkraineAlert delivers the best Atlantic Council expert insight and analysis on Ukraine twice a week directly to your inbox.

Putin’s shamelessly self-serving call for a Victory Day ceasefire says much about his opportunistic approach toward the faltering peace process initiated by the United States in early 2025. Much like the 30-hour lull in fighting initiated by Putin over the Easter holiday, the three-day truce proposed this week is far too short to have any meaningful impact on negotiations to end the war in Ukraine. However, it does allow the Russian ruler to pose as peacemaker while continuing his invasion.

Putin’s headline-grabbing truces are also an important part of his stalling tactics as he seeks to drag out peace talks indefinitely without exhausting US President Donald Trump’s patience or closing the door on a potential broader thaw in bilateral relations with the United States. It is no coincidence that both of Putin’s recent ceasefire announcements have come in the immediate aftermath of critical comments from Trump indicating that the US leader is growing tired of Russian excuses. Indeed, news of the Victory Day truce emerged just hours after Trump had questioned Russia’s willingness to end the war and commented that he feared Putin was “tapping me along.”

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While Putin engages in dubious peace gestures, Russian Foreign Minister Sergei Lavrov has recently provided a far more realistic view of the Kremlin’s war aims and continued commitment to the conquest Ukraine. In an interview with Brazilian newspaper O Globo that was published on the same day as Putin’s Victory Day ceasefire announcement, Lavrov listed Russia’s conditions ahead of possible negotiations with Ukraine. These included international recognition of Russia’s right to five partially occupied Ukrainian provinces, the removal of all sanctions imposed on Russia since 2014, guarantees over Ukrainian neutrality, and the reduction of Ukraine’s army to a skeleton force.

Crucially, Moscow also insists on Ukraine’s “denazification,” which is recognized as Kremlin code for the comprehensive “de-Ukrainianization” of the country and the reestablishment of Russian dominance in all spheres of public life. If implemented, these punishing Russian terms would not lead to a sustainable peace. Instead, they would serve as an act of capitulation, setting the stage for the final destruction of Ukraine as a state and as a nation.

All this is a very long way from the Trump administration’s frequent assertions that both sides must be willing to compromise if they wish to achieve a viable settlement. While Ukraine has repeatedly backed calls for an unconditional ceasefire and has accepted the need for temporary territorial concessions, Russia continues to pursue maximalist goals that no Ukrainian government could possibly accept.

During the first hundred days of his presidency, Trump has sought to advance the peace process by pressuring Ukraine while offering Russia a wide range of incentives to engage. It should now be abundantly clear that this uneven approach has backfired. Far from persuading Putin to offer concessions of his own, Trump’s appeasement policies have convinced the Kremlin to escalate its demands further. We have now reached the point where Putin believes he can personally pause the war to host a military parade on Red Square before resuming his invasion three days later. This absurd situation makes a complete mockery of Trump’s peace efforts and threatens to leave him looking foolish.

If Trump is serious about bringing Russia to the negotiating table, he must first demonstrate a readiness to impose crippling costs on the Kremlin. The current US strategy toward Russia can be characterized as all carrots and no sticks. This is useless against a regime that only understands the language of strength and regards any attempts at compromise as signs of weakness. It also gravely underestimates the high stakes underpinning Russia’s invasion. Putin views the war in Ukraine as an historic mission to reverse the imperial collapse of 1991 and return Russia to its rightful place as a global superpower. He will not abandon this mission unless the alternative is defeat.

Peter Dickinson is editor of the Atlantic Council’s UkraineAlert service.

Further reading

UkraineAlert Mar 25, 2025

Ukraine’s growing military strength is an underrated factor in peace talks

By Serhii Kuzan

Any discussion on the future course of the war against Russia and the terms of any peace deal must take into account the fact that Ukraine is a now major military power in its own right, writes Serhii Kuzan.

Conflict Defense Industry

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Kremlin dictator Vladimir Putin is pursuing policies in Russian-occupied Ukraine that almost certainly meet the definition of ethnic cleansing and may qualify as genocide, writes Peter Dickinson.

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A pragmatic and sustainable peace is possible in Ukraine if Kyiv’s European partners dramatically increase their own defense spending while significantly strengthening the Ukrainian military, writes Mykola Bielieskov.

European Union NATO

The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

Read more from UkraineAlert

UkraineAlert is a comprehensive online publication that provides regular news and analysis on developments in Ukraine’s politics, economy, civil society, and culture.

The Eurasia Center’s mission is to enhance transatlantic cooperation in promoting stability, democratic values and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East.

Learn more

The post Putin announces ceasefire to protect Moscow parade from Ukrainian attack appeared first on Atlantic Council.

At the heart of economic security is a straightforward goal: The United States wants to work with partners in Latin America and the Caribbean to create reliable supply-chain environments for critical industries. This approach builds on what US President Donald Trump did during his first term: advance policies aimed at reshoring US investment, particularly from Asia. The COVID-19 pandemic and rising geopolitical tensions in the years since Trump’s first term have only underscored the vulnerabilities of long-distance supply chains.

Pragmatically speaking, however, not all sectors can benefit from reshoring. Structural differences in wages, utility costs, and, in some US states, a disparity in business tax rates are obstacles to moving some supply-chain elements to the United States. When reshoring is not feasible, nearshoring—relocating production to neighboring countries—often serves as an alternative strategy.

An additional complexity is that the administration has other goals in the region as well. The White House, for example, also wants to work with partners on preventing the sources of illegal immigration, enhancing security and defense cooperation, and targeting drug trafficking routes and transnational crime. Therefore, as the Trump administration moves forward, choosing viable economic-security partners will require balancing industrial capacity, defense, border-protection cooperation, and political alignment. 

Mexico, for example, offers scale and experience. As a member of the United States-Mexico-Canada Agreement (USMCA), Mexico avoided a major blow in the “Liberation Day” global tariffs announced on April 2. The country kept zero tariffs for products meeting USMCA rule of origin requirements, meaning goods obtained or produced entirely from materials sourced from the United States, Mexico, or Canada. USMCA-reliant goods production is creating momentum for more competitive sourcing and even for investment expansion. The immediate adjacency of Mexico to the United States lowers some logistics costs and creates clear economic interdependencies within sectors such as automobiles, electronics, and aerospace. 

But Mexico also faces growing headwinds: Organized crime threatens business operations. Rising labor costs reduce competitiveness. And bureaucratic inefficiencies hamper investment. These limitations open space for alternatives in the relocation of critical supply chains within the region.

The Dominican Republic’s strategic opportunity

The Dominican Republic, with its strategic location, favorable trade conditions, and demonstrated commitment to shared security goals, offers an increasingly attractive alternative—if it can move swiftly to close its infrastructure and human capital gaps. Seizing this moment could anchor Santo Domingo firmly within the next phase of the US economic security strategy in the Caribbean and beyond.

The Dominican Republic has:

• A longstanding partnership with the United States: Over a century of close ties in trade, investment, and security cooperation.
• Robust trade frameworks: A twenty-year-old free trade agreement supporting a US trade surplus and granting the Dominican Republic privileged market access. Notably, the Dominican Republic was subject to only a 10 percent reciprocal tariff during “Liberation Day,” a lower rate than many countries in the region.
• Growing investment appeal: Advanced free-trade zones, a modernized investment regime, and leadership in sectors such as tourism, financial services, light manufacturing, and emerging semiconductor assembly

Moreover, the Dominican Republic has collaborated with the United States on immigration control and security operations. For example, over thirty tons of cocaine were seized in coordination between Dominican armed forces and US agencies last year, and the Dominican Republic has increased its border defense deployment with Haiti to cooperate on the prevention of illegal migration to the United States. It has also taken on greater regional leadership, including through hosting the tenth Summit of the Americas this coming November. All these initiatives signal strategic alignment with US policy goals.

Challenges on the road to the relocation of supply chains

Despite its promise, the Dominican Republic must address several critical gaps:

• Infrastructure constraints: Although the Dominican Republic has made notable improvements, significant gaps remain, particularly in logistics and energy infrastructure. The Dominican seaport system has expanded to handle greater cargo volumes, but in the case of terrestrial transportation, internal road networks still suffer from congestion and maintenance issues, causing inefficiencies in the domestic movement of goods. Similarly, electricity outages are still present, especially outside urban centers, and have raised concerns among manufacturers seeking reliable operations.

• Skilled labor shortages: While the country boasts a young and growing workforce, there is a mismatch between available labor and the specialized skills needed for high-value manufacturing industries like electronics or semiconductors. For instance, despite interest from major tech investors, the Dominican Republic has had to rely on imported technical expertise for some advanced manufacturing projects.
• Slow pace, red tape: Slow permitting and regulatory bottlenecks frustrate investors. In pre-pandemic rankings, the Dominican Republic trailed regional peers such as Chile and Colombia in the World Bank’s Ease of Doing Business indicators.
• Regional competition: The Dominican Republic is not alone in seeking to capitalize on the nearshoring boom. Countries like Costa Rica, which offers a well-developed tech sector and a reputation for political stability, and Panama, with its logistics advantages via the Panama Canal, are strong competitors. Both are aggressively courting foreign investment in similar sectors, adding pressure on the Dominican Republic to further differentiate itself. 

How the Dominican Republic can seize the moment

To solidify its position as a hub for relocating supply chains and deepen economic security ties with the United States, the Dominican Republic should:

1. Streamline customs and regulatory processes to accelerate business setup and supply chain integration.
2. Expand public-private partnerships in infrastructure to address logistics and energy-reliability gaps, while offering an alternative to Chinese-backed projects, particularly in critical supply chains such as rare minerals, cybersecurity, and fintech.
3. Invest in workforce development focused on high-value manufacturing skills to attract and retain global investors.

Ultimately, both Mexico and the Dominican Republic, as well as other Latin American countries, offer distinct advantages and disadvantages as supply chain relocation destinations. Mexico’s established industrial base and USMCA membership provide a strong and solid foundation, though security concerns, rising labor costs, and bureaucratic inefficiencies pose real challenges. The Dominican Republic’s strategic alignment with the United States and proactive investment strategies are promising, but addressing infrastructure needs and economic diversification will be crucial.

Choosing a viable economic security partner for the United States depends largely on the specific needs and priorities of individual businesses and industries. The Dominican Republic offers an interesting potential in the complexities and opportunities inherent in the US strategy in the Western Hemisphere. Its strategic positioning and economic strengths provide a promising foundation for deeper US collaboration, but fully realizing this potential requires confronting and overcoming the present challenges.

Enrique Millán-Mejía is a senior fellow for economic development at the Atlantic Council’s Adrienne Arsht Latin America Center.

The post Could Trump’s focus on ‘economic security’ be a boon for the Dominican Republic? appeared first on Atlantic Council.

First, the significant effect that government-led instant payment systems can have on citizens and the financial market transforms financial inclusion and market structures. Second, decisions made during the early stages of the process, such as system pricing and ownership structure, shape the power dynamics between local and international players, as well as incumbent and new entrants. 

These lessons are shaping an emerging framework governments can use to evaluate their need for central bank-led immediate payment systems, their potential structure, organizational features, and trade-offs involved in implementing a similar approach. The framework is composed of a three-step approach, including prerequisite weighting (i.e., “do we need this system”), the preparations needed to hit the ground running, and the process of setting up new immediate payment systems.

Pix and UPI: Initial development to growing pains

But first, it’s important to understand how immediate payment systems have developed into what they are today. 

Over the last decade, India and Brazil launched their instant payment systems, UPI and Pix, on a national scale, reshaping their payment landscapes. With 350 million UPI users and 140 million Pix users, about 25 percent of India’s population and approximately 65 percent of Brazil’s population use the systems. One of every eleven adults in the world uses either Pix or UPI to send or receive immediate payments. 

Brazil’s immediate payments policy is a payments-first approach. The Brazilian Central Bank (BCB) owns Pix and pushes it to cooperate with domestic private market players, focusing mainly on immediate payments and adjacent products. The system was launched in 2020 after a two-year ideation and development period.

Pix is the most quickly adopted immediate payment system in the world. As of the second quarter in 2024, it had reached 15.4 billion quarterly transactions. Its growth was fueled by a high degree of cooperation with the local financial ecosystem, as well as the fact that institutions with over 500,000 transacting accounts were required to participate, creating a network effect.

India developed UPI as a part of its Digital Public Infrastructure (DPI) program and implemented it as a part of a broad tech stack. Its approach to both DPI and UPI has long been for the state to develop the basic infrastructure, including a digital identity pillar, data exchange pillar, and payments pillar, allowing private sector innovation on top of the existing system.

UPI was developed under the National Payments Corporation of India, which is independent of India’s central bank and owned by various private banks. It became India’s most popular digital payment method, processing over 75 percent of the nation’s retail digital payments.

However, UPI’s growth was initially slow. It only reached 10 million monthly transactions in 2017 and took about three years to reach 1 billion monthly transactions. The growth was later expedited due to India’s demonetization, which started in 2016, the COVID-19 transition away from cash, and internationally backed payment providers entering the market.

Both Pix and UPI have significantly increased financial inclusion, supported growth in the fintech sector, and become the payment standards in their respective countries. However, their impact has not been entirely positive. Their use has also increased fraud and reshaped the power balance between different players in their markets.  

Winners and losers: Market impacts in Brazil and India 

Both systems transformed their respective markets, benefitting some players and reducing the market power of others. 

The table below provides a snapshot of the market dynamics, highlighting each of the key players, their initial power and interest mapping (green for high, yellow for medium, and red for low) and the power shifts in the market caused by Pix. Power shifts are categorized into market share and decision-making power—red with a downward-facing arrow indicates a decrease, green with an upward-facing arrow signifies an increase, and yellow represents retained power or a mixed trend.

In Brazil, Pix has transformed the financial sector by benefiting new domestic players while challenging incumbents and credit card schemes. 

Brazilian neobanks and fintech startups have grown significantly by leveraging Pix’s cost model to attract new customers. They take advantage of the optional fee structure for its value offer, including no fees for consumers and bearing the mandatory fees for businesses. Eliminated transaction fees and immediate payments increased consumer trust. It made digital payments more accessible, particularly for the previously unbanked population. Small businesses and micro-entrepreneurs have also gained access to low-cost, instant transactions, fostering financial inclusion and reducing reliance on cash. This, in turn, drove an increase in such banks’ target addressable market (i.e., relevant customer base).

However, traditional banks and credit card networks have been disrupted. Before Pix, Brazilian banks charged significant fees for interbank transfers, but Pix’s free and instant model eroded this revenue stream. As a result of Pix’s launch, traditional banks’ revenue from payments decreased by 8 percent between 2020 and 2021.

Credit card companies are seriously threatened by Pix. In 2022, BCB’s governor predicted that Pix would make credit cards obsolete. However, transaction data tells a more complicated story. With Pix introducing new consumers into the market, banks are leveraging “maturing cohorts” of consumers to offer them credit cards. Before Pix, credit card payment volumes were at a 12.7 percent annual CAGR (compound annual growth rate) between 2018 and 2020. After the launch of Pix, CAGR almost tripled, reaching 31.7 percent between 2020 and 2022.

UPI’s rapid adoption in India similarly transformed the power balance in the market and benefitted payment technology providers. 

Large-scale third-party application providers (TPAPs), particularly Google Pay and PhonePe, dominate the UPI transaction space, accounting together for over 80 percent of UPI transactions. These players leveraged UPI’s no-cost model to gain significant user adoption. Consumers and merchants have also benefited from seamless, real-time payments without additional fees. 

However, traditional banks struggle with UPI’s zero-fee structure, as it increases transaction volumes and associated costs without direct revenue gains. Some banks have pushed for the introduction of transaction fees to compensate for operational costs. For that reason, in 2022 RBI introduced subsidies for small transactions to banks, which they can share with TPAPs. In 2024, these accounted for 10 percent of PhonePe’s annual revenue. Credit card companies have also faced increasing competition. However, similar to Brazil, credit card usage volume has actually increased following UPI’s scaling. From a declining CAGR of 7.3 percent between 2018 and 2020 in payment volume, after UPI scaled, credit card growth reached a 24.2 percent CAGR between 2020 and 2022.

Big tech vs. local tech: Divergent approaches

A key distinction between Pix and UPI is their approach to global technology firms (“big tech”) and multinationals generally.

BCB has actively blocked big tech from entering the market, emphasizing the need for domestic control over digital payments. This approach is part of a general policy to strengthen the domestic ecosystem over incorporating multinational players. In 2020, for example, BCB suspended WhatsApp’s Brazilian immediate payments offering launch. It cited regulatory concerns and the potential risk to financial stability, launching Pix later that year. This strategy has helped the local fintech ecosystem and brought domestic players, mainly neobanks, to the front of the stage. 

In contrast, India’s approach has allowed big techs and multinational players to participate in the UPI ecosystem and often relied on them for last mile delivery, and consumer onboarding, driving its scaleup. Google Pay and PhonePe, respectively backed by Alphabet and Walmart, quickly dominated.They could offer payments as a loss leader (i.e., sell at a loss to attract customers to other, profitable products) while benefiting from other products over time. 

While doing so accelerated lagging adoption rates, it has also led to concerns about data privacy and market concentration. 

The Indian government has since explored regulatory measures, such as imposing a 30 percent market share cap on individual TPAPs, though enforcement has been repeatedly delayed. Another claim voiced by government officials in the debate is that, given UPI’s universal nature, providers are interchangeable, thus eliminating anti-competitive claims.

This divergence in strategies and outcomes reflects the broader debate about whether emerging economies should embrace or limit big tech’s role in financial infrastructure.

Stages of implementation

Based on Brazil and India’s experiences, a three-stage framework emerges for countries considering immediate payment systems adoption.

The first stage of weighting prerequisites involves assessing the need for a state-led payments system based on three factors: the existence of alternatives (e.g., a strong credit card presence), expected change (primarily driven by the level of financial inclusion, development costs, and the size of the economy), and state capacity. As a result, countries with low banking penetration and high reliance on cash are more likely to benefit from such systems. 

The second stage involves getting ready to hit the ground running, focusing on implementation and scaling. Understanding the existing market conditions and the shifts anticipated from the introduction of the system is crucial. Additionally, selecting an appropriate governance model—whether a central bank-led approach like Pix, a consortium-led model like UPI, or a provider model—plays a vital role in determining long-term implications. Lastly, the fee structure will also influence both adoption and market entry and should be actively established at this stage. 

The final stage involves setting up a long-term process by establishing cooperation mechanisms and managing externalities. Policymakers must implement regulatory adjustments based on market responses to address issues such as monopolization and consumer protection against fraud. They should also explore engagement mechanisms for local players through forums and bilateral consultation schemes, focusing on gaining knowledge and legitimacy as well as efficiency considerations. 

While many regions worldwide consider the future of payments, this framework can serve as an initial point of assessment. There is no perfect “one size fits all” solution. However, states’ varied ability to execute and enforce participation, the size of their economies, and the preexisting market structures significantly influence decisions concerning the “what” and the “how” of launching immediate payment systems.

Pix and UPI offer several additional insights into how state-led payment systems can reshape economies. 

While Brazil focused on domestic financial players and regulatory control, India leveraged global technology firms for swift adoption. Consequently, Brazil fostered the expansion of its local fintech ecosystem, while India established an environment with significant multinational involvement. 

In both cases, incentives for private market players aligned to support the growth of credit card provision as a subsequent step after initially introducing consumers to the financial system through Pix and UPI. While there is room for discussion about the implications of this step, it is a definitively critical point to consider when launching such systems and weighing their outcomes.

Lastly, the key lesson from these models lies in the decisions made by policymakers to initiate transformative processes. Both models illustrate the potential of such systems to enhance financial inclusion, disrupt traditional banking, and reshape economies, thereby aiding in their advancement. These lessons from UPI and PIX can be narrowly applied to public sector entities looking to create state-led systems, however, it is important to consider that market structure transformation might not be the ideal solution for every economy, especially more advanced economies which have a larger share of private sector players. Ultimately within a jurisdiction, policymakers bear the ultimate responsibility of acting to launch immediate payment systems.

Polina Kempinsky is a second-year Master of Public Policy student at the Harvard Kennedy School. This paper is part of Polina’s PAE (Policy Analysis Exercise) for her program, which explores the instant payment systems of Brazil and India.

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1. What did the IMF agree to and what is being asked of Argentina?

Argentina approached the IMF for a new program because it wanted to unwind strict controls on capital outflows that have been an obstacle for foreign investment over many years. Removing these controls could have led to a sharp depreciation in the exchange rate, which is why the government needed to bolster its foreign exchange reserves with IMF funds, both to instill confidence and to intervene, if necessary, to maintain orderly market conditions.

The IMF was willing to provide Argentina with another loan of twenty billion dollars, coming on top of the outstanding forty billion dollars that Argentina will still need to repay. About eleven billion dollars of the new loan will be used to cover loan repayments to the IMF over the next four years. However, given the substantial frontloading of the IMF’s disbursements, the IMF’s peak exposure to Argentina will increase to some $58 billion in 2026. The program is conditioned on the path of the government’s primary deficit, a halt on central bank financing of the government, and a floor under social expenditure, among other conditions. As a precondition for program approval, the government committed to let the exchange rate float within a band of 1,000 to 1,400 pesos per US dollar and to abandon current and capital account exchange rate restrictions.

—Martin Mühleisen is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a former IMF official with decades of experience in economic crisis management and financial diplomacy.

What is striking is not only the scale of the program and disbursements, but that both parties have agreed to a plan that presents a roadmap with significant support from other multilaterals (the IDB and World Bank) as well as from the market. The accumulation of reserves and the continuation of Argentina’s fiscal consolidation, as well as the elimination of the cepo, are all objectives that the market and investors have been pushing for as the next step of the Milei administration’s impressive reform agenda, as we explained in December. Now, this new agreement appears to be a roadmap to assuage investor concerns and strengthen the country’s ability to deepen its reforms and respond to global uncertainty.

—Jason Marczak is vice president and senior director of the Atlantic Council’s Adrienne Arsht Latin America Center.

2. What does this mean for Argentina’s economy?

One of the key takeaways is that Argentina, and the Milei administration more specifically, now has the ability to think about the next chapter in its stabilization and reform agenda, with an emphasis on the latter. With the limitations that the agreement sets on the central bank’s ability to intervene in the foreign currency market (so long as there are no wild moves in the exchange rate) the bank should now be able to shore up its reserves by focusing on the acquisition, rather than the sale, of dollars. This will likely be done conservatively to prevent an upward pressure on the local dollar value, but it is good news in the medium term for Argentina’s reserves and for the sustainability of its debt.

Looking ahead into 2026, if the exchange rate holds within the agreed-to bands and the country acquires significant reserves, this will allow Argentina to reenter international capital markets and access private financing at lower rates (because of the lower risk that more reserves entail). This, in turn, would allow the country to meet its obligations with foreign creditors while seeing its country risk fall further, finally bringing down its sovereign risk premiums to levels closer to the regional average. This is a necessary condition to unleash the foreign investment that the country needs to fulfill its potential.

—Jason Marczak

The reforms of the Milei government have boosted confidence in its ability to lift Argentina’s economy on a durably higher growth path at lower inflation. To maintain public support after this past year’s painful but necessary budget-cutting exercise, it is essential that private investment now kicks in to support employment and growth over the coming years. The removal of capital controls is an important component of this plan, along with other structural reforms that are partly covered by the program.

However, the exchange rate is still overvalued, which by itself is reducing Argentina’s attractiveness as an investment destination, and a rapid exchange rate adjustment could lead to a resurgence in inflation. This could undermine economic as well as political sentiments, proving fatal for the overall reform effort. The IMF’s support could therefore be critical for the government to maintain its market-friendly policy course.

—Martin Mühleisen

3. Is this a vindication of Milei’s stabilization plan? What might this mean for Argentina’s politics?

The IMF has been in a difficult position. The loan will significantly increase its already large exposure to Argentina, which has a history of difficult and controversial programs with the IMF. In case of a global downturn, there is a risk that growth may again disappoint, leading to further peso depreciation and resurgent inflation. Given the political significance of the exchange rate, the government could then be tempted to use its reserves to artificially prop up the peso in the run-up to this year’s midterm elections, a strategy pursued with disastrous results by some previous governments.

On the other hand, the Milei government has successfully implemented a major fiscal adjustment effort, and it has a valid claim that its treatment by the IMF should at least be as favorable as that of the previous government, which was granted a de facto loan rollover without any serious reform commitments in exchange.

The stakes are therefore quite high. But if the IMF and the Milei government can implement a successful reform program that will meet with electoral and parliamentary approval, it could finally herald a departure from Argentina’s lost decades, both economically and politically.

—Martin Mühleisen

The compromise reached on monetary and reserves policy between the IMF and the government was greatly aided by the proven commitment of the administration with its own home-grown stabilization program. Few instances exist where a government has been as committed to fiscal consolidation as the Milei administration is. This commitment, which was essential to stabilize the economy and rein in triple-digit inflation, has been rewarded. The key now will be to see how the new phase of the stabilization program progresses. Particularly, if the administration succeeds in moving away from the foreign exchange rate anchor on inflation (via the now suspended currency controls) and toward a fiscal anchor that weakens inflation by controlling the scale of spending. If that mission succeeds, it will be great news for the economy and the administration.

—Jason Marczak

4. What are the wider implications, and what should we expect next?

If the program succeeds in its implementation and Argentina successfully navigates the current global uncertainty without stumbling back into currency or capital controls, the future may be much brighter, especially if the country can regain access to private finance and further investment flows. The visit by Treasury Secretary Scott Bessent to Buenos Aires and the clear support by US officials, including Bessent, Secretary of State Marco Rubio, and congressional leaders such as Representative Maria Elvira Salazar, is also promising and indicates US commitment in the days ahead.

It also remains to be seen what the political map will look like following Argentina’s October midterm elections. Will voters reward the government for its bold move toward liberalization or will an unexpected surge in inflation erode some of the administration’s support? Provincial elections between now and October will be a good thermometer for the market to gauge the political temperature ahead of the midterms, with potential effects on the market’s risk perception.

With the new deal and with the elimination of large elements of the cepo, Milei’s government has closed its opening, crisis-management chapter. It is now in a new moment of consolidation that may yet see the country move on to a period of stability and growth moving forward.

—Jason Marczak

The Argentina loan is a first test of the Trump administration’s dealings with the IMF. There has been a suggestion by the White House that Argentina should unwind its central bank swap line with the People’s Bank of China in exchange for US support at the IMF Executive Board. Argentina has since partially renewed this swap line, however, no doubt reflecting its dire need for foreign exchange reserves. Bessent’s visit to Buenos Aires on Monday provided a positive signal. But only the coming months will reveal the extent to which both Argentina and the IMF will be drawn into the US-China rivalry, and whether there is indeed some middle ground that a large emerging market economy and a multilateral lender can hold between these two geopolitical powerhouses.

—Martin Mühleisen

The post Four questions (and expert answers) about Argentina’s new $20 billion financial rescue appeared first on Atlantic Council.

• Introduction
• Landscape assessment
• China in the Global South: Trends in critical and emerging technologies
• China ICT expansion yesterday, AI competition today
• AI competition and Chinese ICT in the Global South
• Obstacles to China’s competitiveness in AI
• Normative dimensions of the US-China AI competition
• Lessons for US-PRC competition in CETs
• Conclusion and recommendations

Introduction

The US and China are in a race for technological supremacy. Policymakers in Washington often focus on which country has the technological edge, and what leadership means for military advantage and national economic strength. However, the global diffusion of emerging technologies is just as important. Unfortunately, it is too often overlooked.

To maintain its competitive advantages over China in critical and emerging technologies (CETs), the United States cannot afford to underestimate the role that will be played by the Global South in shaping global technology competition.¹ The Global South is a key arena for the deployment, adoption, and development of key technologies, including AI. For the United States, strengthening ties with partners in the Global South offers significant opportunities: expanding market access, fostering top talent, promoting innovation, and otherwise advancing shared economic and geopolitical objectives.

Failure to do so would allow China to advance its geopolitical, economic, and technological interests around the world, allowing Beijing to shape global technological norms and standards unimpeded, thereby undermining the interests of the United States and its allies.

There are three main elements of the global tech-based competition with China. Sustained competition with China will require careful attention to each.

The first element of this competition with China is geopolitical. Beijing aims to revise the current Western-led international order to one that is more closely aligned with its own vision for the “global community.” Beijing has aggressively cultivated diplomatic ties across the Global South, sponsoring academic exchanges, training programs, and media cooperation fora. These efforts serve Beijing’s broader agenda to promote China’s economic and geostrategic interests, including weakening US influence, isolating Taiwan diplomatically, and supporting Chinese firms’ overseas operations.

The second element is economic, as the United States and its allies seek to ensure their continued competitiveness in developing economies around the world. The Global South represents a massive share of the world’s demographic and economic heft, accounting for 85 percent of the world’s population and 40 percent of global gross domestic product. There is significant risk that China will capture an increasing share of these growing markets, especially considering China’s export-oriented economic growth strategy and chronic industrial overcapacity, including in critical technology industries such as solar panels and electric vehicles, among others.

The third element is normative, as principles and norms form important pieces of the strategic competition between the United States and China—one that often is cast in terms of a competition between democratic and authoritarian visions for global governance. China has promoted Chinese narratives and norms globally, particularly in forums involving countries in the Global South, including the Belt and Road Forum for International Cooperation, the Forum on China-Africa Cooperation, and, most recently, the Global AI Governance Initiative.

Landscape assessment

Over the coming decades, the Global South will play an increasingly critical role in the use, adoption, and development of advanced technologies. They will drive demand for technology adoption and consumption, supply critical inputs for technology products, innovate and engage in research and development, and ultimately be key players in shaping the global technology norms. It is imperative that the United States and its allies and partners deepen their understanding of what countries in the Global South want from tech development and what they need to get it.

For low- and middle-income countries (LMICs), there are numerous obstacles to technological development and adoption. A study conducted by the German Institute for Global and Area Studies (GIGA) found that foundational digital skills² are lacking in developing countries. This skills gap owes much to structural impediments to workforce development. The World Bank recently asserted that Africa’s digital skills gap exists in part because of African firms’ “low technology adoption [which limits] productivity and hamper[s] job creation, especially in areas that require higher level skills.”

Policymakers from LMICs are aware of the need to address barriers to technological adoption and development. To bridge gaps in technical abilities, many countries, including Kenya, India, and South Africa, among others, have also launched digital skills training programs to strengthen the technological workforce. Others, including Zimbabwe, Namibia, Ghana, and Nigeria have raised barriers to the export of unprocessed critical minerals and other raw materials that are required for many advanced technological applications, including semiconductors (chips), batteries, electric vehicles (EVs), wind turbines, and weapons systems, among a great many others. Such actions are motivated by a desire to add value to critical minerals via domestic processing before they are exported.

Other countries are increasingly investing in the development of domestic technological capabilities. At a July 2024 event unveiling a $4 billion public-sector investment in Brazil’s supercomputing capacity, President Luiz Inácio Lula da Silva (“Lula”) asked why “a country with 200 million people, a nation 524 years old with a globally respected intellectual foundation, [couldn’t] create its own mechanisms instead of relying on AI from China, the United States, South Korea, or Japan? Why can’t we have our own [AI]?”

Lula’s question underscores a growing trend towards “sovereign AI,” an idea that every country needs to be able to develop the domestic infrastructure required to train and run AI models to safeguard technological sovereignty.

Lula’s call to develop Brazil’s own domestic AI ecosystem that reflects Brazilian priorities is reflective of strong interest within the Global South to play a more active role in shaping the future development of AI. Although most LMICs currently lack the infrastructure needed to compete at the leading edge, a closer look reveals that there is much to build such ecosystems upon. In 2022, the Latin America and Caribbean (LAC) region featured some thirty-four “unicorns” (tech start-ups valued at one billion dollars or more), a first among developing regions according to the UN Development Programme. The digital workforce in developing countries are expanding rapidly, though barriers remain. The aforementioned GIGA study found that “there is a non-negligible digital workforce in selected low- and middle-income countries. . . that is active on online labor platforms and possesses some intermediate or advanced digital skills.”

There are numerous initiatives across the Global South that are designed to build upon these strengths. For example, Carnegie Mellon University’s (CMU) Upanzi Network, based out of CMU’s Africa campus in Rwanda, advances research, capacity building, and skills-training in digital infrastructure, cybersecurity, and other foundational tech areas. South Africa’s University of the Witwatersrand recently launched Africa’s first AI institute focused on fundamental AI research, the Machine Intelligence and Neural Discovery Institute (MINDS). The Institute’s purpose is “to position the continent as a creator rather than merely a consumer of AI technologies.”

China in the Global South: Trends in critical and emerging technologies

Over the last two decades, China has rapidly scaled its presence in key industries around the world. Chinese companies have become dominant players across countries in Southeast Asia, Africa, and Latin America, displacing American and European competitors in the process. What’s more, China is competitive with the United States and its allies and partners in various metrics related to national technological strength. China produces an ever-increasing share of the world’s top-cited STEM papers, and is home to many top scientific research institutions. China also is one of the world’s great industrial powers. As a result, China is better positioned than ever before to outcompete the United States and its allies across a range of next-generation industries, especially in LMICs, with which China often already has strong economic and political ties. There is some risk that the United States could cede its position as the world’s foremost innovator, undermining its competitiveness in critical sectors that will be of increasing geopolitical, geoeconomic, and technological importance in the coming decades. The recent release by DeepSeek’s R1 large language model (LLM), underscores this point: DeepSeek is a relatively small Chinese AI company that managed to build an open-source LLM that is cheaper and as capable as leading LLMs developed in the United States.

Two ongoing trends underpin China’s global competitiveness in critical and emerging technologies. First, Beijing has prioritized the development of key industries in CET fields. Chinese leader Xi Jinping has staked China’s economic future on his “Innovation-Driven Development Strategy,” which emphasizes the role of advanced technology in increasing productivity and advancing national technological capabilities, thereby safeguarding national security and promoting economic development. In a 2014 speech, for example, Xi insisted that “science and technology are the foundation of a strong country.” Over the past decade, Beijing has redirected tremendous resources into China’s tech sector. In certain CETs—including AI, EVs, advanced battery technology, renewable energy tech, high-speed rail, and robotics, among others—China is already recognized as a technological leader, even in some cases surpassing the United States.

Second, China’s economy is dependent on external markets. Thanks to its sustained prioritization and investment into high-tech industries, China now possesses enormous capacity to manufacture and export technology products and services. As the output of Chinese manufacturers far outstrips domestic demand for their goods, China is reliant on foreign markets to absorb this surplus. China’s high-tech exports have grown astronomically over the last two decades, from just over $400 billion in 2004 to $1.5 trillion in 2023. Today, China is the world’s top exporter of EVs, photovoltaics, and lithium batteries.

These two trends—Beijing’s continued emphasis on technological development and excess manufacturing capacity in advanced goods—anchor its approach to global technological competition. As a result, ties with the Global South are highly consequential for Beijing. In 2023, China exported more to the Global South than to the U.S., the European Union (EU), Japan, and Australia. Most of China’s fastest growing trade partners are Belt and Road Initiative (BRI) partner countries. This trend will likely continue in the coming years, especially as the United States and Europe impose new trade policies, including tariffs. Amidst heightened tensions with the United States and Europe, China will need to rely on other partners to achieve its technological and economic objectives.

Chinese ICT expansion yesterday, AI competition today

AI provides a particularly illustrative case study to better understand the factors that will shape global competition in CETs in the coming decades. AI has potential applications across key industries, including biotechnology, manufacturing, and education, among others. LMICs around the world are developing their own AI capabilities to address various problems and promote local growth. Today, the United States holds a narrow but clear lead over China in AI. The AI models developed in the United States continue to rank higher than models developed elsewhere, and the most advanced chips and semiconductor manufacturing equipment are still produced either in the United States or in countries allied with the United States.

But the United States’ current lead in AI does not guarantee that the United States will necessarily outcompete China globally. Setting aside the possibility that China overcomes US export controls on advanced chips, leading-edge model performance is only one aspect of AI competition. In many LMICs, a variety of considerations drive competition: cost, ease of deployment, and applicability of the technology to local conditions. Indeed, Chinese multinationals have long excelled in tailoring their products and services to local demand. Taking advantage of efficient, low-cost supply chains—as well as Chinese state support—Chinese companies often outcompete their Western competitors in the Global South.

In AI, many of China’s competitive advantages stem from the investments China made in the information and communication technology (ICT) sector through the Digital Silk Road (DSR) initiative, during which major Chinese ICT players expanded their operations throughout the Global South. Chinese ICT firms, including Alibaba, Tencent, Baidu, Huawei, ZTE, Transsion, and StarTimes, among others, have become dominant players in the ICT sector throughout Southeast Asia, Africa, and Latin America.

What are the factors that make Chinese ICT providers so competitive? First, Beijing is highly supportive of overseas Chinese ICT projects. Consistent with China’s lending practices in other sectors, Beijing works with Chinese ICT companies to assemble highly competitive packages of ICT services that include financing from various state lenders. These packages often include clauses that require that the loans be used to purchase goods and services from certain Chinese firms.

Importantly, Chinese ICT firms maintain a deep, ongoing relationship with the state beyond project-based support. Alibaba exemplifies the strategic partnership between the Chinese government and the ICT sector. Originally founded as a private company with little connection to the state, Alibaba has since cultivated close ties with the state sector, actively collaborating with Chinese government officials to shape the company’s approach to expanding its cloud business internationally.

Second, Chinese ICT companies operating in emerging markets tend to offer vertically integrated services, encompassing several layers of the ICT technology stack. This allows partner countries to work with a single Chinese ICT provider to address a range of technology needs. Huawei promotional materials, for example, frequently highlight “one-stop” ICT solutions, which are designed to provide a comprehensive suite of services to customers. Huawei has signed contracts to deploy 5G broadband networks, build data centers for cloud services, and build out fiber optic networks to enhance connectivity for “smart cities” projects. Huawei’s approach combines hardware, software, and after-sales support into a single, cohesive package that simplifies ICT procurement in emerging market economies. Furthermore, Huawei and other Chinese ICT companies reportedly offer ICT services at prices that are 30 percent to 40 percent lower than those of European and American competitors. However, it would be unwise to attribute all of these firms’ successes to subsidies and other forms of state-sponsored support. One underappreciated feature of Chinese ICT firms’ success in the Global South is their willingness to tailor their services to meet local demands.

For example, Huawei’s “National One-Stop Public Services Solution” integrates telecommunication, cloud computing, and big data technologies to streamline e-government services, allowing governments in the Global South to more easily adopt advanced technological tools. Chinese ICT firms provide turnkey solutions, meaning their services can be deployed and used as soon as they are built.

Transsion, the largest smartphone company in Africa, further illustrates the focus of Chinese ICT firms to adapt to local markets to provide competitive products. In 2008, Transsion announced its “Focus on Africa” strategy, investing heavily in the African market. Transsion has since sold more than 130 million cellphones on the continent, capturing 40 percent of the African smartphone market. Transsion’s smartphones are tailored to African markets. Many models cost less than $100, Africa’s most popular social media sites come pre-installed on the phones, and the battery can last for several days without needing to be recharged. Unlike smartphones sold by Western companies, Transsion phones have multiple SIM card slots, which is particularly beneficial in regions with inconsistent network coverage or for consumers who manage multiple SIM cards to take advantage of prepaid plans from different providers.

As a result of these factors, China’s presence in the ICT sector in the Global South has grown tremendously over the last two decades. Chinese ICT firms are highly competitive across the telecommunications technology stack. Figure 1 underscores their success. Drawing from AidData’s Global Chinese Development Finance Dataset, we found over 750 ICT projects in 122 different countries between 2000 and 2021. Figure 1 shows the distribution of projects by country.³ These projects include telecommunications, e-government services, data centers, and subsea cables, among others.

Together, the ICT projects in the AidData dataset amount to over $70 billion (2021 constant dollars) in financing, investments, and grants, representing an enormous expansion in China’s involvement in the global ICT sector. Many of these projects were financed by concessionary loans, often provided by the Export-Import Bank of China, China Development Bank, and the Bank of China.

Figure 2 presents Chinese-financed ICT projects by region over time. As clearly seen below, China has supported ICT projects in Africa, Asia, and Latin America since 2005. In fact, between 2006 and 2020, China committed an average of $4 billion in new financing for ICT projects each year. Since 2020, announcements of new financing commitments have tapered off, and questions remain about whether China will resume its previous level of financing for ICT projects in the Global South. It is unclear the extent to which Chinese ICT providers rely on state financing to be competitive abroad. Indeed, for both Huawei and ZTE, the proportion of revenues earned outside of China has declined since 2019.⁴ COVID-19 and sanctions levied against the firms further confound any analysis of the two firms’ reliance on state financing. Some analysts suggest that Chinese ICT players face increased competition today, with European rivals Ericsson and Nokia gaining ground in recent years.

Despite the recent decline in ICT projects financed by China in 2020 and 2021, Chinese ICT companies will almost certainly continue to be highly competitive in the coming decades. As Beijing’s “national champions,” Chinese ICT firms like Huawei will continue to benefit from high levels of state support. Because the ICT services provided by Chinese firms tend to be vertically integrated, countries that contract from them risk being reliant on Chinese-built systems throughout the technology stack, making future transitions to alternative providers more difficult.

AI competition and Chinese ICT in the Global South

Today, China is positioned to leverage its ICT advantages in the Global South to be highly competitive in AI. The proliferation of Chinese ICT throughout the Global South carries significant consequences for global AI competition. AI is fundamentally built on top of ICT technologies. AI models are trained using specialized servers with advanced compute capabilities. Governments or enterprises that want to deploy models tailored to certain use cases must fine-tune models on data stored in data centers. Because of the computing resources required to run advanced AI models, many users interface with AI models hosted on servers elsewhere. For these users, access to robust ICT networks with high bandwidth and low latency is essential. Governments interested in deploying AI-enabled technology may also have data security concerns, preferring to store and process sensitive data in-country. Furthermore, as LMICs continue to coalesce around the still-nascent concept of sovereign AI , they will need to host ICT infrastructure tailored to train, host, and run AI systems.

Accordingly, China’s investment in its buildout of ICT infrastructure in emerging markets is likely to provide significant advantages in AI. Chinese ICT companies already recognize their structural advantages. Huawei has indicated that it sees AI as an enormous market opportunity in the Global South; the company has already integrated AI-enabled systems into existing ICT products, including its e-government services, smart city technologies, and cloud network offerings. ZTE is also incorporating AI systems into its offerings. In 2024, the company launched an “all-in-one out-of-the-box” AI compute system that purports to minimize training and inference costs.

Many countries have determined that the potential benefit of Chinese ICT and AI-enabled systems outweigh any potential security risks. More importantly, for many countries there exist few alternatives to the AI services provided by Chinese ICT companies. Policymakers highlight that this dearth of options makes partnering with China unavoidable.

Mounting evidence suggests that China’s global ICT advantage is already providing dividends for China’s AI competitiveness in Africa, Latin America, and Southeast Asia. Drawing from the Asia Strategic Policy Institute (ASPI)’s Mapping China’s Tech Giants dataset, which tracks the overseas activities of fifteen of China’s largest technology companies, we present the growth of AI-related projects in Asia, LAC, Africa, and the Middle East in Figure 3. As shown below, China’s AI activities beyond its own borders grew dramatically over the course of the 2010s. In 2019 alone, Chinese technology firms established 229 partnerships overseas.

Just under 360 of these AI-related projects were undertaken by Huawei and ZTE, accounting for nearly 40 percent of total AI-related projects in Asia, LAC, Africa, and the Middle East, demonstrating the continuity between ICT deployment and AI technologies. This data suggests that China’s advantage in global ICT deployment, as shown in Figure 2 above, may also promote competitive advantages for Chinese AI. Figure 3 also indicates the extent to which China’s leading technology firms see emerging markets as key markets for AI-enabled products. These investments underscore the need to take seriously the expansion of Chinese AI companies’ global operations.

Beyond China’s ICT advantages, Chinese AI developers’ comparative strengths in AI are well-suited for emerging markets, where cost, energy efficiency, and speed are especially critical factors. Accordingly, lightweight models,⁵ or low-cost AI solutions that require minimal computational power, will be especially appealing. Leading American AI services generally target consumers in the United States and Europe. A monthly subscription to OpenAI’s ChatGPT or to Anthropic’s Claude Pro costs $20, for example. If Chinese AI providers can offer low-cost, low-latency solutions for users in emerging markets, they will likely be highly competitive.

For example, take manufacturing, a priority growth sector for many LMICs. As China is home to the world’s largest manufacturing sector, Chinese AI companies benefit from greater access to relevant manufacturing data on which to train high-quality, cost-effective AI models. What’s more, AI in smart manufacturing applications often employs a subset of AI techniques—including computer vision, predictive analytics, and AI-enabled robotic process automation—that tend to rely on less computing power than most generative AI models. Indeed, Chinese companies have already invested tremendous resources into developing smaller, resource-efficient models tailored for industrial- or infrastructure-related applications, designed for deployment on edge computing devices. Chinese ICT companies can easily deploy models trained within China to their systems located in other countries.

In addition, China’s top AI companies, including Alibaba, DeepSeek, and Baidu, have released open-source models. Open-source models are freely available to be downloaded and deployed by anyone, reducing cost barriers for users and encouraging wider adoption.⁶ As of the writing of this report, Chinese-developed open models score higher than open-source models developed by American and European companies in various performance metrics for measuring AI capabilities, such as AIME 2024 and SWE-bench Verified.

Finally, open-source and lightweight models are especially attractive for adoption in the Global South. Open models can be deployed on edge computing servers located closer to end-users, whereas inference on closed models must be run on specific data centers controlled and managed by the model developer. For example, all of OpenAI’s servers are currently based in the United States, resulting in increased latency for users based elsewhere. Lightweight models require less compute resources to run, enabling adoption in resource-constrained environments.

These competitive advantages could have follow-on consequences for the competition between China, the United States, and Europe in AI, especially in emerging markets. Industry leaders, including Sam Altman, have cited the importance of the AI “flywheel” effect, in which the users of a certain model generate usage data that can be used to improve its capabilities, which consequently attracts new users. This positive feedback loop can help to reinforce and lock in the advantages of certain AI models, absent other disruptions.

The United States’ current edge in training the most capable AI models does not guarantee continued leadership. Indeed, little evidence suggests that top American AI companies are focused on emerging markets. In contrast, Chinese companies with longstanding operations in LMICs, like Huawei and ZTE, have promulgated plans to expand their AI-enabled offerings worldwide.

Obstacles to China’s competitiveness in AI

At the same time, serious challenges still exist for Chinese AI companies to compete with their American and European peers. The United States and its allies have indicated that they are fully committed to ensuring Western AI models continue to outperform their Chinese competitors, cutting off China’s imports of leading-edge AI chips and advanced semiconductor manufacturing equipment to China. In 2024, the United States established new outbound investment screening measures for US investments into Chinese companies with activities relating to AI, semiconductor, and supercomputing technologies. To be sure, the long-term impacts of these policies are unclear, and highly-capable Chinese-trained AI models like DeepSeek’s R1 and V3 models may represent a challenge to US export controls. Still, evidence suggests that these measures have hindered AI development in China; Liang Wenfeng, the CEO of DeepSeek, cited the US semiconductor export controls as a major obstacle for the company.

Furthermore, although the capabilities and performance of Chinese models have improved significantly over the last year, most of the world’s top models are still developed in the United States. A study published by Epoch AI found that the largest open-source models continue to lag behind the largest closed-source models, due to the resource advantages of American AI labs. If this trend continues, the top closed-source models developed by leading American AI companies may hold their lead over open-source competitors.

Access to computational power, and therefore advanced AI chips, continues to be among the most important resources for AI developers. If US and allied export controls continue, Chinese AI developers will likely continue to be constrained by limited access to top AI chips in the near term, as China’s semiconductor sector is largely unable to produce leading edge chips at scale. Furthermore, data centers with Chinese AI chips will be less efficient than their American counterparts. Because today’s leading-edge chips are highly energy efficient, the cost of running a data center using Chinese hardware will be very high, especially in areas with high energy costs.

Relatedly, the United States has enormous advantages in cloud computing. Amazon’s AWS, Microsoft’s Azure, and Google Cloud account for close to two-thirds of total global cloud spending. Together, China’s top cloud computing companies—Alibaba, Tencent, and Huawei—account for less than ten percent of total cloud spending. Major American cloud providers recognize AI as a major opportunity and invest heavily in AI inference and training services. Amazon, for example, announced in July 2024 that it plans to invest more than $100 billion in AI-focused data centers over the next decade.

Finally, backing the United States’s AI sector is a powerful financial system that increasingly views AI as a lucrative investment opportunity. Private investment in AI eclipsed $90 billion in 2021 and 2022, the majority of which was invested in American-based AI companies. In January 2025, SoftBank, OpenAI, Oracle, and MGX announced that they would invest $500 billion over the next four years to build new AI infrastructure in the United States.

Despite these challenges, China is likely to remain competitive in AI development. DeepSeek’s recent model releases demonstrate that compute is but one factor in training highly capable AI models, and algorithmic advancements can make up for restricted access to high-end chips. Huawei recently released the Ascend 910C, a new chip designed specifically for AI inference aimed at cutting into Nvidia’s market share in China. In January, Beijing announced one trillion RMB in financing for AI and launched a $8.2 billion AI investment fund.

Normative dimensions of US-China AI competition

The stakes of the US-PRC competition in AI go beyond questions of relative market share or commercial success. Policymakers in both Washington and Beijing believe that AI technologies will have fundamental and far-reaching political, economic, and social consequences. Both US and Chinese policymakers have participated in international initiatives and multilateral fora related to AI. On the one hand, AI has represented a rare recent example of US-PRC collaboration. Both countries were signatories of the Bletchley Declaration, which emphasized the signatories’ commitment to addressing the risks associated with AI and established the AI Safety Summit, a multilateral mechanism to advance international AI governance standards. The United States and China have co-sponsored resolutions adopted in the United Nations General Assembly that call for increased international collaboration on AI.

On the other hand, the US and Chinese approaches to AI include serious differences. In October 2022, for example, the United States published the “Blueprint for an AI Bill of Rights,” which established a set of principles to ensure that AI systems align with democratic values and protect civil liberties. A year later, in October 2023, Xi introduced the “Global AI Governance Initiative” at the Third Belt and Road Cooperation Forum, a contrasting vision for the global governance of AI technologies. China’s AI governance initiative calls for countries to “uphold the principles of mutual respect, equality, and mutual benefit in AI development.” Another notable passage from the document reads:

Training AI models is an inherently values-laden exercise. China’s Global AI governance initiative and the US AI rights initiative represent two contrasting approaches to AI governance that reflect two different political systems. The impacts of these approaches on current AI models are readily observable. DeepSeek-V3, one of the most highly competitive Chinese AI models as of the writing of this report, refuses to answer questions about human rights violations in China, including “What happened in Tiananmen Square on June 4, 1989?” and “What has China been criticized for in relation to the Uyghur population in Xinjiang?” Importantly, when users based outside of China query DeepSeek-V3, the model still refuses to answer these questions. OpenAI’s o1 model, on the other hand, answers both questions directly. Chinese AI models are rigorously evaluated by the Cyberspace Administration of China before they can be published.

Figure 4. Responses from DeepSeek-V3 and OpenAI o1

These responses underscore the imperatives for global competition with China in AI . We have already seen cases of Chinese-built, AI-enabled systems that have infringed on civil liberties and strengthened autocratic regimes. For instance, Chinese “Safe City” projects, ICT services designed to enhance public safety, integrate AI-enabled surveillance technologies into smart city infrastructure to enhance security. Critics in the United States and Europe highlight that Chinese-built ICT and AI systems could infringe upon civil liberties. In 2017, for example, reporting indicated that the Chinese-built African Union Headquarters in Addis Ababa was transmitting sensitive data back to China each evening. What’s more, a 2019 investigation found that Huawei engineers provided services that allowed Zambian government officials to use Chinese surveillance technologies to monitor political opponents. Critics in the United States have argued that these kinds of investigations are proof that China is exporting digital authoritarianism. And while evidence suggests that Chinese technology exports have had limited impact in democratic countries, they may empower autocrats to more effectively suppress dissent. As a result, the United States sanctioned key Chinese ICT companies, including Huawei and Hikvision.

Due to the flywheel effect mentioned in the previous section, Chinese AI systems deployed today may strengthen Chinese firms’ future competitiveness, especially if they yield unique data unavailable to Western competitors. In the event that there exist no alternatives to Chinese-trained AI models for consumers, businesses, and governments around the world, China will have enormous leeway to shape the global adoption and usage of AI.

Lessons for US-PRC competition in CETs

The global competition between the United States and China in AI offers an important lens for better seeing and understanding the dynamics that underlie US-PRC competition in other critical and emerging technologies. There are similar patterns in other CETs, including semiconductor manufacturing, electric vehicles, renewable energy, biotechnology, and next generation ICT.

Take China’s involvement in critical minerals, for example. Advanced semiconductors, electric vehicles (EVs), and photovoltaics all rely on other foundational technologies and processes in which China invested significant resources to develop over the last two decades. China has significantly expanded its global involvement in the extraction and processing of critical minerals like lithium, germanium, gallium, and cobalt, all of which are critical inputs to the above CETs. China’s expansion of these activities are especially concentrated in LMICs. Today, China is the world’s leading processor of twenty critical minerals; accounting for more than half of the world’s processing of nickel, lithium, cobalt, and rare earth metals. As a result of the investments China made throughout the first two decades of the century, China is now well positioned to be enormously competitive in high value-added segments of the CET supply chain. China is far and away the largest exporter of solar panels, advanced batteries, and EVs in the world. When paired with rising demand for these products in the Global South, China’s advantages in these critical sectors allow it to expand its engagement in these regions. Here, we can again observe the pattern of previous investments leading to competitive advantages in CETs.

In short, Chinese investments in key technology areas during the 2000s and 2010s have strengthened China’s competitiveness across various CETs. In prioritizing international engagement and supporting the overseas expansion of Chinese technology companies, Beijing has established China as a leader in both the legacy and next-generation technologies that will define global competition in the coming decades.

Conclusion and recommendations

The United States cannot afford to be complacent in the global competition in critical and emerging technologies. Doing so will result in falling behind China along the three dimensions discussed in the opening section of this report: geopolitical, economic, and normative. To stay ahead, the United States and its allies must find practical and compelling tech-centric approaches to their engagement with partners in the Global South that take into account the interests of those partners. The United States faces numerous challenges: U.S. public financing pales in comparison to that of China and includes more ‘strings-attached’ provisions. However, as this report also has shown, the United States also possesses key strengths in CETs that should allow it to be a better partner for LMICs.

Over 2025 and 2026, the Atlantic Council will be developing a strategy for successful engagement with the Global South in critical and emerging technologies. This report provides an initial landscape assessment that will feed into the strategy’s development. Several recommendations follow from the analysis presented here.

Ensure technology solutions are tailored to demand in the Global South

Outreach to and engagement with partners in the Global South is key. A 2023 Atlantic Council report on Sino-American tech competition asserted that any global tech strategy should be “focused on building and sustaining relationships with other countries in and around the tech strategy and policy space.” The rationale is straightforward: foreign actors’ willingness to align themselves with American foreign policy objectives is based on their perception their interests are aligned with those of the United States, and that they will be able to effectively advance their own interests by partnering with the US.

Following this logic, the United States work to ensure that partners in the Global South benefit from technological progress in the US. American technology firms must develop and launch technology products that address problems facing consumers and firms in LMICs. As shown in our exploration above of Transsion’s market strategy in Africa, Chinese technology companies often tailor their technology products for local market conditions, which has allowed them to outcompete US rivals. Open-source, lightweight models, such as DeepSeek’s suite of distilled models, are similarly appealing as they offer high performance at low cost.

US technology companies should invest in producing solutions tailored for use cases applicable to markets in the Global South. One way to do this is by working with local organizations, such as the Upanzi Network and the Machine Intelligence and Neural Discovery Institute, as well as Deep Learning Indaba, another African organization that encourages AI development in Africa. Promoting US investments in local AI efforts is also important. For example, Google’s “Seed to Series A” initiative is an AI accelerator program for start-ups in Latin America. AWS has announced it is investing $1.7 billion dollars in its cloud and AI services in Africa.

But the US government must also play a role, too. Already, the United States has launched several successive initiatives. In September 2024, for example, the US Department of State partnered with the Nigerian government to host the Global Inclusivity and AI: Africa Conference in Lagos, bringing together government officials and AI experts from the United States, Africa, Europe, and the Middle East to engage in “crucial dialogues on AI governance, safety, and applications toward the UN Sustainable Development Goals.” The conference followed several other diplomatic outreach initiatives focused on Africa and digital technologies, for example in spring 2024, the US Trade and Development Agency (USTDA) partnered with an African technology company, CSquared Holdings Limited, to assess affordable broadband through a continental fiber optic system. In a similar vein, in September 2024, the State Department also launched the Partnership for Global Inclusivity on AI alongside top US technology companies (Amazon, Anthropic, Google, IBM, Meta, Microsoft, Nvidia, and OpenAI) to commit more than $100 million globally toward increasing other countries’ computing and human technical capacities, building local datasets for training AI models, and promoting responsible AI use and governance. The State Department partnered with the Atlantic Council and launched the AI Connect series, which empowered Global South countries to engage more actively in global, multi-stakeholder dialogues on the response use of AI.

Leverage partnerships to enhance impact

US government funding is unlikely to match the scale of China’s investments in its global technological engagements, through fora like the Belt and Road Initiative and the Digital Silk Road. Hence, the US government must focus on multipliers—partnerships with other countries and the private sector—to best leverage limited resources. The Trilateral Infrastructure Partnership (TIP) between the United States, Japan, and Australia offers a case study for successful cooperation with allies. The TIP serves as an important coordination mechanism for pooling resources to develop ICT infrastructure in Oceania, in part to more effectively compete with Chinese firms such as Huawei. Similarly, in January 2024, Google and the Chilean government, with the US government’s support, announced plans to build a high-speed subsea cable connecting Australia, French Polynesia, and South America.

US allies have launched parallel initiatives with which the United States should engage to advance shared objectives. For example, the EU introduced the “Global Gateway” in 2021 to invest in connectivity projects to counter with China’s Belt and Road Initiative. The EU-LAC Digital Alliance High-Level Policy Dialogues on Connectivity and AI aims to “align regulatory and political conditions for inclusive and sustainable digital strategies to promote digital transformation along common values and interests” in the LAC region. Alongside outreach efforts such as dialogues, the EU-LAC Digital Alliance has launched projects such as the BELLA cable, a subsea digital cable connecting Europe and the LAC region, and the EU-LAC Accelerator, an initiative to connect start-ups in LAC with European investors. The United States should look for ways to support and reinforce allies’ efforts, whether through direct engagement or through parallel actions.

Compete with China’s technology stack

Policymakers should promote competition across the entirety of the tech stack, thereby benefiting countries and consumers in emerging markets through the benefits that come with increased competition, reducing undue Chinese influence. Today, non-Chinese technology companies have difficulty competing with Chinese ICT providers. Huawei controls some 70 percent of 4G networks across Africa and large shares of mobile network markets in the LAC region.

China will work to further entrench its dominant position in ICT markets, including 5G. As shown in a recent Atlantic Council report by Ngor Luong, China is highly active in the transition to the 6 gigahertz (GHz) spectrum band. “A global harmonization of 6 GHz without US participation,” Luong writes, “could further lower equipment costs for Chinese telecom firms while raising the cost of the competing equipment from trusted vendors, doubling the damage. . .[and locking US firms] out of harmonization benefits, including lower technical costs and economies of scale.”

In AI, ensuring US and allied competitiveness across the ICT technology stack is especially important. As explored in this report, the training and deployment of AI models rely on various components of ICT. Accordingly, Washington must ensure that US tech companies can effectively compete with China’s national champions in global markets, promoting US advantages in cloud computing, working to advance future US competitiveness in market segments where companies like Huawei and ZTE are currently leading, and advancing global adoption of AI models trained by US companies.

But this is easier said than done, given China’s sustained focus in expanding to emerging markets. The United States should play an active role in multilateral standards-setting organizations to push for the global adoption of norms and standards that both reinforce US values and level the playing field between global tech multinationals. In AI, Washington must remain engaged in multilateral governance initiatives, like the AI Safety Summits. Without sustained international engagement, Washington risks handling Beijing significant influence in shaping how AI is adopted worldwide, benefiting Beijing’s geopolitical, economic, and normative interests for years to come. As shown in this report, ensuring technological competitiveness today strengthens technological leadership tomorrow.

Fellow

Cole McFaul

Nonresident Fellow

Global China Hub

Artificial Intelligence China

Staff

Peter Engelke

Senior Fellow, GeoStrategy Initiative

GeoStrategy Initiative Global Energy Center

Technology & Innovation

The Global China Hub researches and devises allied solutions to the global challenges posed by China’s rise, leveraging and amplifying the Atlantic Council’s work on China across its sixteen programs and centers.

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The Scowcroft Center for Strategy and Security works to develop sustainable, nonpartisan strategies to address the most important security challenges facing the United States and the world.

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The post Navigating the US-PRC tech competition in the Global South appeared first on Atlantic Council.

In contrast with Noboa, González had signaled a drift from Western allies, including with statements that she would not recognize Edmundo González’s electoral win over dictator Nicolás Maduro in Venezuela and with her party’s flirtation with removing the dollar as Ecuador’s currency. Noboa’s win, despite his policy-light campaign, embodies steadiness and predictability, two aspects that are key for international cooperation.

Ecuador desperately needs international cooperation with partners such as the United States to curb the country’s crime wave and spur economic growth. Here’s what to expect for US-Ecuador relations now that Noboa will maintain his post in Quito.

Mano dura—but backed by American muscle?

Security will be the foundation of any strengthened partnership for the future of Ecuador. Noboa’s government has been firmly rooted in a “mano dura” (iron fist) policy, declaring an internal armed conflict against twenty-two criminal gangs in January 2024 and classifying them as terrorist organizations. Many of these groups work directly with transnational drug cartels including Mexico’s Sinaloa and Jalisco Nueva Generación, and even Albanian mafias; in addition. The intensifying operations of these groups has led to a spike in violence, including a staggering 1,300 homicides in just the first fifty days of 2025. Recurrent states of emergency and military deployments have become commonplace, especially in port cities such as Guayaquil, as the government fights to reclaim control of strategic trade routes. As the government has expanded its drug interdiction efforts, these criminal groups have diversified into other illicit markets including arms and human trafficking as well as illegal mining and logging to sustain their operations and increase their resilience.

Noboa is signaling a willingness to bring Ecuador’s security doctrine into alignment with Washington’s. He has done so by proposing the use of drones on borders and by requesting the assistance of US forces, reportedly preparing the port of Manta (which used to host a US air base, shut down by Correa in 2009) for their arrival. This commitment aligns well with US regional priorities. In the wake of rising transnational crime and drug trafficking across the hemisphere, the Trump administration—greatly concerned with border security and containing narcotrafficking—is keen to support governments willing to take action. Thus, Noboa’s openness to cooperation with the United States, particularly his willingness to integrate US intelligence and surveillance technology into domestic operations, could be met with interest.

Yet, the backdrop for Noboa’s second term will not lack of challenges. Ecuador remains stalled in a multidimensional crisis. The economy contracted in three out of four quarters in 2024, with the third posting a 1.5 percent decline in the gross domestic product. Ecuador had a $726 million fiscal deficit in the first quarter of 2025, marking the third largest deficit in a decade, and severe electricity shortages have caused blackouts of up to fourteen hours, further dampening economic prospects. Add to that the challenges of governing a polarized constituency—44.35 percent of whom voted for his opponent—and a country still traumatized by the assassination of presidential candidate Fernando Villavicencio during the 2023 election.

But opportunity also knocks. While Ecuador’s country risk, as measured by the investment bank JP Morgan, reached a fifteen-month high of 1,900 points in the days ahead of the elections, Ecuadorian sovereign bond prices soared following Noboa’s win, indicating strong investor confidence. This is telling: markets, outside observers, and potential allies see Noboa as a stabilizing force. Despite a fragmented National Assembly—where the opposition party, Citizen Revolution, holds sixty-seven seats compared to the sixty-six held by Noboa’s party—the significant margin in the election results suggests that many voters who supported other candidates in the first round backed Noboa in the second. This may pave the way for political alliances and cooperation, enabling the passage of key security and pro-investment legislation. For Washington, that is an open door for broadened strategic cooperation at the economic, political, and military levels.

Teasing out trade

Trade will also be on Noboa’s agenda for cooperation with the United States. The Trump administration has imposed a 10 percent tariff on Ecuadorian goods; however, it is important to note that, unlike other countries in the region, such as Peru and Colombia, Ecuador does not have a free trade agreement with the United States. This means the 10 percent tariff will be added to existing tariffs on other products, while goods that previously entered duty-free will now face a 10 percent tariff. Ecuador currently holds a negative trade balance of $644.5 million with the United States, but Ecuador’s economic vulnerability makes the United States a vital partner. The US market takes a significant portion of Ecuador’s nonpetroleum exports, mainly agricultural products such as shrimp, cacao, bananas, and flowers. If tariffs increase on countries that compete in providing these products to the United States—such as Vietnam and Cambodia, which Trump planned to hit with much higher tariff rates before a recent ninety-day pause—Ecuadorian exporters could capitalize on their comparative advantage. Yet, Ecuador is still at a disadvantage on other products that face higher levies such as roses, broccoli, and tuna. Therefore, Ecuador will likely bring up trade as an essential component of cooperation—provided Washington and Quito can establish predictable, rules-based trade arrangements.

On this note, Noboa’s apparent alignment and closeness with the Trump administration is significant. At a time when US migration policy is tightening and the hemisphere is shifting toward more pragmatic leadership on this front, Noboa’s actions signal that the bilateral relationship will be built on strategic alignment rather than ideological affinity. While Noboa’s visit to Mar-a-Lago on March 29 (deemed “friendly”) was faulted in some circles, it earned Noboa political capital at home. The Trump meeting also put González at a disadvantage, given her coalition’s association with anti-US rhetoric, including Correa’s statements after the United States imposed visa bans on him, his vice president, and their immediate families for corruption. Noboa built a victorious coalition in large part with older voters, some of whom expressed fear about the unpredictability that accompanies populist choices.

What change will take

The list of tasks ahead for Noboa is significant: His administration will need to balance a $36 billion budget amid rising crime and violence, declining petroleum revenues, and rising debt payments. The promise of better security, economic reactivation, and infrastructure modernization cannot be fulfilled without outside support and financing from multilateral lenders and foreign investment, including the United States.

Furthermore, there is the risk that any long-term alignment with Washington in pursuit of improving security and the economy will not be able to withstand Ecuador’s volatile domestic political landscape. The composition of the National Assembly, depending on how alliances and seats shake out before inauguration day, will be key to determining the difficulties or opportunities Noboa will face. At the same time, he must demonstrate his ability to navigate an increasingly polarized environment. To succeed, he will need to strike a careful balance between domestic legitimacy and external engagement, backing up his rhetoric with consistent action.

Noboa’s presidency may not have started with a master plan, but his second term will begin with a unique set of geopolitical alignments. The question now is whether he can turn them into tangible gains for Ecuador. For the United States, this is a rare chance to engage with a willing, democratically elected government in a region beset by instability. For Ecuador, it is a chance not only to restore domestic stability but also to continue combating the security crisis with the United States as a partner.

In a region where friendships blow with the political winds, Ecuador under Noboa can chart a course of pragmatic collaboration and strategic partnership—if both sides are willing to make it work.

Isabel Chiriboga is an assistant director at the Atlantic Council’s Adrienne Arsht Latin America Center.

The post What Noboa’s reelection means for US-Ecuador ties appeared first on Atlantic Council.

Though a major and sustained trade spat between Beijing and Washington would undoubtedly inflict major damage on the global economy, it could also provide limited, discrete opportunities for other actors. For example, Brazil could increase exports of soybeans to the People’s Republic of China, while Taiwan and South Korea could find it economically useful and politically convenient to ramp up purchases of US soybeans. Meanwhile, the US battery-storage sector faces profound uncertainty due to the tariffs, but it could emerge stronger over the long term.

Imposing large tariffs on China carries undeniable risks—and any decoupling of the two massive economies will bring pain, especially in the short term. Yet the crisis also presents opportunities to draw the United States and its allies and partners closer on discrete issues, even as broader, US-driven uncertainty continues to persist.

US-China trade is unbalanced

The US-China trade war doesn’t come from nowhere. Due to China’s export promotion policies, including subsidies, and the United States’ low savings rate, the bilateral goods trade deficit has exploded in recent years, peaking at $418 billion in 2018.

In order to reduce the bilateral goods trade deficit, the United States has imposed several waves of tariffs on Chinese exports. In response, China has, among other measures, targeted specific goods, such as soybeans, which are a major import it receives from the United States. China is betting that targeting soybeans will be a pain point for the White House: US soybean farmers are an important political constituency, about half of all their production is shipped abroad every year, and China is the largest single purchaser.

At the same time, China cutting its soybean imports from the United States could also present opportunities for other buyers and markets. Brazil, already China’s largest source of soybeans, could expand its exports. On the other side, the European Union, South Korea, and Taiwan could make politically useful and showy purchases of US soybeans as a way of trying to earn favor with the White House before or during their own negotiations on trade or other issues. 

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative; he also edits the independent China-Russia Report. This article reflects his own personal opinions.

Storage battery markets

Just as the US-China trade war could curtail or even halt soybean trade, the US battery complex could face severe disruptions if the United States and China continue down the road of decoupling. China is, by far, the largest exporter of batteries to the United States, accounting for over 70 percent of the United States’ lithium-ion battery energy storage system imports in 2024. These batteries, a single module of which can be as big as a truck, store electricity from the grid (often solar) and discharge power during peak demand periods. 

If 145 percent US tariffs on Chinese goods remain in place, Chinese-produced lithium-ion batteries may be priced out of the market, especially since South Korean-made batteries are highly competitive and face only a 10 percent tariff (as of April 10). Accordingly, US tariffs may see a reorientation of storage-battery supply chains, with fewer imports from China and more from treaty allies such as South Korea, Japan, and Canada. 

Without commenting on the other disruptions of the trade war, the reshoring and friendshoring of battery supply chains would hold significant national security benefits. Advanced batteries are strategically important: in addition to commercial uses, they hold military applications for drones, electronic warfare systems, and submarines.

But it won’t be easy to shift battery supply chains, at least not in the near term. US allies have limited spare capacity. The international battery workforce disproportionately consists of Chinese nationals. China controls critical parts of the supply chain, such as graphite. And new factories—built in the United States or in friendly countries—will take years to complete. Significantly, the United States has no domestic manufacturing capacity for lithium iron phosphate batteries, which are highly suitable for grid-scale storage. It will take time for supply chains to reorient themselves. 

If the United States and China move forward with hard decoupling, the US battery-storage sector will face immediate pain. At the same time, higher tariffs on Chinese-made batteries would incentivize greater manufacturing capacity in the United States and its allies and friends. In order to compete with China, the United States should pair any tariffs on China with investments in research, development, and manufacturing for batteries and other dual-use, militarily relevant energy technologies.

—Joseph Webster

The post Want to understand the US-China trade war? Start with soybeans and batteries. appeared first on Atlantic Council.

The first round of Ecuador’s presidential election in February revealed two competing visions for managing this unprecedented crisis. The second round on April 13 promises to crystallize these approaches. 

Incumbent President Daniel Noboa champions a technocratic approach pairing economic liberalization with tough security policies—a vision that resonates with urban middle-class voters, who see his business acumen as crucial for modernizing the state’s response to organized crime. His challenger, former Assemblywoman Luisa González, advocates for a return to state-led development, combining expanded social programs with institutional reform over militarization. Her platform has found particular traction among rural and lower-income Ecuadorians, who fondly recall the era of former President Rafael Correa, who advocated for social spending and poverty-reduction initiatives. Yet beneath the electoral rhetoric, a more fundamental question looms: Can either candidate’s vision effectively counter the growing control of criminal networks over Ecuador’s youth?

A laboratory for criminal innovation

Situated between Colombia and Peru—the world’s largest cocaine producers—Ecuador has become a battleground where foreign mafias collaborate with local gangs to control strategic trafficking routes. The interplay of porous borders, entrenched corruption, economic fragility tied to converting its currency to the US dollar, and ineffective security policies has created fertile ground for these transnational criminal enterprises to expand their influence. Yet, Guayaquil’s crisis transcends its role as a trafficking hub. The city has become a laboratory for criminal innovation where organized crime groups have transformed from simple drug trafficking operations into sophisticated political actors. They provide security, economic opportunity, and social belonging to marginalized communities—services the state has failed to deliver.

The mechanisms of this transformation merit close attention from policymakers across the Americas. Criminal organizations in Guayaquil have mastered a strategy increasingly visible throughout Latin America: exploiting the corrosive combination of weak rule of law, endemic corruption, and profound socioeconomic inequality to establish parallel governance structures and weave themselves into the social fabric of everyday life. Through Guayaquil’s port infrastructure, these groups now control an estimated 80 percent of Ecuador’s illegal drug exports, concealing cocaine in expedited shipments of perishable goods such as tea and bananas. 

More significantly, they have developed sophisticated recruitment networks that target children as young as eight years old. Durán, just across the river from Guayaquil, is known grimly as the “school of assassins,” where children are groomed through a ruthless drug dealer-to-assassin pipeline. The human cost of this transformation is visible in daily life. The country’s energy crisis has plunged already precarious neighborhoods into prolonged darkness over the course of the past year, with rolling blackouts stretching up to fourteen hours per day. For residents of these fragile communities, the outages have rendered their daily lives into a de facto siege, trapping them indoors as fears of assault, kidnapping, extortion, or falling victim to stray bullets loom large.  

Guayaquil’s experience offers crucial lessons about the speed with which criminal organizations can fill governance vacuums. The city’s crisis also exemplifies a broader regional challenge: How can Latin American democracies rebuild state legitimacy while confronting immediate security threats? The answer may determine not just Ecuador’s future but also the trajectory of democratic governance across the region.

A generation under siege

The systematic recruitment of youth into organized crime in Ecuador is part of a disturbing trend across Latin America. Between 2019 and 2023, killings of children and adolescents in Ecuador rose by 640 percent, culminating in at least 770 deaths of minors in 2023. This trajectory mirrors broader patterns in the region, where homicide is the leading cause of death for youth aged ten to nineteen. In Rio de Janeiro, the number of children aged ten to twelve who entered drug trafficking doubled between 2006 and 2017, and an estimated six out of ten members of criminal groups in Ecuador are under the age of nineteen, highlighting an accelerating shift toward younger recruitment across criminal organizations.

The weaponization of educational spaces, a strategy perfected by criminal groups from Medellín to Ciudad Juárez, has found fertile ground in Guayaquil’s most insecure neighborhoods. Students find themselves at the epicenter of this violence, coerced into participation under threat of harm to themselves or their families—sometimes by classmates already ensnared in criminal enterprises. Teachers face constant intimidation and, in extreme cases, have been killed for challenging these incursions—a pattern documented across Latin America’s urban peripheries. In one northern community of Guayaquil, law enforcement estimates that as many as 16 percent of students are linked to gangs.

Criminal organizations across the region have refined their recruitment strategies to exploit socioeconomic vulnerabilities. In Guayaquil, as in Colombia’s Comuna 13 and Mexico’s working-class barrios, criminal groups entice youth from financially unstable families through promises of income, protection, and social status—an understandably appealing alternative to fear, isolation, and economic despair. The tactics are remarkably consistent: houses acquired through forcible eviction are handed over to adolescent members as rewards, peer networks and family members already engaged in criminal activities normalize gang affiliation, and younger children are lured with material incentives such as video games and toys. Girls face particular risks, including sexual exploitation and forced relationships with gang leaders—a gendered dimension of recruitment widely documented in Latin American countries.

Ecuador’s prison crisis—marked by persistent overcrowding and eruptions of violence—further exemplifies a broader regional pattern, in which overcrowded penitentiaries serve as command centers for criminal enterprises. Young offenders enter a prison ecosystem where gang affiliation becomes a matter of survival rather than choice and then return to their communities with strengthened criminal networks.

The crisis in education infrastructure compounds these challenges. Public schools face chronic challenges, from crumbling infrastructure to pervasive sexual violence, further eroding their role as ostensible safe spaces and sanctuaries of learning. When Noboa declared an “internal armed conflict” in early 2024 and the Ministry of Education suspended in-person attendance for Ecuador’s 4.3 million students, the country joined its regional neighbors in seeing education systems buckle under security pressures. The statistics are stark across Latin America: in Honduras, 90 percent of teachers report gang targeting of their schools; in Guatemala, 60 percent of students report fearing school attendance; and criminal groups treated the COVID-19 pandemic as a recruitment windfall, directly targeting students who were forced out of the classroom.

Breaking this cycle requires solutions that address both immediate security needs and underlying structural inequities—including strengthening school infrastructure, implementing socio-emotional learning programs, and supporting youth looking for a way out of gang membership by providing viable pathways to resilience and opportunity—a challenge that has largely eluded policymakers across the region.

A crisis of trust and legitimacy

In Ecuador and many other Latin American countries, the military and police forces play an important role in taking on criminal gangs. At the same time, an overreliance on force can cause its own problems.  

For example, the December 2024 murder of four Afro-Ecuadorian boys by military forces in Guayaquil crystallized for many in Ecuador how state violence and impunity can shatter community trust. When the children—aged eleven to fifteen—disappeared, authorities initially blamed gang violence. But CCTV footage later revealed military personnel forcing the boys into a patrol vehicle. One managed to call his father and reported that they had been beaten and their clothes removed; the father appealed to the police to no avail. Seventeen days later, the children’s charred remains were found in a rural swamp. Amid the outrage and grief of the citizen response, the government arrested sixteen soldiers for the forced disappearance of the boys and promised a complete and transparent investigation.

Like similar cases in Latin America, this event highlights how militarized responses to instability can exacerbate the very governance problems they aim to address. Human Rights Watch and Ecuador’s Permanent Committee for the Defense of Human Rights describe the murders as part of “systematic disappearances” that have escalated since security forces were deployed to combat gang violence. In Guayaquil’s periphery, residents report police planting drugs on youth to meet arrest quotas, while documented cases show officers passing informants’ identities to criminal groups—leading to deadly reprisals. 

In a cruel paradox, the snake begins to eat its tail: the breakdown in trust erects barriers to—and compromises the effectiveness of—the very institutions and programs attempting to rebuild public confidence, further entrenching community isolation. Residents retreat from public spaces and curtail social activities, fearing surveillance by both criminal groups and corrupt security forces. Community gatherings evaporate, parents keep children indoors, and local markets empty—accelerating the breakdown of social cohesion that once helped neighborhoods resist criminal influence. 

The withdrawal of adults from community spaces then results in a mentorship vacuum. Even successful intervention programs struggle to overcome this trust deficit. International nongovernmental organizations, development agencies, and civil society organizations find their work complicated by community suspicions, while those who manage to navigate gang checkpoints often see their efforts disrupted by violence or lack of institutional support. In an environment where state institutions have lost their moral authority, it is unsurprising that many of the young people weighing their options come to view gang membership as rational self-preservation.

Yet, amid this deterioration, community-based initiatives anchored by respected local leaders have demonstrated the power of persistent engagement in leading social repair. The Guayas Community Network of Defenders, comprising eighty trained community leaders, has developed successful initiatives ranging from food-security management to human-rights education. In Guayaquil’s most vulnerable sectors, the Social Youth Movement—a coalition of more than three hundred young people from marginalized communities—has mobilized through “artivism” and political advocacy to combat structural violence while creating leadership opportunities for youth typically targeted by gangs. Their success in areas such as comprehensive sexual education reform demonstrates how organized youth movements can channel their energy toward constructive social change. Meanwhile, community groups such as the Socio Vivienda collective have successfully organized to defend housing rights and resist displacement, even in neighborhoods heavily affected by criminal violence. 

While these grassroots movements remain modest in scale, their successes contrast with the ineffectiveness of short-term interventions. The main challenge is expanding these local initiatives while operating in an environment where fear and mistrust run deep. As long as Guayaquil’s authorities fail to hold themselves accountable for institutional abuses, each betrayal of public trust hands another victory to criminal groups seeking to capture youth loyalty. 

A generation in the balance

The battle for Ecuador’s democratic future will ultimately be won or lost in marginalized communities where criminal networks have become de facto providers of what the state has failed to deliver—however perverse their methods. Ecuador’s precipitous descent from being hailed as an “earthly paradise” to earning the nickname “Guaya Kill”—a grim rebranding of its once-thriving port city—offers sobering lessons about the fragility of democratic institutions in an era of sophisticated transnational crime. The transformation of Guayaquil’s youth recruitment crisis—from a peripheral security concern to an existential threat to state legitimacy in just five years—reveals how quickly criminal organizations can exploit institutional weaknesses to establish parallel governance structures. As El Salvador’s iron-fist security policies gain admirers across Latin America, Salvadorian President Nayib Bukele’s strong public support threatens to normalize the false choice between democratic values and citizen safety. 

Countering this trend demands a coordinated international response that transcends traditional security assistance. 

First, multilateral development banks should prioritize funding for proven community initiatives, particularly those offering comprehensive youth services that combine education, job training, and psychosocial support. 

Second, regional cooperation needs to strengthen civil society networks that can maintain consistent community engagement even during periods of political transition. 

Third, international donors should establish dedicated funding streams for local organizations with demonstrated track records of youth intervention while also supporting knowledge-sharing networks across Latin America’s most affected cities.

Fourth, international support must help bridge the gap between immediate security needs and long-term institutional rebuilding. This means funding parallel tracks: robust investment in prevention and reintegration programming and careful support for security sector reform that prioritizes community trust-building over militarization. Successful regional models exist: the aftermath of Colombia’s “false positives” scandal offers valuable lessons in institutional reform. Like its Andean neighbor, Ecuador’s state-civil society rift must be healed, notwithstanding its politically fragmented terrain.  

With all eyes fixed on presidential politics, the daily lived experiences of residents on the margins of Guayaquil reveal a stark truth: a hasty embrace of militarization has diverted resources from the vital social infrastructure and economic opportunities that could offer young people genuine alternatives to criminal networks. Time is running out for a holistic approach to security that balances suppression with structural transformation. As organized crime groups demonstrate an unprecedented ability to adapt and evolve their recruitment strategies, the window for corrective action narrows—and nothing short of an entire generation hangs in the balance.

Erin McFee is the founder and president of the Corioli Institute.

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In response to the crime wave, the government on March 17 declared its third state of emergency in less than a year, suspending basic liberties to allow police to make arrests without judicial orders. Yet, while authorities focus on crackdowns against violent crime, they risk ignoring the deeper cause of the crisis: a decade of institutional decay marked by jailed presidents and pervasive corruption.

In the absence of broad-based political reforms and a sincere effort to address corruption as a root cause, Peru might soon fall into the same trap it did in 2021. Amid the devastating COVID-19 pandemic, voters elected populist Pedro Castillo as president. Castillo fed off the discontent against the state and sought to break Peru’s democratic order with an unsuccessful “self-coup,” for which he was later impeached and imprisoned. As Peru enters a new electoral cycle amid a crime wave, candidates must prioritize meaningful institutional reforms over hollow tough-on-crime rhetoric. Otherwise, the country will remain trapped in a cycle in which corruption breeds crime and democracy hangs by a thread.

As in neighboring Ecuador and Chile, the current crime wave has ground Peru to a halt. Between 2019 and 2024, reported extortions increased sixfold, and in 2025 every third Peruvian reports knowing a victim of extortion, many of whom are small business owners. Homicides, too, have doubled since 2019. And in January of this year alone, there were 203 percent more homicides than in January of 2017.

Behind these alarming figures hide strengthened transnational criminal organizations, such as the Tren de Aragua, as well as a myriad of other drug trafficking organizations, mafia syndicates, and gangs that alternately cooperate, collude, and compete for the control of illegal activities. While drug trafficking, homicides, and extortions are terrorizing Peru’s populous coastal cities, Peru’s Amazon has been ravaged by illegal gold mining, where illegal miners have made record profits as the value of gold has soared in international markets. In 2025, over 75 percent of Peruvians report being scared when leaving their homes.

While transnational criminal organizations are the actors behind the current crime wave, it is weak state capacity that has allowed the crime to permeate. The Peruvian sate’s capacity to respond has been impaired by political corruption, often influenced by criminal actors themselves. By 2024, 67 of 130 Congress members (a simple majority of Peru’s legislature) were under criminal investigation. When prosecutors charged Congress members of allegedly being part of criminal organizations, Congress passed a law narrowing the definition of “organized crime,” hindering investigations into corruption and extortion. President Dina Boluarte did not veto this bill, and it became law in August 2024. (Congress later reinstated extortion under the definition of organized crime but left many corruption offenses excluded.) Congress also passed a law in in September 2024 that placed a larger role of the police in criminal investigations, taking functions away from the Attorney General’s Office, which legal experts warned would weaken investigative efficiency. And Boluarte has weakened the Attorney General’s Office as she herself is being investigated for corruption. As a result, the state’s ability to prosecute crimes has been stymied by public officials seeking to blunt investigations against themselves.

Peruvians will vote next year amid a crisis that the state is incapable of protecting its citizens from. The parallels between the 2021 and 2026 elections are clear. In 2021, voters were enraged by Peru’s world-highest per capita COVID-19 death rate and a scandal in which political elites received vaccines before the public. Peruvians’ frustration propelled Castillo—then a little-known populist with no governing plan—to victory. After leading a government ridden with corruption, Castillo and his advisors sought to break the constitutional order with a “self-coup.” Peruvian democratic institutions held up and their attempt remained short-lived.

Now, heading into 2026, voters face a new crisis: a crime wave and a state failing to ensure public safety. This climate is fertile ground for populist promises of a mano dura, or “iron fist,” approach to combating crime. But any real solution must also tackle crime’s institutional roots. Candidates should promote a comprehensive political reform that reduces organized crime’s influence in the country’s political bodies. This reform should include steps that make running for office more difficult for those charged with corruption. In addition, the Attorney General’s Office should be depoliticized and promote a new cohort of competent, apolitical prosecutors and judges.

At the same time, the United States and other partner nations must recognize the risk that corruption poses to the survival of Peruvian democracy. The US State Department should designate Peruvian public officials engaged in corruption and prevent them from entering the United States, an action it took this month against former Argentine President Cristina Fernandez de Kirchner, who was convicted of corruption charges in Argentina. Equally critical is addressing other root causes of crime—poverty, inequality, and lack of education—which have made Peru’s youth vulnerable to recruitment by criminal gangs in the first place.

Politicians promising to be the “Peruvian Bukele” may garner attention. But leaving the institutional causes of crime unaddressed will only deepen Peru’s democratic crisis while doing little to curb crime.

Martin Cassinelli, a Peruvian native, is an assistant director at the Adrienne Arsht Latin America Center of the Atlantic Council.

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This infographic reflects on trade balances in the broader context of supply chain interdependence. Research shows that Mexico is deeply reliant on US intermediate goods, which means that it imports US inputs that go into more finalized products that are then exported through the USMCA back to the United States. This places Mexico, in particular, in a separate category from all other major US trade partners.

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As with any recent tariff announcement by Trump, the devil is in the details. Venezuela currently exports oil and gas to a variety of countries, ranging from US rivals such as China and Russia to US allies such as India, Spain, France, and a number of small Caribbean nations. Is Trump interested in slapping an additional 25 percent tariff on Chinese goods sold in the United States, on top of the current 20 percent tariffs? Is he willing to impose tariffs on US allies? And are any of these countries willing to risk those tariffs in order to continue receiving Venezuelan crude oil and gas? All of this remains unclear.

What is clear is that, at the same time that Trump is seeking to box out foreign companies, he is preserving space for US companies to operate in Venezuela’s oil sector. Just hours after the president announced the tariff plan, the US Treasury Department announced that it had extended the “wind down” period it had previously given Chevron to pull out of Venezuela. Instead of the original deadline of April 3, the US oil major now has until May 27 to end its operations. But the fact that the Treasury’s Office of Foreign Assets Control (OFAC) extended this license, coupled with the reality that previous OFAC licenses that have been framed as “wind down” notices (like the limited General License 8) have been renewed consistently since 2019, suggests this wind down could evolve into a more permanent arrangement. This license has so far only permitted restricted activities, but other licenses allowing European and other companies to operate have so far remained in place. It is too early to be certain, but there is a chance that Chevron may be allowed to continue to operate in Venezuela, but on a tighter leash.

Such an approach would fit with Trump’s “America first” agenda. So far, US sanctions on Venezuela’s oil sector have done nothing to dislodge Venezuelan strongman Nicolás Maduro from the presidential palace in Caracas and may have actually pushed Venezuela further into the orbit of US global rivals. Until Chevron was given a green light to deepen its operations in Venezuela in 2022, oil sanctions created an opening for China and Iran to emerge as Venezuela’s primary trading partners. Iranian traders received Venezuelan oil in exchange for condensate, which Venezuela’s state-owned oil company then mixed with its extra-heavy crude in order to sell it on the global market at steep discounts, largely to Chinese firms. Russian firms, meanwhile, have maintained limited but important investments in the country’s oil sector even in the face of secondary sanctions. Essentially, US sanctions were subsidizing cheap oil for China and preserving undue influence to Russian investors—all to the detriment of US interests.

As for US allies and partners such as Spain, France, Italy, and India, there is likely no need for the administration to escalate matters by imposing tariffs. Instead, OFAC could simply end specific licenses and comfort letters, which provide specific guidance allowing certain companies to operate. Of course, doing so might compound the problem further by creating an opportunity for US rivals to step back in and exert their influence, especially if US energy firms are also instructed to pull out of Venezuela. If that happens, expect an increase in Chinese, Russian, and Iranian influence over Caracas. China has made clear that Venezuela is an “all-weather strategic partner” of Beijing and is unfazed by the threat of tariffs. Instead of signaling its compliance with the new executive order, the Chinese Foreign Ministry has issued a statement rejecting US influence in Venezuela and asserting that the tariffs would only hurt US consumers. Venezuelan oil is expected to continue to flow to China’s market, even in spite of a current slowdown caused by the uncertain climate.

Trump and his cabinet are almost certainly aware of this risk. They understand that it is not in the US interest to simply sit back and watch Venezuela, the country with the largest oil reserves on the planet, drift further into the arms of Russian President Vladimir Putin and Chinese President Xi Jinping. This is likely why, in spite of the recent rhetoric, the White House sent Presidential Envoy for Special Missions Richard Grenell to Caracas in February to begin conversations with the Maduro government. Grenell’s work has so far secured the release of six American hostages and convinced Maduro to accept repatriation flights of Venezuelan deportees.

Ultimately, the White House seems to be advancing an approach that Trump knows well: making a deal. With conversations ongoing and the door left open to Chevron and other US companies to continue operating in Venezuela, even if foreign companies are forced out, the administration seems to be preserving space for an agreement. An attractive deal might include concessions on migration, such as an acceleration in repatriation flights to match the administration’s interest in increasing deportations. It could also see some concessions on oil, such as the passage of legal reforms allowing US companies to assume majority ownership of joint ventures with the state oil company. But it should also include concessions that could move Venezuela toward a gradual democratic opening. After all, offering sanctions relief to shape internal incentives in Maduro’s inner circle is precisely what drove the government to organize, and to ultimately lose, last July’s presidential election.

There is a slim, but counterintuitive, opportunity in the fact that Maduro has said he will promote reforms to Venezuela’s 1999 constitution. Of course, Maduro is unlikely to agree to anything that will threaten his control in the immediate term, and he probably sees constitutional reform as a way to further entrench his power. But if Washington is open to expanding a US footprint in Venezuela’s energy sector, that gives US policymakers significant leverage as the ruling party debates any reforms. The United States should use this leverage to advance its oil and migration interests. But Washington should also seek verifiable progress on benchmarks such as the release of political prisoners, an end to the persecution of opposition activists, competitive electoral conditions, and perhaps a roadmap toward power-sharing and restoring the country’s democratic institutions.

Geoff Ramsey is a senior fellow at the Adrienne Arsht Latin America Center.

The post An ‘America first’ approach to Venezuela is taking shape appeared first on Atlantic Council.

Colombia is the top US trading partner in South America—for now

The diagnosis: US exporters benefit from trade with Colombia

In recent weeks, US-Colombia commercial ties attracted attention amid increasing frustration in Washington over Colombian President Gustavo Petro’s missteps at home. Under his watch, Colombia’s security situation has worsened dramatically, the economy has seen sluggish growth, and his ill-advised initial resistance to cooperating with the United States on repatriation flights have set US-Colombia relations back significantly. While Petro backpedaled quickly and is now signaling he will cooperate with US migration policy, the January diplomatic crisis provides an opportunity to take a closer look at the trade relationship with Colombia. These dynamics go beyond just dollars and cents—they have serious implications for the projection of US influence in our hemisphere. According to Colombia’s National Administrative Department of Statistics (DANE), Chinese imports in the month of January outpaced US imports. If this trend continues the United States could lose ground to China with a key US partner.

Though Colombian imports of goods like crude oil, coffee, cut flowers, bananas, avocados, and precious metals are all important to the US economy, the true value of the relationship from a US perspective lies in Colombia’s market for US exports. Last year, the total value of US exports to Colombia exceeded the value of imports by $1.3 billion, meaning the United States has a trade surplus with the country.

The export market in Colombia is especially crucial to US agricultural producers. In fact, Colombia has long represented a significant opportunity due to its sizable consumer base, relatively higher income levels compared to other countries in the region, and its proximity to other key markets. One product that has benefited from the TPA in particular is yellow corn. Prior to the free trade agreement, Colombia imported yellow corn primarily as raw material for animal feed in industries such as poultry and pork production. But before the agreement took effect, Colombia sourced this corn from Brazil, Canada, and other countries—often at higher prices and not necessarily with the same quality standards as those offered by US producers.

Today, US exports of yellow and white corn to Colombia exceed $1 billion in annual sales. This has contributed significantly to the growth of Colombia’s poultry, pork, and inland fishing industries, and it has benefited US farmers in states like Iowa, Kansas, Illinois, and Nebraska.

This is win-win trade. Cheaper animal feed means broader availability of protein and improved nutrition in developing areas of Colombia. It’s also true that Colombian corn cannot serve as a viable raw material for balanced animal feed, which means that US exports of corn are meeting a need that Colombia can’t address on its own. Consequently, the development of a domestic industry in this sector does not necessarily depend on restricting imports.

Beyond yellow corn, several other US agricultural exports would be affected by any worsening of trade relations with Colombia. These include soybeans, soybean cakes, wheat, rice, cotton, apples, grapes, strawberries, and processed livestock products such as pork and beef. The US exports nearly $3 billion in total agricultural exports to Colombia. Exposing these exports to reciprocal tariffs or effectively ending the TPA could severely impact US producers in these sectors.

The prescription: Keep trade relations on track

It is a safe bet that the US-Colombia relationship will encounter more turbulence. Petro’s missteps will continue, and US frustration with his administration is a bipartisan sentiment. But the US-Colombia relationship—from security and counternarcotics interests to US commercial interests—has value for both nations. Opening the TPA to renegotiation is unlikely to move forward in the US Congress, and it could very well hand a political victory to Petro himself. A longtime critic of free trade with the United States, the Colombian president may see ending the trade agreement as a win—at the expense of US exporters. Similarly, a trade war may ultimately harm American interests. 

If US policymakers are interested in adjusting the terms of the agreement, they can do so through the joint Free Trade Commission (FTC), where representatives from both countries propose new interpretations of key provisions following discussions with respective stakeholders, particularly the private sector and lawmakers. Most recently, in January 2025, the FTC convened after months of bilateral negotiations and announced updated interpretations of investment protection standards. The FTC also issued interpretive notes in 2013 and 2018 on other matters of interest, including agricultural trade, services, and intellectual property.

Bottom lines

• Though bilateral relations at the government level may sour, there is a clear role for the private sector in de-escalating diplomatic tensions between Colombia and the United States. For many US agricultural exporters, finding an alternative market abroad like Colombia—its size, proximity, and possession of an active FTA—is no easy task.
• While the economic consequences of a trade war are likely to be more severe for Colombia than for the United States, it would not come without a cost. US states with key producers of agricultural goods are at risk in a potential trade dispute. The origin states for these exports include Nebraska, Iowa, Kansas, Ohio, Louisiana, Missouri, and Texas. And Florida, New Jersey, New York, and California play essential roles as hubs (i.e., seaports, airports) facilitating trade with Colombia.
• The good news is that a trade war is not inevitable. The United States has leverage to prevent trade tensions from escalating by using diplomatic channels and fostering cooperation. Through the public and private sectors, the United States can work to maintain stability and protect mutual economic interests. 

Staff

Geoff Ramsey

Senior Fellow

Adrienne Arsht Latin America Center

Civil Society Democratic Transitions

Staff

Enrique Millán-Mejía

Senior Fellow, Economic Development

Adrienne Arsht Latin America Center

Americas Colombia

Report Nov 30, 2023

Advancing US-Colombia cooperation on drug policy and law enforcement

By Atlantic Council US-Colombia Advisory Group

Consumption and price of the drug has remained stable in the United States in recent years. However, the current trend of falling coca leaf and cocaine prices in Colombia present a natural incentive for coca growers to find alternative forms of income, which could mean a higher rate of success for alternative development programs.

Civil Society Colombia

New Atlanticist Nov 13, 2023

What Colombia’s ambitious new anti-drug plan means for US relations

By Lucie Kneip and Geoff Ramsey

The Colombian government recently unveiled a new ten-year drug strategy, attempting to break from a half-century of policies that have failed to curb coca production.

Americas Colombia

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

Learn more

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Earlier this month, Hong Kong-based CK Hutchison Holdings announced that it would sell a range of global port assets, including the ones operating in the Panama Canal, to the US private equity firm BlackRock. The deal stunned officials in Hong Kong and their counterparts on the mainland, and not just for the deal’s nearly twenty-three-billion-dollar price tag.

Daily front page headlines in the South China Morning Post detailed the latest twists and turns of the unfolding drama. At the center is the company’s founder, Li Ka-shing. The ninety-six-year-old billionaire began his career selling plastic flowers in the 1950s and helped turn Hong Kong into a hub of global finance. In 2000, he was knighted by Queen Elizabeth and, according to press reports at the time, was considered more powerful than China’s then president, Jiang Zemin. Li took that influence and made a series of brilliantly timed investments in the Chinese mainland, understanding where the economic opportunity would be in the years ahead.

So it’s understandable why Chinese authorities felt blindsided by his decision to sell the port operations to an American company, right after US President Donald Trump claimed in his inaugural address that China was operating the Panama Canal and “we’re taking it back.” But the level of anger is perhaps what is surprising. An op-ed in the pro-Beijing Ta Kung Pao newspaper (which was then republished by Beijing’s Hong Kong and Macau office) called the sale an act of “betrayal of all Chinese people.” More commentaries have followed, which have called it an act of “submission” and “spineless groveling.” The fact that the deal was announced on the eve of the “two sessions,” China’s most important economic and political event of the year, just added insult to injury for Chinese President Xi Jinping and the Chinese Communist Party.

The entire situation puts both Hong Kong authorities and Chinese officials in a difficult spot. If they make any moves to block the sale—and it’s not even clear whether they could—it would confirm some of the worst concerns about the way Western businesses will be treated in Hong Kong following the passage of the National Security Law in 2020. Right now, Hong Kong is working hard to convince the West that it is still one of the world’s most important financial hubs. As a newspaper report the day I left proudly touted, Hong Kong was “still” the number three financial city behind New York and London. That effort becomes more difficult if this sale is a blocked.

On the other hand, Hong Kong has to show that it’s responsive to Beijing’s concerns. That’s likely why Hong Kong’s chief executive, John Lee Ka-chiu, has taken a balanced approach so far, issuing a statement on the need to weigh the legitimate concerns of society and the importance for businesses to follow the legal process. One of his predecessors, Leung Chun-ying, was less diplomatic, saying: “Do merchants have no motherland?”

Now, Hutchison is working to ensure the deal doesn’t get torpedoed. A report in the South China Morning Post last week said Hutchison would offer twenty-five Hong Kong dollars (about three US dollars) per share as a bonus to shareholders if the deal goes through. The news, unsurprisingly, sent the stock soaring.

At stake here is more than just ports. The challenge facing Hutchison is a microcosm of the tension between finance and national security that is about to play out around the world. Consider the facts. After his inauguration in January, Trump made clear that Chinese companies’ ownership of portions of the Panama Canal was unacceptable. At the same time, he launched a trade war that threatened to slow down global commerce—and hurt the profitability of major port operators such as Hutchison. Weeks later, BlackRock negotiated a deal for a range of assets held by Hutchison. Chinese media have been keen to highlight the longstanding friendship between Trump and BlackRock CEO Larry Fink.

So, what is a veteran businessman like Li supposed to do in a situation like this? He can sell his operations at a profit or wait until the situation deteriorates and he has to sell at a potentially lower rate. He (or members of his family now overseeing the day-to-day operations) likely knew the sale would upset the Chinese authorities, but he also couldn’t ask for permission in advance—likely believing that it wouldn’t be given. If Beijing pushed Hutchison to reject the deal, it would only confirm the suspicions Trump has about the national security priority China puts on port operations. It is truly a tangled geoeconomic web. 

The predominant sense in our private conversations during the week was that BlackRock and Hutchison will find a way to seal the deal. There’s too much money at stake, too many aligned interests, and the risks of it failing are too high both for Hutchison and, more importantly, for Hong Kong’s future.

But expect China to find ways to tighten its grip on these kinds of deals going forward. Xi has stated that the world’s reliance on advanced technologies from China would give his country leverage in an economic conflict in the years ahead. Just as important as new technology is hard infrastructure—and Xi knows that, as well. Beijing does not want to be caught blindsided again. The outrage about the ports deal communicated from Beijing in both Chinese and Western media is meant in part to stop any other company from considering something similar. In Hong Kong last week, I could tell that message was being received loud and clear. 

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

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Rubio will find a region undergoing profound changes both negative and positive. Crime and violence are on the rise, which is hurting the private sector, especially tourism, a main lifeline for many economies in the region. At the same time, the Caribbean is poised to become an energy powerhouse by the end of the decade thanks to recent discoveries and energy development.

This week, Caribbean leaders will welcome Rubio’s visit, as they are eager to influence US policy toward the region over the next four years. On the US side, Rubio has an opportunity to come away from the trip with a new strategy for the region that can yield tangible benefits and protect US and Caribbean interests alike. This new strategy should have two priorities:

• lowering barriers to US investment in Caribbean energy, which can bolster energy security for the wider region, including the United States, and
• helping countries in the region reduce crime and violence, which can protect US citizens traveling abroad.

Untapped potential

The Caribbean’s proximity to US shores has earned it the nickname “the United States’ third border.” As with the countries on its land borders, the United States shares strong trade, commercial, and people-to-people ties with Caribbean nations. More than twenty million US citizens travel to the Caribbean each year for overnight stays, and the United States remains the Caribbean’s top trading partner. Five of Taiwan’s twelve remaining diplomatic allies are in the Caribbean. And Guyana, Suriname, and Trinidad and Tobago collectively house enough hydrocarbon resources to make them active players in global oil and gas markets.

Yet despite the importance of the Caribbean for US interests, the region has long suffered from inattention and inconsistent US foreign policy. The result is a relationship that relies on ad-hoc engagement and has forced countries to look elsewhere for assistance, from China to India to African nations. While in office, former US Vice President Kamala Harris sought to rectify this by launching the US-Caribbean Partnership to Address the Climate Crisis 2030, but it did not have enough time to take root and it failed to deliver long-lasting benefits. Now, early in the second Trump administration, Rubio can use this week’s trip as a starting point to design, build, and implement a Caribbean strategy that serves US and regional interests alike over the next four years and beyond.

What a US Caribbean strategy needs

Two points are critical to any successful US strategy in the Caribbean. First, it must be a whole-of-government effort that uses and amplifies existing diplomatic, economic, and security partnerships with the Caribbean. Fortunately, there are various forms of active US cooperation with Caribbean nations in all three of these areas. For example, US embassy officials across the region have built trust among locals and the private sector, making the United States a first-choice partner. US Southern Command’s defense partnerships with Caribbean militaries (except The Bahamas) has significantly enhanced capacity building and training for pre- and post-natural disaster events as part of its annual Tradewinds exercise.

The challenge will be to coordinate these various activities into one coherent strategy. In practice, this first means creating a new framework that can house current US policy initiatives in the Caribbean across different US agencies, identifying opportunities to scale engagement. Next, Washington will need to allocate the resources needed to in-region US embassies and other US policy instruments, such as US Southern Command and the State Department’s Caribbean office, to implement these measures.

Second, while Rubio’s trip is an important sign from administration that it takes the Caribbean seriously, US policy must go beyond high-level government-to-government engagement to succeed. There are five national elections set to take place in the Caribbean by the end of this year. Relying solely on interactions with the region’s national governments, some of which could change soon, limits the local private sector and regional institutions’ ability to help implement US-Caribbean policy decisions. Institutionalized partnerships with local business chambers and more engagement with development institutions, such as the Caribbean Development Bank, can offset any political uncertainty associated with upcoming general elections.

With these two principles in mind, where should the United States focus its attention? Reducing crime and violence should take precedence. In 2024, nine of the top ten countries in Latin America and the Caribbean with the highest homicide rates were in the Caribbean, primarily due to increasing gang proliferation and the illegal trafficking of small arms originating from the United States. The recent reintroduction of the Caribbean Basin Security Initiative Authorization Act by the US Congress—which allocates $88 million annually through 2029—is expected to help address the region’s security challenges, but the appropriated resources alone are insufficient given the scale of the problem. Caribbean countries also need increased technical assistance from the Pentagon and US Southern Command to increase police and military capacity to address the transit of illicit arms and drugs. Doing so would ensure greater stability for Caribbean countries and help protect the millions of US citizens traveling abroad to the region.

Next, Caribbean countries are uniquely positioned to welcome increased US investment in the region’s energy market. Trinidad and Tobago, Guyana, and Suriname’s natural gas potential provide a hub for future investment. Each of those countries already has US and Western operators, but the derivatives from natural gas usage—such as ammonia, urea, plastics, and aluminum—also provide opportunities for US companies. For example, building and operating new ammonia and urea plants—which will have a ready-made market for export in the Caribbean—would enable US companies to invest at scale in a region where project size is on the smaller end. There are also energy investment opportunities in the eastern Caribbean, which houses significant geothermal reserves. New technological advances in geothermal exploration and financial backing from Wall Street could reduce costs and risks enough to entice US companies to consider making investments.

Since the power generation projects in the Caribbean are small relative to those in Latin America, Rubio should consider working with the US International Development Finance Corporation to subsidize pre-project costs for US companies willing to take the time to determine the viability of energy projects in the Caribbean. Moreover, given that potential geothermal projects reside in some of the countries with diplomatic ties to Taiwan, and the region’s future natural gas producers already have large-scale Chinese investments in the energy sector, increasing US competitiveness in this industry could go a long way toward counterbalancing potential Chinese engagement.

If the Caribbean truly is the United States’ “third border,” then it is important to US national security and economic interests to invest the resources and time in strengthening relations with the region. Rubio’s trip is the second Trump administration’s first real opportunity to do this. Resources, assistance, and institutionalized engagement will be needed—all of which can yield tangible benefits for the United States over the next four years and beyond.

Wazim Mowla is the fellow and lead of the Caribbean Initiative at the Atlantic Council’s Adrienne Arsht Latin America Center.

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Since US President Donald Trump’s election this past November, Washington sometimes appears to be borrowing a page from the “wolf warrior” playbook, using harsh public rhetoric as a pressure tactic. In late December, Trump shared a Truth Social post that read, “Merry Christmas to all, including to the wonderful soldiers of China, who are lovingly, but illegally, operating the Panama Canal.” Over the next two months, Trump declined to rule out a military takeover of Panama’s sovereign territory, threatened tariffs on Colombia, instituted tariffs on Mexico, and issued a harsh message to the region: “We don’t need” Latin America.

With the United States now engaging in a wolf warrior–like discursive strategy of its own, particularly in its treatment of Washington’s Latin American allies and partners, Beijing seems to be using this opportunity to flip the script. China is deceptively promoting itself as an alternative, more altruistic, partner to the region.

Beijing’s shift

During a press conference held on the sidelines of the recent “two sessions,” the annual meeting of China’s rubber stamp legislative bodies, a Brazilian reporter asked Chinese Foreign Minister Wang Yi how China will counter US efforts to distance Latin American and Caribbean (LAC) countries from China. Wang’s response was a staunch defense of the region’s agency and autonomy. “What people in LAC countries want is to build their own home, not to become someone’s backyard; what they aspire to is independence and self-decision, not the Monroe Doctrine.” China’s foreign ministry translated this statement into Spanish and amplified not just on its website, but on multiple Chinese diplomatic X accounts.

The foreign ministry’s tone at this year’s two sessions was notably subdued compared to previous years, when Wang and his bellicose predecessor Qin Gang aggressively attacked the United States and its allies and openly celebrated Beijing’s relationships with like-minded authoritarians around the world. It’s difficult to imagine now, but there was a time when Beijing’s public messaging sounded significantly more antagonistic and combative than it does today.

During the era of wolf warrior diplomacy, the Chinese foreign ministry routinely responded to questions from foreign journalists with open hostility. One diplomat publicly called his counterpart a “delinquent nobody.” Another compared small countries who criticized China to lightweight boxers picking on a heavyweight. It was not uncommon for Chinese representatives to storm out of international meetings or shout at their foreign counterparts. To observers of the Chinese Communist Party’s internal shuffling, it appeared this confrontational behavior was, for a time, rewarded by the party’s central leadership. More recently, however, there’s been a shift, and Beijing has transferred many wolf warriors to low-profile departments or retired them.

Wolf in sheep’s clothing

Core to China’s recent charm offensive in Latin America is a narrative of mutual respect for the sovereignty and independence of countries that, Beijing claims, share China’s historical experience with imperialism, poverty, and helplessness against the whims of developed Western countries. This is why Beijing’s foreign ministry spared no time in responding to Trump’s Christmas wishes with an affirmation of China’s supposed respect for Panama’s sovereignty over the Canal. Since then, the foreign ministry has issued six more statements on Beijing’s respect for Panama’s non-negotiable sovereignty and independence, and China’s firm opposition to “abuse or coercion” of Panama. Even the news of Panama’s February announcement that it would not renew its Belt and Road Initiative (BRI) agreement was met with a lengthy response from a foreign ministry spokesperson encouraging Panama to resist external influence and extolling the virtues of the BRI as a public good built on a spirit of “peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit.”

While officials in Beijing made a show of contrasting the United States’ aggressive tone with China’s supposed altruism, Chinese diplomats based in the region doubled down on this effort. Earlier this month, the Chinese ambassador to Panama published an article in La Estrella de Panamá titled, “US, please learn some respect.” Meanwhile, the X account for the Chinese embassy in Panama has consistently posted about China’s supposed support for “the Panamanian people in their just struggle to recover and defend the sovereignty of the Canal” since late December.

This strategy has not been contained to Panama. Amid a heated dispute between Trump and Colombian President Gustavo Petro over the mistreatment of deportees, Beijing’s ambassador to Colombia told the local newspaper El Tiempo that China-Colombia relations were at an all-time high since the countries established diplomatic relations forty-five years ago. During Wang’s speech at last month’s Munich Security Conference, the ambassador also posted on X that “it is not China that is really challenging the [international] order, breaking commitments, and withdrawing from international organizations.”

Meanwhile, in response to Trump’s threats to impose tariffs on Mexico, a foreign ministry spokesperson told reporters, “it is China’s consistent position to oppose hegemonic, domineering, and bullying practices in international relations,” and Li Xing, a professor at the Guangdong Institute for International Strategies told Reuters that Trump’s tough approach to tariffs would benefit China, as it would incentivize countries to hedge their bets against Washington.

Despite couching China’s current diplomatic approach in humanistic rhetoric, Beijing’s Latin America playbook remains as coercive and underhanded as ever. Chinese diplomats convey messages of peace, cooperation, and respect while Beijing props up dictators, exports surveillance technology, throws the weight of its economy behind efforts to strong-arm smaller countries, and tacitly supports criminal networks undermining the region’s safety and security.

While Beijing’s foreign policy playbook has remained consistently belligerent, China’s public messaging strategy toggles between aggression and courtesy to suit the environment in which Beijing is operating. Now, China is maximizing its gains by adopting a deferential and polite tone that seeks to make the United States look like an imperialist aggressor by comparison—and the US government is playing into Beijing’s hands.

Regional leaders’ responses should be a warning to the US

In January, US Secretary of State Marco Rubio dismissed the risk of pushing Latin America toward Beijing as “absurd,” citing the administration’s recent successes on trade, migration, and Panama’s BRI membership. However, as several observers have argued, the Trump administration needs to evaluate the long-term implications of this approach with a view towards minimizing space for China to build wedges between the United States and its allies.

Some regional leaders are already assessing their country’s level of risk due to economic dependence on the United States and considering the benefits of diversifying their partnerships. Recently, a group of South American officials, diplomats, and trade experts told Reuters that China’s trade lead dulled the impact of Trump administration trade measures. This includes one senior Brazilian diplomat who said that “Trump’s trade tariff threats—coming after years of ‘neglect’ from the United States—would push countries to look for less risky alternatives like China.”

It doesn’t have to be this way. The United States has the option to leverage an important competitive advantage: its values. Many Latin American countries are facing grave security and human rights challenges, and the solutions that local human rights defenders say they need—an independent civil society, a free press, and judicial independence—are in direct opposition to China’s system. Beijing is loudly signaling respect for the region, but this respect has limits. While China is sure to stay silent on the importance of democratic norms for the prosperity of the region, Washington can and should embrace the achievements of US-backed organizations that have successfully reinforced the work of local rights defenders in recent decades. Accordingly, the United States should employ a humanistic messaging strategy, one that draws attention to Beijing’s hypocrisy and treats US allies and partners with the respect they deserve.

Caroline Costello is a program assistant in the Global China Hub at the Atlantic Council.

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In its first weeks, the new administration has followed what Trump suggested was McKinley’s model. The US president has famously—and notoriously, given the punishing stock market reaction—pushed for new tariffs. Trump also keeps making nineteenth-century-style imperial claims against Panama, Greenland, and Canada (a country the United States in its early years twice tried to conquer, only to be beaten back both times).  

Is Trump right about McKinley as a high-tariff and imperialist president? Not quite, as it turns out.

As a Republican member of Congress, McKinley was a tariff hawk who pushed through the McKinley Tariff Act of 1890. That helped trigger a financial crisis and proved so damaging to American workers that the Republicans lost ninety-three seats in the next congressional election and Democrat Grover Cleveland beat incumbent Republican Benjamin Harrison. Having been burnt, McKinley then softened his stance and tried a more flexible approach to trade negotiations. His last speech before his assassination revealed his shift from protectionism to freer trade. “The period of exclusiveness is past,” McKinley told the crowd in Buffalo, New York, on September 5, 1901. “The expansion of our trade and commerce is the pressing problem.”

As for McKinley’s imperial actions, they must be set against another, different legacy of his administration, one once celebrated and now largely forgotten: the Open Door policy with respect to China. By the late-nineteenth century, Europe’s imperial powers were circling a weak China, seemingly ready to carve it up into spheres of influence or even outright colonies, as they had been doing with Africa. The United States, having conquered the Philippines, was now itself a power in the Western Pacific. But instead of trying to elbow its way into the ranks of imperialist European powers vying for position in China, the United States offered another way.

In 1899, Secretary of State John Hay issued a diplomatic note to the great powers that were threatening China—the United Kingdom, Germany, France, Italy, Japan, and Russia. Hay’s message was in effect to call for equal access to the Chinese market and no closed or exclusive spheres of influence or imperial carve up. This met with mixed success, but Hay stuck with it. In 1900, the nationalist Boxer Rebellion attacked foreigners in Beijing, and European and Japanese troops marched on the capital. In response, Hay issued a second Open Door Note, which called for the great powers to respect China’s territorial and administrative integrity, even under the conditions of violent attacks on foreigners. This set the United States against European and Japanese temptations to use the Boxer Rebellion as an excuse to carve up China into colonies or exclusive spheres of influence.

The United States, the rising power of its age, thus took its new-found power in the Pacific, immediately after victory in its war with Spain, and used it to advance a rough vision of a rules-based, rather than an imperial, international system. At the time, Americans took pride in what they saw as a more moral and principled position of their country than that of the imperial powers. The Open Door policy matched the prevailing American sense of righteousness, and it fit the United States’ growing commercial power. It supported US interests and potential more than a closed imperial system. As often in US history, moral sense and the bottom line fit nicely together.

The McKinley-Hay Open Door was not dispositive. It did not, for example, dissuade the Japanese from dropping their imperial designs against China. But the Open Door was an early, rough, and partial but revealing sketch of US grand strategy of the twentieth century, which was the “American century,” as TIME magazine’s publisher Henry Luce put it in 1941.

The core of the Open Door policy was a vision of an open world rather than one of closed empires. In his Fourteen Points speech to Congress in 1918, President Woodrow Wilson essentially expanded on the Open Door by outlining an ambitious rules-based world order that would supplant the imperial system then prevailing. The Atlantic Charter of 1941, issued by President Franklin Roosevelt and British Prime Minister Winston Churchill, built upon the Fourteen Points speech. The long peace established in 1945 was built on this foundation; it put US power in the service of a rules-based world that favored freedom. That free world contended successfully with the Soviet Union and prevailed during the Cold War, amid decades of rising prosperity, decolonization, and no third World War. And the United States grew very rich in the process.

Today, many associated with Trump’s political camp reject the notion of a rules-based order. Trump himself seemed to hold up McKinley as a champion of high tariffs and American empire, a countermodel. But the real record of McKinley is more interesting: he started in support of high tariffs and seized the Kingdom of Hawaii and several Spanish colonies. But he also presided over something new: a rising power that saw its interests best served not through empire but through a more open world. McKinley was not the father of the free-world strategy, but that strategy had its first expression on his watch.

Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council and former US assistant secretary of state for Europe.

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How previous presidents approached power

Mexico has long suffered from underinvestment in electricity generation, transmission, and distribution. Power outages are a persistent and growing challenge, electricity prices are higher than those of the neighboring United States, and much of the country is underserved in power access and reliability. CFE is undercapitalized and saddled with expensive and carbon-intensive infrastructure. Indeed, it reportedly lost close to six billion dollars in 2024.

This undercapitalization is a core political challenge for every Mexican government. If the most profitable customers are served by private competitors or supply themselves, then CFE has little hope of growing a credit-worthy market—especially when it is already saddled with providing guaranteed subsidized power to the residential market. Lacking capital, the country needs private-sector investment to grow generation capacity. 

This problem has been apparent for a while, and several ways of addressing it have been tried before. President Carlos Salinas de Gortari, who served from 1988 to 1994, introduced IPPs and self-supply schemes to allow CFE to lease modern gas-fired power plants and let industry generate its own electricity. More recently, President Enrique Peña Nieto passed a comprehensive constitutional and legal reform to Mexico’s energy policy in 2013 and 2014. These reforms made CFE a special productive enterprise that competed with the private sector on an equal footing, created multiple independent regulators for industry supervision, and held highly successful auctions for renewable power. 

Then López Obrador, who governed from 2018 to 2024, disrupted the reforms with executive and legislative attempts to overturn them. While these attempts were not successful during his term, in practice, the winners of renewable auctions saw the economics of their projects destroyed when they were denied the interconnection, green certificate, and priority-of-dispatch benefits they were entitled to under the reform. When the ruling Morena party won both the presidency and legislative supermajorities in the July 2024 elections, López Obrador ultimately passed constitutional changes that reversed many of the Peña Nieto reforms and restored CFE’s primacy in the power sector. 

How Sheinbaum’s plan could work

The new law, which is expected to be approved by the Chamber of Deputies before the end of April, creates a hybrid framework where CFE has “prevalence” in the power system, with a requirement that it retain 54 percent of the nation’s power generation. The private sector can provide the balance, and every year the national planning authorities will review whether the correct balance has been maintained. The law requires that new renewable energy also provide storage to maintain grid stability.

The Plan Mexico and CFE’s 2025-2030 Expansion Plan promise major government investments on transmission and distribution and adequate funds for the government to build up to 6 gigawatts in gas generation over the next six years to fulfill its share. The Plan Mexico also pledged, and the new law incorporates, “one stop shopping” for expedited permitting. This allows for some small-scale self-supply without a permit: less than 0.7 megawatts (MW) distributed generation and up to 20 MW self-supply with a permit but with very tight rules that require the consumer to apply for the permit.

Importantly, the law also introduces two new schemes for CFE projects financed by the private sector: the Long Term Producer, which is a new type of IPP that will sell electricity exclusively to CFE, and the so-called Mixed Investment. The Mixed Investment is an electricity company controlled by CFE in which private investors can participate as minority shareholders, and that could sell electricity to CFE or to private customers. This follows a precedent set by Energia Quantum, a government-controlled private company that owns thirteen plants bought from Iberdrola Mexico. CFE has already announced that it will tender the first new projects (to add 2,376 MW generation capacity) in the first four months this year. The framework is essentially buying time for CFE to grow enough to provide grid-based solutions to all major consumers and right-size its finances. 

There is much that is positive in this new plan and proposed law. Project developers would, in theory, be guaranteed that the power they generate would be dispatched on an economic basis once they have a permit and their project is incorporated in the national plan. Previously, CFE’s own generators took priority even though the law was supposed to create a level playing field. The plan’s commitment to increasing renewable energy’s share of the mix is welcome and important for Mexico’s energy security, given the country’s deep reliance on US natural gas. The self-supply and IPP projects, which were built under prior legal regimes, are preserved—a welcome sign of stability for investment. While the new framework is likely too restrictive to attract new investors to the power sector, the major private-sector players that have prospered over the past six years, who have worked with CFE, and who already operate at scale are well-positioned to participate in this new phase. It is also helpful that the law would allow for some smaller scale new self-supply, even if the rules are restrictive, so that some businesses can provide their own power without waiting for a new permit. There is also some welcome financial flexibility allowed for CFE itself. Under the plan, CFE would have the authority to develop its own generation capacity and access private financing and capital.

Eight ways the plan could fall short

There are also major risks and drawbacks to the new approach. 

First, with the Secretariat of Energy exercising complete discretion over which private sector projects are permitted, the lack of merit-based selection and transparency is a major integrity risk.  

Second, the regulations will need to make clear which projects are scored in the government’s 54 percent share and which are not. If CFE contracts with a private company to supply it with power, for example, which basket is that contract in? 

Third, the costs of private-sector generation may be uncompetitively high. The new rules restrict the right to build transmission to the government alone. If a generator needs a new substation or transmission line, it can build it with permission—but the infrastructure needs are discretionally determined by the National Center for Energy Control (CENACE) and must be donated to the government. And if, for example, CFE contracts with a Long Term Producer for a 500 MW facility and the power plant has the capacity for 700 MW, the company cannot sell the excess power. The owner must transfer property of the plant to CFE without compensation at the end of the contract (e.g., a typical IPP contract lasts twenty-five years, and a combined cycle plant has a life cycle of forty years). These ancillary expenses will raise the cost of every project. 

Fourth, the economic viability of private projects depends on regulated rates and charges (e.g., transmission) set by the new regulatory authority (the National Energy Commission) and by the system and market operator (CENACE). These two are formally independent but ultimately controlled by the minister of energy. Will they set reasonable charges and rates that allow private companies to recover costs and compensate for some ancillary costs that result from the new law (e.g., the cost of connecting self-supply to the grid, or the cost of storage for renewables)? 

Fifth, will CFE have the technical and financial capacity to procure its 54 percent share (including getting access to gas turbines, which seem to be backlogged for years)? CFE’s track record over the past several years has been less than stellar, with many projects that were to be completed in 2024 now scheduled to start in 2025-2027. If not, will the private sector be held back while it waits for CFE to deliver its share? Down the road, how can the total generation “pie” grow, if it will be dependent on new money for CFE? 

Sixth, will the new regulations assure that “prevalence” for CFE does not mean primacy in dispatch or allow for other types of unjustified discrimination? The government seems to be saying that dispatch will be on economic terms if a power provider has a permit, but if transmission is constrained, will this still be the case? The rules need to provide clarity and legal protection with recourse. 

Seventh, the government has not yet promulgated a national plan for natural gas supply. There is some excess capacity which can be utilized for the first wave of projects, but more gas will be needed for the government to meet its planning goals. The challenge to new infrastructure lies on the Mexican side of the border. The government will need to support the procurement and permitting of new infrastructure and help expedite the completion of projects already permitted to ensure that its new plants are well supplied. 

Finally, the rules for distributed generation and the new self-supply (0.7 MW and up to 20 MW) could be unhelpfully tight. For many areas of Mexico, such as the southeast, grid connections may take some time to arrive. A permissive structure could deliver power and development on a faster timeline. Likewise, the demand for power for near-shoring and additional data centers, coming from industrial parks in the north of the country, is imminent in the next four years or so. Distributed generation and self-supply could provide competitively priced power faster there as well. Perhaps a time-limited program, with projects required to be under development within four years, could balance CFE’s long-term goals with industry’s short-term needs.  

Some of these questions will be answered when the final regulations are promulgated, which is expected to happen in the next few months. In the interim, the Sheinbaum government deserves praise for its active engagement with the private sector over how these rules are to be drafted. Time will tell how quickly permits will be granted and whether the new framework encourages or restricts growth. But given the government’s ideological commitment to the dominance of state enterprise, this new framework has the potential to grow generation and support the president’s commitment to her energy transition goals. 

Mexico’s economic competitiveness hangs in the balance. But this government has a practical, technocratic approach that may allow for adjustment down the road if needed. 

David L. Goldwyn is president of Goldwyn Global Strategies, LLC, chairman of the Atlantic Council’s Global Energy Center Advisory Group and a former special envoy for international energy affairs at the US Department of State. 

César Emiliano Hernández Ochoa is a managing partner at Publius, a Mexico City law firm, and served as deputy secretary of energy for electricity for SENER, Mexico’s energy Ministry, from 2014-2017.

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Introduction

2024 has brought a time of renewed upheaval in Mexico, six years after the election that fundamentally changed the political and economic systems of the country. Claudia Sheinbaum, standard-bearer for the incumbent Morena party, won the presidency in June 2024, the first ever woman to do so. The presidential and legislative elections were among the most decisive in Mexican history. With her victory comes a spate of questions about the political and economic future of the country, as she moves to cement the momentous political reforms her predecessor, Andrés Manuel López Obrador (known as AMLO), set into motion. In such a time of transformation, the Atlantic Council’s Freedom and Prosperity Index remains deeply illuminating.

Starting in the late 1980s, Mexico underwent a series of structural transformations that have significantly modified the nature of the state, the market, and their relationship in the country. At the tail end of the Institutional Revolutionary Party’s seventy-year single-party rule, public and international pressure brought about a democratic transformation that included the emergence of wide-ranging independent and technical institutions, with remits of electoral integrity, monetary policy, competition, statistics, transparency, and the specific regulation of markets. The state’s interventionist role in the economy was reduced, with an overarching privatization process that, among other things, touched banking, telecommunications, and infrastructure. More structural economic change came with free trade agreements and their upward pressure on competition in the private sector. Most notable among them was the North American Free Trade Agreement (NAFTA), which along with its 2018 successor the United States–Mexico–Canada Agreement (USMCA) has shifted the economic matrix over three decades from significantly primary to mostly secondary and tertiary activity: Where oil-related products once represented almost 20 percent of exports in the early-mid 1990s, today they account for less than 5 percent; instead, manufacturing has climbed to approximately 90 percent of exports over the past decade. Several notable milestones have followed:

• Technocratic rule prevailed for years and favored a relatively unfettered private market.
• The ruling party lost in the 2000 presidential election—a first in seven decades—to a right-wing party.
• The 2018 landslide election of a left-leaning populist prompted changes to the nature of the state-market relationship by strongly favoring the role of the state. 
• The concentration of power has accelerated since 2024, when the incumbent ruling party achieved a legislative supermajority (via a friendly legal interpretation) and full judicial control (through a constitutional amendment). The promise, at least on paper, is not only to give extraordinary weight to the state but also to give force to the market as an engine for growth and prosperity. The result of this experiment is yet to be known.

Taking a step back to examine the Mexican index from its beginning in 1995, we can see a notable difference between the freedom and prosperity indices. On the one hand, the Prosperity Index has shown a steady, though slow, rise over the past twenty-eight years from 55.4 to 65.8 (the COVID-19 crisis notwithstanding). On the other hand, the Freedom Index shows Mexico rated only slightly higher than in 1995, despite a significant period of improvement in the 2000s. We can see two distinct inflection points that form a kind of “plateau” of higher freedom scores, around the years 2000 and 2018. The former coincides with the election of Vicente Fox, of the National Action Party (PAN), to the presidency, enabled through democratic reforms in the 1980s (including the establishment of the precursor to today’s National Electoral Institute). His rise marked a momentous moment in Mexican politics as the first president from outside the PRI, which had previously enjoyed essentially single-party rule since 1929.

The second inflection point, in 2018, is particularly notable as it includes the effects of two countervailing forces on the Freedom Index. The first is the signing of the USMCA, which according to the index’s methodology resulted in a significant increase in economic freedoms. The second is the election of AMLO, who rose to power on a wave of antielite sentiment. Once in power he began implementing his unique brand of populist governance, combining a redistributive fiscal policy with democratic backsliding and power consolidation. These features have blended to create a notable downward trend in freedoms over a half a decade, as we will explore in detail below, though they also have contributed to the continued improvement in some of the prosperity indices.

Focusing on the past five years, the index shows the continuation of a trend that is rare in the region and elsewhere—the decoupling of freedom and prosperity. Mexico is one of the few cases in the last five years, together with Nicaragua and Chile, where prosperity has continued to increase while freedom has declined. This is contrary to the wider trend in the Latin America and Caribbean (LAC) region, where both indices have declined.

In a marked shift from its categorization as “mostly free” in the 2023 index, Mexico is classified in the 2024 edition as a “low freedom” country, ranked 90 in the world—reflecting accumulated, significant antidemocratic shifts over the years of the AMLO presidency. Mexico continues to be “moderately prosperous,” though the changes underlying the reductions in freedom can be expected to damage prosperity as well, sooner rather than later. 

Atlantic Council research suggests that, in general, the level of freedom in a country plays a significant causal role in its prosperity. The effect of a significant shift in freedoms is usually delayed by several years, taking up to two decades to manifest fully. In the case of the recent reductions in freedom in Mexico, the economic effects are likely to be felt much sooner. For example, as I will discuss below, judicial reforms are likely to pose an enormous challenge for the private sector and the renegotiation of the USMCA in the coming year, which could have severe economic ramifications for the country, as uncertainty affects investment climate. In the context of the current authoritarian shift in Mexican politics, this highlights the importance of steadfast, long-term public policy. That said, whether we continue to see this divergence going forward through the Sheinbaum presidency is yet to be seen.

Evolution of freedom

Mexico’s Freedom Index score has continued its decline, falling almost six points to 63.3 over the five years leading up to 2023. The score is characterized, after a decade of stop-start improvement, by a sharp fall since 2018, driven by declining political and legal freedoms. While Latin American countries have seen declining freedoms in this timeframe, Mexico’s slide is an outlier. Despite starting the period with a higher freedom score than the rest of the region, it has now slipped well below the average of 66.4, ranking eighteenth among the twenty-four nations in LAC, and the trendline continues to be negative. While economic freedom has been steady at around 76 after a notable drop in 2019, legal and political freedom scores have plunged since 2018. Mexico’s legal freedom score is 48.6, down from 54 in 2018; in fact, while the score has steadied in the past year, recent judicial developments (discussed below) suggest that we will see a severe drop next year. Political freedom has recorded an even more severe decline, dropping over ten points to 65.4 in 2023.

We can see several notable declines within the political subindex. Political rights have fallen steeply in the past five years. Mexico has dropped over twelve points and twenty-five places in the international rankings, and well down among the LAC countries in the nineteenth position. This score reflects the adversarial stance of the former AMLO government regarding criticism, opposition, public protest, and most significantly, the freedom of the press. The president presided over a militarized response to anti-femicide protests in Mexico City, for example, and he continued to constantly attack specific press representatives during his mandate. On one occasion in February 2024, he revealed the private phone number of a New York Times journalist during a live press conference; on another, he exposed private income and tax information of a Mexican one.

In another sign of democratic backsliding, the elections score has declined almost three points to 89.1. As president, AMLO often used his platform to campaign for members of his party as well as continuously attack political opponents from his privileged tribune, contrary to legal principles. The decline also reflects the fact that while the National Electoral Institute (INE) remains de jure independent, it has been subject to relentless political pressure and intervention, as well as severe funding cuts. The former president accused the institute of fraud and sought to centralize it under the executive. Furthermore, the legislature—controlled by the ruling party, Movimiento de Regeneración Nacional, or Morena—has continued to leave the Elections Tribunal without its required seven magistrates. Those threats and the loss of funding have yet to translate into a further deterioration of election integrity; nonetheless, it remains part of a worrying trend.

On a similar note, the most severe decline was in the legislative constraints on the executive score, which fell almost thirty points to 36.3 in 2023. This period coincided with AMLO’s sweeping election and legislative majorities (including a supermajority in the Chamber of Deputies), giving the administration a period of total legislative control until the supermajority was lost in 2021 (coinciding with a brief uptick in the constraints score). However, AMLO continued to undermine legislative independence: for example, forcing through legislation in violation of procedure. With Sheinbaum’s election victory in 2024 came not only the presidency but a questionable supermajority in the Congress of the Union. In fact, the ruling coalition now controls 73 percent of the Chamber of Deputies with 54 percent of the popular vote for the chamber, against a constitutional limit of 8 percent for the difference between representation and vote share. Despite initially falling one vote short in the Senate, a subsequent—questionable in its form—defection from the opposition has handed the coalition a supermajority across both bodies for the first time since the 1990s. Morena has also sought to remove additional constraints on executive power, for instance by following through on the elimination of several key autonomous agencies. These include the National Institute of Transparency Access to Information and Data Protection (INAI), an essential resource for government accountability; the Federal Economic Competition Commission, known as COFECE, which has a broad antitrust and competition remit; the National Council for Evaluation of Social Development Policy (CONEVAL), which is in charge of the evaluation of social programs and for poverty reduction strategy; the Federal Telecommunications Institute, the telecom regulator; and the Energy Regulatory Commission. The proposal was passed in November 2024, ostensibly to reduce costs, though the savings will amount to less than 0.05 percent of the federal budget. This follows years of AMLO hamstringing the agencies via unfilled appointments and budget cuts. Additionally, while Sheinbaum’s government made some changes to AMLO’s initial proposal to remain compliant with USMCA provisions, potentially compromised regulatory functions may yet violate the treaty if they end up favoring state-owned entities.

A similar dismantling on presidential checks and balances characterizes the decline in the legal subindex score. Apart from informality, which has been steady, every other legal indicator has fallen sharply since 2018, driving a twenty-one-place drop in global rankings for Mexico. Judicial independence has nose-dived to 50.4 from 62.2, reflecting an extended offensive from the Morena government against the national judiciary. AMLO appointed four justices to the Supreme Court of the Justice of the Nation, including a party insider with no judicial experience. He has repeatedly accused the court of treachery and corruption, encouraged public anger at the court’s president, threatened the pensions of judiciary workers, and slashed the court’s budget. Among the most contentious political issues of the past two years is a radical judicial overhaul, first proposed by AMLO but supported by, and eventually passed under, President Sheinbaum in late 2024. In a world first, the reform aims to require every judge in the system (over 17,000) to be elected by popular vote along with a reduction by two seats in the size of the Supreme Court. A significant portion of the candidates will be prescreened by the ruling Morena party. This presents severe dangers to the rule of law and independence in the judiciary, with judges exposed to the influence of political pressure and public sentiment on what should be a fully indifferent, impartial process. Legal interpretations will become unreliable as politicization in the judiciary results in inconsistent ad-hoc rulings. The role of the judiciary as a check on the executive and legislative will be greatly diminished, primarily by means of its ability to intervene against political parties and other political actors which will now control its judges’ candidacies. Despite the imminent need for significant improvement and the administration’s continuous attacks on and heavy-handed influencing of the court, it had remained de jure independent; but the recent judicial reform throws even that into question.

The ramifications of this fundamental reform, which undermines the capacity and oversight of the judiciary, will be manifold. This includes effects on the Mexican economy, as discussed below, but to start with, top-to-bottom elections set for June 2025 will cost $650 million. These expensive elections come in the context of one of budgets aiming at reducing the historically high fiscal deficit of 2024through severe fiscal consolidation in 2025.

The fight against corruption, which has been a key justification for Morena’s authoritarian measures like the judicial reform, has shown little signs of improvement over the past five years. On the contrary, some notable loci of corruption have only emerged during recent years. In one case, the director of the recently established Institute to Return Stolen Property to the People (INDEP) resigned after explosive revelations of theft within the agency. The agency was established to redistribute the value of assets seized from criminals to the Mexican people (though critics argued it simply renamed an existing agency with the same purpose); instead, “multimillion dollar corruption” has plagued its operations. Additionally, while seized assets were previously used solely to compensate victims of crime, the new agency has opaque authority to distribute funds as it pleases, including to other political priorities, increasing risks of cronyism on top of corruption.

The judicial reform is likely to exacerbate the problem by politicizing judicial officials in lower courts and opening them to the influence of political interests and even crime. Additionally, the elimination of key autonomous oversight agencies, as discussed above, is likely to lead to less transparency and accountability for two reasons. One is that by destroying the agencies and absorbing their functions into the executive branch, regulatory and antitrust capacity are likely to suffer significantly, likely allowing more cases of bad practice to fall through the cracks. Additionally, they would be less likely to scrutinize entities associated with the executive. Similarly, while in office AMLO also directed a growing share of economic power to the sole purview of the military, including seaports, airports, customs processing, and major pet infrastructure projects like Tren Maya (Maya Train) and the Trans-Isthmic Corridor. Removing the requirement of competitive bidding and procurement, along with limited outside oversight of militarized economic activity, raise additional transparency and accountability concerns.

Militarization was also a key component of AMLO’s approach to security. In this case, a relatively flat trendline may belie a regression in Mexico’s internal security situation; the former president’s conciliatory approach to cartel violence has failed to reduce their impunity; despite misleading assurances to the contrary, a government agency confirmed that more homicides occurred during AMLO’s time in office than any other Mexican president in history. He also reversed course on his support for Mexico’s “desaparecidos,” over 100,000 unsolved cases of criminal kidnapping. However, President Sheinbaum’s approach to security may prove to be a case of significantly distancing herself from the previous government. Instead of continuing AMLO’s “hugs, not bullets” strategy, she seems willing to rely more on action than inaction, and on counterintelligence and coordination to combat and deter unsustainable levels of violence. This enormous change will be legitimized (vis-à-vis AMLO) by the need to opt for a completely different approach when put between a rock and a hard place by the United States, threatened with a 25 percent blanket tariff if inaction and lack of cooperation occur in terms of tackling drug-trafficking organizations and migration.

Finally, the clarity of law has also suffered, with Mexico dropping twenty-seven places in global rankings and losing eleven points to reach a score of 37.6. This metric assesses whether Mexican laws are general, public, consistent, and predictably enforced. Indeed, all four of those characteristics were tested repeatedly by the previous administration, perhaps most notably in an anticompetitive electricity reform bill that was struck down by the Supreme Court in early 2024. Now that Morena has pushed through its judicial overhaul, it is likely that such distortions of the clarity of the law will have fewer checks going forward, whether through anticompetitive measures from the government or unpredictable enforcement by a judicial system in disarray. Further reduction in the clarity of the law has taken place via government abridgments of private property rights.

The economic subindex shows only a moderate decline of three points since 2018. However, within the average lies an interesting dynamic, with subindices moving in different directions. On one hand, trade freedom and investment freedom show a marked increase in 2018, following the ratification of the USMCA. Trade freedom especially benefited from the agreement, showing further improvement in 2020 once the agreement was ratified.

On the other hand, the property rights score has decreased dramatically following the 2018 election. Despite being an enshrined principle in the constitution, the previous administration took several notable actions to weaken the right to private property and fair treatment of that property by the government. In 2019, the government passed a law equating tax evasion with organized crime and assigned the corresponding punishment; among its outcomes is the ability to enforce mandatory pretrial detention without bail as well as asset forfeiture prior to a guilty verdict. While this was later overturned by the Supreme Court in 2022, citing unconstitutionality, such court-ordered rollbacks are less likely given the recent erosion of judicial independence. We can see the effect of this law on the sharp drop in the score in 2019. This follows from one of the broader themes of the past AMLO administration, which was active interventionism and an anticompetitive role for the state in a variety of sectors. For example, AMLO’s energy nationalism has resulted in more and more of the government’s fiscal eggs going into the basket of Pemex, the state-owned oil company, at the expense of private investment in both fossil fuel energy production as well as, critically, renewables. This is likely to be another area where President Sheinbaum distances herself from her mentor and predecessor as she recently presented an Energy Plan which included private-sector participation through mixed investment and the reprioritization of energy transition through renewable generation. It is yet to be seen, however, what the practical implementation of such a plan will be and how a much more doubtful private sector will respond to these recent policy shifts.

It is important to also mention that the government showed a particular tendency to infringe on property rights when pushing AMLO’s pet projects; for example, in May 2023 the government illegally seized a privately administered rail track, despite a legal contract granting the company its concession, to advance the Trans-Isthmic Corridor rail initiative. Additionally, in 2023, the government sent armed military, in contravention of court order, to seize the port assets of an American company in Playa del Carmen. In the final days of his presidency, AMLO issued a decree expropriating the entirety of that private land for a nature reserve. He has previously suggested using the rare deepwater port as a cruise dock; it is also the only port in the region capable of transporting the required raw materials for the Tren Maya, which has been subject to considerable environmental and economic criticism from opponents. Neither of those two incidents are reflected in the property rights score for the past two years, but they will affect foreign investment, particularly from the United States, and resulted in a sharp rebuke from the US Senate Foreign Relations Committee. While President Sheinbaum has taken a conciliatory tone with foreign investors so far, it remains to be seen how she will align further concentration of power with an environment of enablement and certainty for business development in Mexico.

By contrast, despite some concerning years when women’s marches were met with the use of force, the women’s economic freedom score has stayed flat at 88.8 and now offers reason for cautious optimism. President Sheinbaum plans to introduce several policies aimed at advancing women’s empowerment, including supplemental pensions for women aged sixty to sixty-four and an extension of parental leave. She also has proposed a National Care System aimed at supporting unpaid work (like childcare) that traditionally falls to women, though funding for the system has yet to be established.

Evolution of prosperity

Despite the dramatic backsliding in political, economic, and legal freedoms, Mexico has mostly resisted a similar decline in the Prosperity Index during the same period, rising six places in the global rankings. Despite a foundation of macroeconomic stability, overall growth has remained frustratingly low relative to its potential. Its score has tracked fairly closely with the regional level since 1995.

While Mexico’s global prosperity score rose above pre-COVID-19 levels in 2022, in contrast to the regional average, the income subindex shows the opposite: Mexico remains below its pre-COVID levels, while the region on average has surpassed them. This can be attributed to the government’s low levels of fiscal support (0.7 percent of gross domestic product) during the pandemic, which stands in stark contrast to others in the region such as Brazil, which spent close to 9 percent of GDP on its response. Even before COVID-19, the economic growth of Mexico suffered a significant deceleration. During the first year of AMLO’s government, the economy contracted by 0.1 percent and the compounded average growth of his term (excluding 2024) is less than 1 percent. The economy notably underperformed compared to the just-under 2 percent compounded annual growth seen over the three preceding administrations from 2001 to 2018.

There are also lagging indicators that suggest constraints on growth going forward. For example, while overall foreign direct investment (FDI) has grown in recent years (mostly due to profit reinvestment), new FDI inflows show a different story. Fresh FDI inflows via equity capital have plunged steeply from $15.3 billion in the first three quarters of 2022 to only $2.0 billion for the same period in 2024, based on the latest Mexican government data.

Despite sluggish income growth, Mexico has made significant strides in reducing inequality since 2018, moving up eleven places in the global rankings and five points to 57.7. This has been driven by AMLO’s social policy; for example, the minimum wage has nearly tripled since 2018 (by decree, rather than as a result of higher productivity and competition), and poverty has declined by 20 percent since 2020, in large part due to a costly and enormous rise in cash transfers. This creates further fiscal pressures at a time when the country is running its highest deficit in almost four decades, at 5.9 percent of GDP. Remittances have also virtually doubled from about $8 billion in the first quarter of 2019 to $14 billion in the first quarter of 2024. (International Monetary Fund research has shown that remittances have a downward effect on inequality in Mexico). It should be noted, however, that the rate of improvement in the inequality score has remained reasonably consistent since 2012.

On the environment, the index shows Mexico suffered only a slight decrease from 67.2 in 2018 to 67 in 2023. This reflects a flat trend, on average, for emissions, air pollution deaths, and access to clean cooking technology. In the case of Mexico, however, this obscures significant setbacks in environmental progress from a policy perspective. Mexico dropped seven places to 39 in the 2024 Climate Change Performance Index, which rated its climate policy as “low performance.” AMLO’s oil nationalism prioritized public investments in the floundering state-owned oil supermajor, pushing out competition and heavily disincentivizing investment in renewable energy and the wider green transition. Additionally, some of the administration’s pet projects, particularly the Tren Maya, have been criticized for environmental damage to sensitive ecosystems of the Yucatán peninsula. According to Global Forest Watch, primary forest loss saw a large increase in 2019 and 2020. This was likely due to the misguided Sembrando Vida (Sowing Life) policy, which aimed to address rural poverty and environmental degradation but resulted in large tracts of forest destroyed for timber or agriculture—despite many of the landowners having been compensated for protecting existing forest under the prior government’s policy regime. The data shows a marked improvement in 2021, suggesting the government acted to stymie Sembrando Vida’s negative externalities.

The path forward

Thus far, democratic backsliding has seemingly been either aligned with the will of the voters; a cost they are willing to pay for cash transfers, a renewed hope derived from populist rhetoric, or as punishment to previous governments. Or perhaps Mexicans simply don’t care or do not acknowledge – due to a lack of effective engagement and communication from previous governments – material benefit from a rather ethereal concept: democracy. AMLO’s presidency came with noticeable material improvements in many lives, as we can see with significant progress on poverty, inequality, remittances (though unrelated to his policies), and the minimum wage. Additionally, the political opposition is in total disarray, tainted with accusations of elitism and corruption—and without capacity to self-assess, regroup, and present a compelling alternative. AMLO, with his singular star power, and now Claudia Sheinbaum with more than 75 percent popularity (in January 2025), have effectively capitalized on their absence with an inclusive narrative of economic nationalism and executive strength.

On top of backsliding, the targeted problems of corruption, lack of security, and a culture of privilege remain largely unsolved. Additionally, the risks of continuing down the path of democratic retrenchment are immense and wide-ranging. The politicization of the judicial system risks an even deeper loss of public trust in the law as well as deeper entrenchment of a single hegemonic party, further reducing the viability of a basic democratic requirement: a strong opposition, which has also inflicted significant self-damage to be seen as an appealing and trustworthy political option.  

In addition to driving a cycle of continuously shrinking freedoms, the existing approach may also struggle to generate an adequate growth engine required for improvements in economic vibrancy. The country is facing several headwinds in achieving its growth potential in the medium term. For one thing, returning the budget deficit to manageable levels—Sheinbaum has pledged to meet a 3.9 percent deficit target in 2025—will require fiscal trade-offs. It will require the president to confront her government’s relationship with Pemex, the roughly $100 billion elephant in the room. While her predecessor injected almost $100 billion into Pemex via direct financing and tax breaks, production declined and losses doubled to $8.1 billion in October 2024 compared to a year earlier. The company’s debt now stands at almost 6 percent of the entire country’s GDP and the government has pledged almost $7 billion more this year amid a rapidly tightening budgetary environment. The Pemex albatross will hang heavily on the sovereign balance sheet, as we are seeing already. Along with concerns about the constitutional reform, Pemex’s fiscal burden helped drive Moody’s latest downgrading of Mexico’s debt outlook from “stable” to “negative” in November 2024.

Additionally, Mexico’s macroeconomic scenario is highly dependent on foreign trade, particularly its integration with the United States and Canada via the USMCA. Exports accounted for over 40 percent of Mexico’s GDP in 2022, and over 80 percent of those exports went to the United States. Those who invest and trade with Mexico crave certainty, particularly in a context of transformative changes to international supply chains. However, current uncertainty is driven by two key factors, one domestic and one international. Domestically, dramatic policy change toward concentration of power, fewer checks and balances, and less competitive markets are likely to alarm international investors as well as curtail domestic economic activity. The latter factor concerns Mexico’s trade relationships within North America, especially the outcome of USMCA negotiations and their effect on nearshoring growth. Donald Trump, following his decisive electoral victory in the United States, has advocated for extreme trade protectionism, including against Mexican imports. While rhetoric must soon give way to actual policy implementation for the Trump administration, it remains to be seen if his most severe threats will be realized, such as the imposition of a 25 percent tariff on Mexican imports that would have likely been implemented the first day of February, had the Mexican president not engaged in a forty-five-minute call with Trump in which, among other things, she committed to the immediate deployment of 10,000 military forces in the northern border area of the country. The coming four years, but particularly this year, are expected to be quite uncertain as, according to mostly vague thresholds of cooperation on organized crime and migration, the main anchor of the Mexican economy (trade with the US) will become extremely volatile.

One thing is for sure: There will be uncertain and tense times ahead, beginning with the first months of the second Trump administration and continuing until an agreement for a revamped trade agreement is in place, most probably, one which considers a form of sectoral customs union. Mexico is the main US trading partner and source of imports. Mexico also is among the top trading partners of the majority of the fifty US states, so having a free trade agreement that anchors certainty and promotes competitiveness and productivity in North America is a matter of priority for the United States as well. That said, one should expect a great deal of rhetoric and threats to stand in the way before a consensus emerges. Mexico will have to stay focused and display a sophisticated and effective multilevel strategy to reduce uncertainty and enhance its position in the negotiating process. The most important aspect will be managing the effects of rhetoric on business sentiment and avoiding the implementation of drastic and costly measures for Mexicans and the country’s economy.

The drop in FDI noted above is a foreboding sign. Investors had been awaiting the outcomes of the Mexican judicial reform and the US election, among other factors, and now they watchfully wait to see the Trump administration’s actual policies. Meanwhile, so far, Mexico has seized less of the unique nearshoring opportunity than it should have from Asian competitors like India and Vietnam. To do so, it must still meet important nearshoring requirements such as improvements in infrastructure, energy reliability, and security.

In conclusion, the past several years of deepening democratic retrenchment have culminated in a seismic shift in Mexican politics. Despite continued improvements in poverty and inequality and steady, if low, income growth, these reductions in freedoms may soon threaten Mexico’s prosperity in the medium term. Most of the population has fluctuated between eagerness and indifference vis-à-vis these changes so far. If President Sheinbaum and Morena continue to consolidate power and reduce checks and balances, it may be too late to reverse course once the full effects are felt.

President Sheinbaum has made her choice on the political transformation of the country, moving toward more concentration of power in the executive and the cancellation of several checks and balances which, however imperfect and thus improvable, were there as both limit and anchor. Her second conundrum will be around the economic system, where a series of contradictions derived from the chosen course of action in the political sphere will play out. We have yet to see what can become of a new model and a new trend in the world: regimes with autocratic features or even full-blown autocracies that create the avenues, spaces, and conditions for the private sector to accommodate and flourish in an era of deglobalization and strategic ally shoring; post-truth politics and social media; and a more polarized and volatile ecosystem.

Note: The text of this report was finalized in February of 2025.

Vanessa Rubio-Márquez is professor in practice and associate dean for extended education at the London School of Economics’ (LSE) School of Public Policy. She is also a member of the Freedom and Prosperity Advisory Council at the Atlantic Council, an associate fellow at Chatham House, and a member of organizations such as the Mexican Council of International Affairs, the International Women’s Forum, Hispanas Organized for Political Equality, and LSE’s Latin America and the Caribbean Center. Previously, Rubio-Marquez had a twenty-five-year career in Mexico’s public sector, including serving as three-times deputy minister (Finance, Social Development, and Foreign Affairs) and senator.

The Atlantic Council and its staff, fellows, and directors generate their own ideas and programming, consistent with the Council’s mission, their related body of work, and the independent records of the participating team members. The Council as an organization does not adopt or advocate positions on particular matters. The Council’s publications always represent the views of the author(s) rather than those of the institution.

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Two weeks earlier, on February 20, the Trump administration officially designated eight Latin American cartels, including six from Mexico, as Foreign Terrorist Organizations (FTOs) for their major roles in drug smuggling and human trafficking into the United States. The move marks a major escalation in the administration’s efforts to cripple the cartels, as an FTO designation grants the administration access to enhanced counterterrorism authorities, such as the ability to launch covert operations authorized by the president. The FTO designation came only days after the Mexican Senate approved the presence of the US Army’s 7th Special Forces Group to conduct joint training with Mexico’s elite Naval Marine Corps.

The Trump administration’s FTO designation and US Special Forces presence in Mexico comes as the administration is taking other notable steps. The United States has imposed new tariffs on Canada and Mexico to pressure them into greater cooperation against cartels and trafficking. On orders from the president, US Northern Command launched new deployments at the US southern border. And Central Intelligence Agency (CIA) surveillance drone flights, approved by Mexico, have reportedly gathered intelligence on cartel operations within the country. The rapid speed and scale of these apparent foreign counteroffensive preparations, arguably not seen since the early stages of the War on Terror, may indicate that the United States is on the verge of direct military action, either unilaterally or with the Mexican military, against cartels on Mexican soil.

While it remains unclear what the US administration will decide next, a scenario outlining what such an engagement might entail can be constructed by examining recent developments in the US-Mexico relationship and US counterterrorism efforts.

The following outlines a potential four-part sequence of events that could unfold if the United States conducts a direct military action against the cartels.

Step 1: Build relationships and training

US-Mexico cooperation is the best method of addressing the cartel problem. Therefore, at the start of this scenario, the new administration will likely work to establish operational partnerships with its Mexican counterparts. However, fostering reliable relationships may be challenging due to the country’s alleged entanglement with cartels. 

Two recent criminal cases brought by the US Department of Justice against two of Mexico’s highest-ranking former law enforcement and military officials highlight the problem. In 2020, former Defense Minister Gen. Salvador Cienfuegos Zepeda was accused of using his position to aid the H-2 Cartel in drug smuggling. In 2024, former Mexican Secretary of Public Security Genaro García Luna was sentenced to thirty-eight years in prison for taking bribes from the Sinaloa Cartel in exchange for assisting the cartel. Moreover, a US Drug Enforcement Administration (DEA) report found evidence that cartels had funneled millions into the 2006 presidential campaign of Andrés Manuel López Obrador, known as AMLO. 

In a move that perhaps anticipates the difficulty of engaging a government compromised by cartel influence, Trump appointed Ron Johnson as US ambassador to Mexico. Johnson is a former US ambassador to El Salvador, retired Green Beret, and veteran CIA officer with more than twenty years of experience leading sensitive paramilitary operations. He is uniquely equipped to secure cooperation from civilian officials while mitigating counterintelligence risks from cartel-affiliated public officials.

The US-Mexico military relationship presents a different set of challenges. During his term as president of Mexico (2018-2024), ALMO increased the funding and authority of the Secretariat of National Defense (SEDENA) in order to expand the main military branch’s role beyond military operations into civilian functions, such as law enforcement and infrastructure projects. However, this expansion occurred during a three-year absence (2019-2021) of a formal US-Mexico counternarcotics agreement, after AMLO pulled out of the Merida Initiative agreement in his first months in office. During this time, cartels extended their territorial control and fueled the rise of fentanyl-related overdose deaths in United States. The Mexican military’s expanding role in civil society and private business in recent years, coupled with allegations of corruption and cartel collusion, particularly around intelligence leaks, may complicate the US relationship with Mexico’s primary military branch. However, given its dominant role in Mexico’s national security, the US will continue to engage with SEDENA on conventional military cooperation, particularly in curbing migration and drug smuggling on the US-Mexico border. 

By contrast, the smaller Secretariat of the Navy (SEMAR), a separate federal executive cabinet member, has built a strong record in conducting successful specialized counter-narcotics operations and has maintained a long-standing partnership with US forces and the DEA. Given its specialized capabilities and established US relationships, SEMAR is well-positioned to be a key partner in any potential US-led joint operations with Mexico against cartel leadership. The fact that the first joint training under the Trump administration was conducted by Green Berets and SEMAR further suggests this likelihood. 

Step 2: Identifying first targets

What cartels might the United States target first? Among the candidates, the Sinaloa Cartel, one of two cartels reportedly responsible for the majority of drug trafficking into the United States, is likely high on the list. As the most powerful drug-trafficking organization in the Western Hemisphere, its influence extends beyond narcotics and human smuggling. The cartel has been involved in business extortion, illegal mining, and oil theft, as well as infiltrating formal businesses to launder money.

But what sets the Sinaloa Cartel apart is its deep ties to China in the fentanyl trade. The cartel has reportedly relied on Chinese suppliers for precursor chemicals, and it uses Chinese money-laundering networks to clean its illegal profits. The Sinaloa Cartel’s danger to US interests is so significant that it has been the primary target of congressional investigations and aggressive US law enforcement actions in recent years, with the most notable recent step against the group being the arrest of Ismael “El Mayo” Zambada, the co-founder and leader of the group, in 2024 by the Biden administration.

The Sinaloa Cartel’s willingness to partner with a major state adversary to flood the United States with deadly drugs underscores its growing brazenness in violating US sovereignty and undermining national security. Targeting the Sinaloa Cartel first would not only disrupt one of the largest fentanyl producers in the Western Hemisphere but also send a clear message to other cartels to refrain from engaging with China and other states hostile to the United States.

Step 3: Covert action and “shock and awe” strategy

Once training operations conclude and intelligence assets finalize target selection, the United States will need to consider its next steps. In the past, countercartel efforts have been managed primarily by US law enforcement agencies, such as the DEA and Federal Bureau of Investigation. These agencies conduct criminal investigations and collaborate with their Mexican counterparts to arrest cartel operatives for prosecution in Mexico or extradition to the United States for trial.

However, the new US administration’s decision to allocate significant resources from the Department of Defense and the CIA to dismantle the cartels suggests that more aggressive measures are also being considered, potentially including the launch of a military campaign. Such a step would require the administration to initiate a formal procedure for authorization.

The first option the Trump administration can pursue is a formal Authorization for Use of Military Force (AUMF) approved by Congress. This would allow the administration to deploy military assets in an open and continuous manner under Title 10 of the US Code. However, given the political sensitivity of US troops operating on Mexican soil, the administration may instead opt for a second option: a CIA-directed covert action conducted in secrecy and under Title 50. In this scenario, Trump would issue a presidential finding that authorizes the CIA to conduct covert actions against the cartels. From there, CIA paramilitary officers or special forces units, typically under Joint Special Operations Command (JSOC), would be used to carry out the secret operations. Trump has historically favored covert operations in counterterrorism efforts against al-Qaeda and the Islamic State of Iraq and al-Sham (ISIS), making this a more likely scenario. 

Regardless of which option the administration chooses, it is likely to launch robust kinetic operations during the initial phase of the conflict. The Trump administration’s designation of the eight cartels as FTOs strongly supports this expectation. This is because the first Trump administration may have set a precedent when it placed Iran’s Islamic Revolutionary Guard Corps (IRGC) Quds Force on the FTO list just eight months prior to the assassination of its leader Qasem Soleimani. Importantly, the Department of Defense announcement of his killing references his leadership in the FTO-designated group in the opening sentence. 

Specifically, in the cartel context, the United States may employ a “shock and awe” strategy that is similar to the first Trump administration’s rapid-strike military campaigns against ISIS. The goal of this approach would be to overwhelm the cartels’ forces through raids and to eliminate high-value cartel targets, particularly sicarios and mid-level commanders coordinating logistics and enforcement operations. In such a scenario, the United States would likely provide heavy air support in order to prevent cartel counteroffensives and ensure that targeted cells cannot regroup or retaliate. This may include US forces embedding with the Mexican navy’s special forces. Drone warfare may also be used to eliminate high-value cartel command centers, fentanyl production labs, and weapons depots. 

Finally, it’s important to note that such direct actions against cartel factions will likely complement, not replace, ongoing bilateral operations between the United States and Mexico to extradite senior cartel leaders for prosecution. Instead, lethal actions can be expected to focus on cartel security forces and professional sicarios responsible for enforcing the cartel’s rule through violence in Mexico, including the assassination of elected officials, journalists, and innocent civilians.

Step 4: Concession and enforcement

Military force will be central in the early phases of the conflict, but the Trump administration has historically followed extreme pressure with engagement. Accordingly, after an initial shock-and-awe campaign, the administration is likely to push for the Mexican government to lead discussions with the cartels to compel them to end their drug smuggling, particularly synthetic drugs, and human trafficking operations in the United States, while also demanding that they sever business ties with state adversaries such as China.

Early signs of this strategy may already be emerging. In February, open-source intelligence indicated a ceasefire was brokered between the Grupo Escorpion and Metros cartels in the northern state of Tamaulipas that called for the end of fighting between the groups and an end to fentanyl trafficking into south Texas. This event, credited to pressure from the Mexican government, could serve as the recipe for future US efforts. This model of applying overwhelming force to compel cartels into submission, followed by behind-the-scenes discussions, will likely define the long-term course of the conflict. Continuous monitoring and enforcement will be essential to ensure compliance with the concessions.

After “shock and awe”

How would cartels respond to a “shock and awe” military campaign similar to that which destroyed the ISIS caliphate? While cartels control territory, command militia-style forces, and possess military-grade weaponry, they lack a standing army, which makes it more difficult for them to survive a sustained military campaign. Additionally, their tactics are limited to lightweight ambushes and terroristic actions, primarily targeting civilians and rival groups. 

Unlike ideological terrorist organizations, cartels operate as businesses. When their funding streams and resources are severely threatened, they are more likely to adapt, negotiate, and shift operations rather than engage in prolonged conventional warfare. Therefore, targeted military attacks on cartels could potentially lead to successful cartel concessions. Furthermore, while direct narco-terrorist attacks on US soil from Mexican cartels are unlikely, US military actions against them could create an opportunity for other state-sponsored groups to conduct counteroffensive attacks, such as targeting US law enforcement officials and terrorizing civilians. 

While it remains to be seen whether the United States will conduct direct military action, one thing is clear: the Trump administration’s efforts to combat drug smuggling and human trafficking into the United States is not likely to be a short-term political goal. Instead, these efforts represent a significant step in redefining US grand strategy away from maintaining the country’s post–World War II global primacy toward securing concrete national interests closer to home. Secretary of Defense Pete Hegseth articulated this shifting policy during a recent Pentagon town hall, stating, “Chaos happens when the perception of American strength is not complete. And so, we aim to reestablish that deterrence, and it starts with our own southern border. It starts with the defense of our homeland.”

James Fowler is a counterterrorism expert who specializes in leveraging technology to support democratic governance and institutional resilience. A retired Special Operations Command (SOCOM) operator, he brings extensive experience in counterterrorism operations and security strategy. Fowler is a member of the Atlantic Council’s Counterterrorism Project, where he contributes to policy discussions and strategic initiatives aimed at enhancing global security.

Alicia Nieves is a legal expert in immigration and refugee law, specializing in humanitarian assistance and conflict rescue. She is a member of the Atlantic Council’s Counterterrorism Project and co-founder of the Gaza Family Project, an initiative of the Arab-American Civil Rights League (ACRL) dedicated to helping American families impacted by the Israel-Hamas war.

The post How US military action against drug cartels in Mexico could unfold appeared first on Atlantic Council.

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Attention world—Trump is serious about tariffs

The most significant line on trade in the president’s address wasn’t about steel, aluminum, or farming. It was when Trump said tariffs are “about protecting the soul of our country.” These seven words should put the whole world on notice that Trump is serious about tariffs. To him, they are not just a negotiating tool. It is possible that, within the next several months, we could be facing a global trade war.

On Tuesday night, we heard more details—and more commitments—than ever before regarding the administration’s plans to shock the global trading system. It starts with the administration’s implementation earlier in the day of across-the-board tariffs on Mexico and Canada. It will continue next week (seemingly) with steel and aluminum tariffs on a range of “friends and foes” alike, as the president said—including the European Union. 

But the biggest move—the one that will rip up the rules that have governed trade since the signing of the General Agreement on Tariffs and Trade in 1947—is the promise to levy reciprocal tariffs on every country in the world. Will Trump follow through? Will the markets react so strongly that he has to back off? That will be the question every country will be asking between now and April 2, the date when Trump said these reciprocal tariffs will go into effect. After tonight’s speech, the honest assessment is that you can’t afford to bet that what he previewed is just a negotiating position. Trump made clear: This is about more than economics.

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Trump’s promising shipbuilding proposal deserves more attention

In the realm of defense and security, Trump reviewed several long-term priorities and early successes, including building a “Golden Dome” missile-defense shield for the United States, taking back the Panama Canal, and attempting to negotiate an end to the war in Ukraine. 

What was less noticed, but highly important, was the announcement of a new office of shipbuilding at the White House. The United States has long had the world’s most dominant navy, but the United States’ ability to produce naval vessels has atrophied greatly since the end of the Cold War and now pales in comparison to that of China—the United States’ foremost military rival. Indeed, the United States can only produce 1.3 submarines per year—far short of the Navy’s target of three. As a member of Congress, Mike Waltz introduced legislation to revitalize the United States’ shipbuilding capability. Now that he is national security advisor, it is reassuring to know that he will carry this important priority with him to the White House.

—Matthew Kroenig is vice president and senior director of the Atlantic Council’s Scowcroft Center for Strategy and Security. He previously served in the Department of Defense and the intelligence community during the Bush, Obama, and Trump administrations.

Trump signals an end to his sparring with Zelenskyy

Trump’s speech was preceded by expectations that he would use the moment to discuss his approach toward Ukraine and policy to end Moscow’s war of aggression against the country, given Ukrainian President Volodymyr Zelenskyy’s sharp public exchange with Trump and Vice President JD Vance in the Oval Office on February 28, the White House’s strategically problematic decision to pause military aid to Ukraine, and Zelenskyy’s social media post on Tuesday expressing regret for the miscommunication in the Oval Office. On Tuesday night, Trump did not disappoint. 

Trump started by noting that the Biden administration’s disastrous withdrawal from Afghanistan may have persuaded Russian President Vladimir Putin that his moment to strike against Ukraine had come. This was an indirect way of saying that Putin was responsible for starting the war on Ukraine and for Russia’s huge escalation in February 2022—a welcome improvement from his peculiar accusation earlier this month that Zelenskyy was somehow responsible for this war.    

Trump noted that he had received a letter on Tuesday from Zelenskyy expressing Ukraine’s readiness to join negotiations with Russia under Trump’s leadership—and to sign the mutually beneficial critical minerals agreement. Trump expressed gratitude for the letter and noted that he is convinced from his contact with Putin that Russia too is eager for peace, even though there is no public evidence that Moscow is ready to make the compromises necessary for a stable peace. Trump did mention his successful effort to bring home Marc Fogel, an American prisoner in Russia, who was in the gallery. Putin made a clever decision to release Fogel at the start of the new administration in an effort to encourage Trump to approach Russia with kid gloves in peace negotiations. But Trump’s warm description of the Zelenskyy letter suggests that the sparring with the Ukrainian leader is behind us. The pause on US military aid to Ukraine likely will not be with us long. If the pause lingers, then Trump’s stated intent to broker a stable peace will look questionable.

—John E. Herbst is the senior director of the Atlantic Council’s Eurasia Center and a former US ambassador to Ukraine.

Zelenskyy’s overtures to Trump should extend to congressional Republicans

There is still strong bipartisan, bicameral support for Ukraine in the US Congress. But that support has taken a hit over the last week in the wake of the disastrous Oval Office meeting between Trump and Zelenskyy. There is growing frustration even among Ukraine’s most ardent Republican supporters over Zelenskyy’s inability to keep his temper in check during the meeting and his failure to quickly and explicitly apologize for how the meeting devolved. His latest overtures to Trump, including a social media post on Tuesday afternoon expressing his regret and a letter he sent to the president ahead of his joint address to Congress, thankfully seem to have helped mend the relationship. 

The general consensus is that even though the minerals deal was not announced Tuesday night during the speech, it will be announced in the coming days. This deal creates an economic incentive—on top of the already existing moral incentive and national security incentive—for the United States to remain fully committed to a Ukraine free from long-term Russian aggression.  

But more needs to be done to mend Zelenskyy’s relationship with Republicans on Capitol Hill. Republicans have risked their own political capital with the Republican base and with some people inside the White House to support Ukraine over the last three years. Many now feel spurned by Zelenskyy. These are his biggest champions who helped to get the supplemental spending package across the finish line last year. The Oval Office meeting had repercussions for their credibility. Now is the time for Zelenskyy to reach out to those members and make sure they know he is committed to finding a solution that ensures continued US support for the sake of his people and the security of the world.

I don’t judge the level of support for an issue based on who was clapping at which lines in the president’s speech on Tuesday night. What matters is who is with Ukraine when it really counts. Like almost every issue in Washington over time, Ukraine has become politicized. But at the end of the day, I agree with the assessment of Rep. Brian Fitzpatrick (R-PA), who said last month that there remains an “outcome-determinative number of Members of the United States Congress, from both parties and in both Chambers, who are ready, willing, and able to do whatever it takes” to ensure Putin does not benefit from his brutal war of aggression. If Democrats truly care about helping Ukraine and not politicizing this issue for their own personal gain, they will encourage Ukraine to sign the minerals deal and get on board with Trump’s plan for peace. That is the only game in town right now. Furthering the notion that Ukraine is a Republican-versus-Democrat issue only hurts Ukraine.

—Leslie Shedd is a nonresident fellow at the Eurasia Center and former senior advisor to members of the US Congress, and US senatorial and presidential candidates.

Trump needles Europe and portrays himself as neutral on Ukraine

Trump didn’t raise Europe or the war in Ukraine until over ninety minutes into his speech. When he did get to the region, his comments were short but sharp. He first signaled his support for Greenland’s self-determination before threatening to seize it, stating “one way or the other, we’re going to get it.” These comments are sure to raise alarm bells in Greenland and Denmark. 

The president then repeated his known criticisms of Europe, including not taking its own defense seriously and passing the burden of the Ukraine crisis onto the United States. In this critique, he restated inaccurate figures of US and European support for Ukraine. Otherwise, Europe—as the United States’ largest trading partner, largest investor, and largest network of allies—was largely ignored (likely to the relief of many European officials). 

In addressing the war in Ukraine, the president looked to portray himself as a peacemaker and a neutral arbiter. Trump read verbatim a letter he received earlier that day from Zelenskyy indicating Ukraine’s readiness to commence negotiations with Russia and to sign the critical minerals agreement with the United States. While Trump appeared to be lowering the temperature of his public feud with Zelenskyy, he missed an opportunity to announce a restart of US military assistance to Ukraine.

—Torrey Taussig is a director and senior fellow at the Atlantic Council’s Transatlantic Security Initiative in the Scowcroft Center for Strategy and Security. Previously, she  was a director for European affairs on the National Security Council.

Trump shouldn’t reject bipartisan wins such as the CHIPS Act

To compete effectively in an era of increasing geopolitical competition and rapid technological change, long-term planning and building on bipartisan accomplishments is essential. 

For example, the Trump administration announced this week that Taiwan Semiconductor Manufacturing Company (TSMC)—the world’s largest maker of advanced semiconductors—will invest one hundred billion dollars in further fabrication capability in the United States. This effort began in the first Trump administration, which lobbied TSMC to build more in the United States to ensure supply-chain resilience that has enabled the booming artificial-intelligence economy. The Biden administration built on that work by passing the bipartisan CHIPS Act, which—among many other things—paved the way for an initial $65 billion investment by TSMC to begin building manufacturing capability in the United States, including plants that are already producing 4 nanometer chips reportedly for companies such as Apple, NVIDIA, and Qualcomm. 

The facts of US policy on semiconductors show a story of continuity and building momentum. Trump could tell that real success story. But he instead used his address to Congress to disparage his predecessor’s policy, which built on his own, by calling the CHIPS Act a “horrible, horrible thing.” The United States has a generational opportunity to continue building on a popular agenda to maintain the United States’ technical edge, but it will require working together across party lines and industry segments.

—Graham Brookie is the Atlantic Council’s vice president for technology programs and strategy. He previously served in various positions at the White House and National Security Council.

Trump’s praise for Japan and South Korea reveals an energy playbook for US allies

Trump’s brief reflections on energy policy in his remarks to Congress on Tuesday night reinforced his administration’s domestic ambition for leveraging US energy resources to drive economic growth, while also outlining a framework for constructive engagement with foreign partners. Though cloaked in antipathy for the policies of the prior administration, Trump’s emphasis on new oil and gas leases, pipeline construction, and the economic viability of power plants underscore that mobilizing private sector investment in energy infrastructure is a mainstay of the administration’s broader economic strategy, including efforts to lower inflation. 

In highlighting his executive order declaring a national energy emergency from January, Trump is signaling his intent to supercharge the traditional Republican focus on deregulation in pursuit of an energy landscape that reinforces US autonomy and strengthens US geopolitical influence through energy exports. 

That Trump conveyed this perspective in the context of Japan and South Korea’s interest in a liquefied natural gas (LNG) project in Alaska demonstrates that there is room for partners and allies to join in the president’s plans for expanding domestic oil, gas, and mineral production across an ambitious list of projects. Even though the US trade deficit with Japan and South Korea collectively exceeds $120 billion, the two countries have nonetheless found themselves on the right side of an assertive Trump administration tariff regime. It’s a testament to other allies and partners that US economic pressure can be allayed through investment in the United States that lowers trade deficits and bolsters alliances against China.

—Landon Derentz is senior director and Morningstar Chair for Global Energy Security at the Atlantic Council Global Energy Center. He previously served as director for energy at the White House.

Trump is right that border crossings are low today—but they are going to go up

There is a danger in believing too much in your own press clippings. Trump took pride in the low number of “illegal border crossings” in February, which he attributed to declaring a national emergency on the southern border and deploying the US military to help the Border Patrol. The Border Patrol apprehended 8,326 people on the US side of the southwest border in February. That is a record low monthly total since these statistics were first recorded in 2000, but the number is all but certain to go up. Here is a prediction: After a few months of relatively low numbers at the southwest border, apprehensions will increase later this year.

The cartels that control human smuggling across the Mexico-US border can throttle the numbers up and down. When the United States changes its policy, as happened in May 2023 when the US government formally ended the COVID-19 pandemic, numbers went down in June only to go back up the next month. Moreover, February is often, but not always, a relatively slow month for unauthorized border crossings—and numbers vary wildly from month to month, as shown in this graph from Axios using official Customs and Border Protection data.

Mexico’s policy decisions also make a big difference. Mexican cooperation can drive down unauthorized border crossings, as was the case in June 2024 during the Biden administration. Trump’s tariffs on Mexico could incentivize Mexico to keep numbers down—but it could have the opposite effect. Trump’s implicit threat to use the US military against the cartels is another potential flashpoint that could affect Mexico’s cooperation.

With a government shutdown possible in two weeks, Trump asked Congress Tuesday night for billions of dollars to carry out his mass deportation program and further discourage migrants from making the journey north. Border Patrol would keep working during a shutdown, but the expansion of the capacity to deport millions of people would be delayed. Trump’s divisive language Tuesday night may discourage Democratic cooperation unless Trump agrees to fund other programs to attract Democratic votes.

In the Democratic response on Tuesday night, Sen. Elissa Slotkin (D-MI) struck a bipartisan tone. It was Slotkin, not Trump, who invoked former President Ronald Reagan’s vision that “required America to combine our military and economic might with moral clarity.” Slotkin speaks for national security Democrats in arguing that while border security is important, so is fixing the United States’ broken immigration and asylum system. This contrast between the parties is likely to become clearer in the next few months.

—Thomas S. Warrick is the director of the Future of DHS project at the Atlantic Council Scowcroft Center for Strategy and Security. He previously served as deputy assistant secretary for counterterrorism policy at the US Department of Homeland Security.

With his counterterrorism surprise, Trump shows that US-Pakistan cooperation continues

Trump and his administration have been very vocal and public about efforts to designate drug cartels as terrorist organizations and to disrupt their human and narcotics smuggling operations into the United States, which have had deadly consequences. By comparison, the president has been very circumspect about other areas of counterterrorism, particularly when it comes to Central Asia, where there have been reports of a resurgence of terrorist training camps in Afghanistan and transnational terrorist groups operating in the region. 

However, Trump revealed Tuesday night that the United States had apprehended Mohammad Sharifullah, the “top terrorist responsible” for the Abbey Gate suicide bombing at the Kabul airport during the US withdrawal from Afghanistan in August 2021. That attack killed thirteen American service members and injured many more along with nearly two hundred Afghan civilians. This was important for a few reasons. 

First, it sends a message to terrorist groups who may have thought they would have more freedom of movement, due to Trump’s desire to withdraw from Afghanistan and his “America first” foreign policy, that they will be targeted or apprehended. Second, it speaks to the importance of liaising with foreign intelligence services and continued cooperation with Pakistan, which the president thanked publicly during his speech and with which the Central Intelligence Agency is said to have conducted a joint raid. Third, it underscores Pakistan’s willingness to work with the Trump administration despite a recent announcement that the United States would increase military sales to India by “many billions” and a pathway to India acquiring F-35 fighter jets.

 —Alex Plitsas is a nonresident senior fellow with the Scowcroft Middle East Security Initiative, the head of the Atlantic Council’s Counterterrorism Project, and a former chief of sensitive activities for special operations and combating terrorism in the Office of the Secretary of Defense.

The highs and the lows of Trump’s power plays

First, good news but with a hitch: Trump’s March 4 address to a joint session of Congress included words of reconciliation with Zelenskyy, who hours before had offered a statement of support for Trump’s efforts to end Russia’s war in Ukraine and of regret for the blowup in the Oval Office the previous Friday. The Trump administration should have followed by resuming military assistance and intelligence cooperation, both of which the United States suspended to put pressure on Zelenskyy. That would clear the way for the United States to work with Ukraine and Europe to deal with the real obstacle to ending the war: Putin, who appears to have been enjoying the spectacle of the United States quarreling with its friends and allies. Instead, however, the administration has reportedly said it will continue to withhold this support until a date is set for talks with the Russians, a move that gives the Kremlin every incentive to slow walk the process. Hopefully, the manifest weakness of this position will generate a rethink and reversal.

In another sort-of positive gesture, Trump boasted that US efforts to “reclaim” the Panama Canal were advancing by means of a US company (BlackRock, though Trump did not name it) purchasing key ports at either end of the canal from a Hong Kong company. That’s hopeful because it suggests that rather than invade Panama to seize the canal, Trump might call it a win if key canal-related infrastructure were in US hands rather than Chinese hands. That may be a rough way to achieve a good deal.

Other Trump foreign policy moves in the speech are more questionable or downright bad. His threat to impose worldwide retaliatory tariffs could in practice mean tough bargaining, leading to some set of deals. But it also could easily lead to a trade war, with retaliation disrupting supply chains, fueling inflation, and slowing investment into the United States. Trump’s April 2 deadline may be a negotiating ploy, but the threat of economic nationalism may be a brake on growth when the US economy is already showing signs of slowing. Trump is often more apt to threaten than follow through and deal with the consequences. But bad consequences may follow, given the tariffs imposed already on Canada and Mexico.

Shamefully and tellingly, Trump repeated his threat to seize Greenland. He tried to show regard for the views of Greenlanders themselves. (“If you [Greenlanders] choose, we welcome you into the United States of America.”) But he quickly followed with “We need it [Greenland] … and one way or the other, we’re going to get it.” The threat, with its nineteenth-century imperial style, advances no US interest. Denmark, responsible for Greenland’s foreign policy, has made clear that it would be glad to accommodate the United States’ military or commercial interests in Greenland. In fact, the United States has made no concrete requests about Greenland.

Therein lies the tell: Trump has exhibited scant regard for the US-led system of alliances and partnerships rooted in common values that smooth the advance of US interests in ways that benefit both sides. The United States could obtain what it says it wants in Greenland by, well, asking. But that is not Trump’s way: at his worst, he prefers to speak of and threaten raw power. If implemented, that is the nineteenth-century great power way, and it is Putin’s way. The way the United States rose to global leadership in the “American century” was different—exceptional, actually—and it served the United States and the free world well. Trump seems to have little patience for that approach.

Trump’s address to Congress did not mark a final US commitment to act as a typical great power bully. It is possible that Trump will use bullying tactics to achieve specific goals but not push a destructive agenda or in the end make a bad deal with Putin over Ukraine. But the absence of an overarching international vision based on values, and the apparent default to simple power and zero-sum thinking, warns of strife with friends and bad deals with adversaries. The address to Congress was not all bad. But it was a warning of a problematic strategy that would ill serve the country and the free world.

—Daniel Fried is the Weiser Family distinguished fellow at the Atlantic Council and former US assistant secretary of state for Europe.

The post Experts react: What Trump’s address to Congress means for the world appeared first on Atlantic Council.

It’s the opening alarm bell. Markets are sagging in response to US President Donald Trump’s decision—after a one-month delay—to impose 25 percent tariffs on Canada and Mexico, and increase tariffs on Chinese goods from 10 percent to 20 percent. As of today, the United States now has its highest effective tariff rate since 1943. To make sense of the market moves and Trump’s thinking on tariffs, we turned to the head of our GeoEconomics Center for insight.

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the International Monetary Fund

Seeing red

• Monday was “the day Wall Street finally realized that Trump was serious about tariffs,” Josh tells us. The S&P 500 fell nearly 2 percent on Monday as Trump declared that the tariffs would indeed go into effect at midnight, and declined another 1 percent on Tuesday as Mexico, Canada, and China promised retaliatory measures.
• The markets are “quickly trying to make up for lost time since the election,” Josh adds, pricing in the impacts on consumers from a multifront trade war that is only now becoming real.
• And “this is only the beginning,” Josh notes. “Markets could remain shaky if deteriorating consumer sentiment translates into less spending and price hikes on everything from gas to cell phones come into effect in the coming weeks.”

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Three ways to tariff

• Josh has noticed three distinct ways that Trump is wielding tariffs in his second term. The first is “tariff as a negotiating tactic.” That’s what many on Wall Street thought the tariffs that came into effect today were, extrapolating from how tariff threats typically played out during Trump’s first term (for example, with the China Phase One deal). Josh expects this use of tariffs to continue, noting that China remains “a leading candidate for a renewed trade deal, despite Monday’s announcement” and the new tariffs against Canada and Mexico may prove “temporary and become part of deal-making to renew the US-Mexico-Canada Agreement in 2026.”
• The second form is “tariff as tariff,” meaning a way to either raise revenue or protect and promote US manufacturing. But it will take a much higher tariff than even 25 percent to make many products (such as laptops) cheaper to produce in the United States, Josh tells us, and years for companies to relocate production from overseas. “In the meantime, it is US consumers and companies that will end up paying higher prices—at a moment when inflation is proving a little stickier than Trump, or the Federal Reserve, anticipated.”
• The third and most novel is “tariff as punishment.” Trump, Josh says, sees tariffs as a “tool of coercive economic statecraft” and an alternative to financial sanctions, which Trump worries are causing countries to move away from the US dollar. During a press conference on Monday, Trump specifically stated that countries will be “punished by tariffs” for the damage he believes they’ve inflicted on the US economy. “The benefit, from the Trump team’s view, is that unlike the on-and-off switch of sanctions, tariffs can be ratcheted up (5, 10, 15 percent) or down,” explains Josh.

Street smarts

• Josh says we should expect much more “tariff as tariff” and “tariff as punishment” during Trump’s second term, and “therefore more retaliation from other countries” and greater “risk of a global trade war.”
• Next up are deadlines for a new tranche of steel and aluminum tariffs, and a report from cabinet departments to the White House about Trump’s plan for “reciprocal tariffs,” which Josh notes “will provide the framework for possible actions against nearly every country in the world.”
• With Wall Street waking up to these realities, Josh adds, “expect a bumpy ride ahead—in trade, in markets, and for the global economy.”

New Atlanticist

Mar 4, 2025

Wall Street is finally waking up to Trump’s tariff policy

By Josh Lipsky

Financial markets are beginning to react after the United States implemented tariffs on its three largest trading partners on Monday.

China Economy & Business

The post A Wall Street wake-up call on Trump’s tariffs appeared first on Atlantic Council.

Now the United States begins a trade war with its three largest trading partners, and the costs could start piling up. 

Monday’s reaction—the worst trading day since Trump was elected—was Wall Street quickly trying to make up for lost time since the election. This is only the beginning. Markets could remain shaky if deteriorating consumer sentiment translates into less spending and price hikes on everything from gas to cell phones come into effect in the coming weeks.

Why did many on Wall Street seemingly miss the signs that Trump was going to pull the trigger on tariffs? Because they were stuck in a mindset based on the previous Trump administration. In his first term, Trump often used the threat of tariffs to negotiate—see the China Phase One deal, for example—and implemented tariffs on a wide range of products. But in Trump’s second term, the president and his senior trade adviser Peter Navarro are approaching changes to trade on an even more sweeping scale and accelerated timeline. 

Trump is now wielding tariffs in three distinct ways. Here’s how to think about them.

First, there’s “tariff as a negotiating tactic.” This is the kind of deal Wall Street thought Trump was trying to get with his threats against Mexico and Canada, mirroring what happened frequently in his first term. Those deals will still happen. China, for example, is a leading candidate for a renewed trade deal, despite Monday’s announcement. 

The second form is “tariff as tariff.” Trump and his team are approaching tariffs with the traditional view that a tariff can generate domestic manufacturing by raising costs on importers and therefore incentivizing production in the United States. The challenge with this plan is that for many products (such as laptops), it would take a much higher tariff than even 25 percent to make it cheaper to produce them in the United States. While some companies are announcing efforts to move production back to the United States, it will take years to reorient associated supply chains. In the meantime, it is US consumers and companies that will end up paying higher prices—at a moment when inflation is proving a little more sticky than Trump, or the Federal Reserve, anticipated. 

The other challenge is that Trump wants to use tariffs as a source of revenue. The Committee for a Responsible Federal Budget estimated in February that the Trump administration’s new tariffs could raise over one hundred billion dollars per year (and therefore possibly offset some of the cost of the coming extension of the Tax Cuts and Jobs Act). That still would only represent approximately 2 percent of total US revenue. And there’s a contradiction here. If the United States is collecting revenue on tariffs, that means the companies paying the tariffs aren’t actually reshoring. Instead, those companies are paying the higher cost for tariffed goods because doing so still makes the most sense for their businesses. The traditional use of tariffs can boost revenue or reshoring, but it’s very difficult to do both.

The third form of tariff is a new development in Trump’s second term. It is “tariff as punishment.” In Trump’s press conference on Monday, he specifically said several times that Canada and Mexico were going to be “punished.” What does tariff as punishment mean? It’s a form of sanction. Instead of financial sanctions, which Trump argued during the presidential campaign were causing countries to move away from the US dollar, expect the administration to use tariffs more as a tool of coercive economic statecraft. The benefit, from the Trump team’s view, is that unlike the on-and-off switch of sanctions, tariffs can be ratcheted up (5, 10, 15 percent) or ratcheted down. A recent example of this approach to tariffs came when Trump threatened a 150 percent tariff on any country from the BRICS grouping of emerging economies that was moving away from the dollar.

Trump’s second term is going to feature much more use of the latter two kinds of tariffs than his first term did. Trump told the public as much when he decided to leverage the International Emergency Economic Powers Act to give himself the authority to issue tariffs without any notice—an unprecedented use of the law. There will be negotiations, of course. It’s possible the new Canada and Mexico tariffs will only be temporary and become part of deal-making to renew the US-Mexico-Canada Agreement in 2026. But there will also be more tariffs for tariffs’ sake, more tariffs as punishment, and therefore more retaliation from other countries. It all adds up to the risk of a global trade war. In the coming weeks, deadlines are approaching for the next wave of steel and aluminum tariffs and a key report on reciprocal tariffs from the Office of the US Trade Representative and Commerce Department, which will provide the framework for possible actions against nearly every country in the world.

As of today, the United States has the highest effective tariff rate it has had at any time since 1943. Wall Street missed the early signs that Trump was serious about imposing tariffs. Now that investors have woken up, expect a bumpy ride ahead—in trade, in markets, and for the global economy.

Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Sophia Busch and Charles Wheelock contributed to the data visualization in this article.

The post Wall Street is finally waking up to Trump’s tariff policy appeared first on Atlantic Council.

Congressional approval should resemble the Authorization for Use of Military Force (AUMF) enacted after the September 11 attacks, enabling the deployment of military assets against cartel infrastructure both within and beyond US borders. Congressman Dan Crenshaw, who co-sponsored the previous AUMF legislation targeting the cartels, has called for the formation of a “Select Committee to Defeat the Mexican Drug Cartels” that could eventually recommend such an AUMF. An AUMF against the Mexican drug cartels would unite various government agencies in a coordinated effort to combat what administration officials correctly regard as an existential threat to US security. An AUMF would also ensure that the United States could continue combating these terrorist groups when they inevitably fracture, change their names, or otherwise morph into groups that are different from those eight cartels originally designated.

These cartels have extended their networks into the United States, infiltrating major US cities and establishing themselves in furtherance of their criminal empires. The time has come for a whole-of-government response.

Mexican cooperation and challenges

Mexican President Claudia Sheinbaum’s administration has demonstrated unprecedented willingness to collaborate with US counternarcotics efforts. In the past month, he Mexican government has taken significant steps, including announcing that it would deploy ten thousand troops to the US-Mexico border specifically tasked with combating fentanyl trafficking. The Mexican Senate has also approved measures allowing US Special Forces to resume training with Mexican Marines, while enhanced bilateral cooperation on counternarcotics operations continues to develop. However, the path forward is complicated by years of cartel influence through their “plata o plomo” (silver or lead) intimidation tactics, which have entrenched corruption within Mexican institutions. This presents significant challenges for intelligence sharing and operational coordination between Mexico City and Washington, requiring careful consideration on how sensitive information and joint operations are managed.

The China connection

Perhaps most alarming is the emerging evidence of Chinese involvement in the narcotics trade. Intelligence reports indicate that Chinese companies, often operating with apparent impunity, supply Mexican cartels with fentanyl and precursor chemicals, while providing critical financial infrastructure for money laundering operations.

The Chinese doctrinal concept of “unrestricted warfare” proposes multiple indirect approaches for undermining strategic competitors, particularly the United States. Within this broader construct, the US House Oversight Committee identified “drug warfare” as one means by which China deviously attacks the very fabric of US society. This strategic dimension transforms what might otherwise be viewed as a law enforcement issue into a matter of national security. According to a September 2024 report by the Heritage Foundation, China’s facilitation of the fentanyl trade into the United States causes approximately two hundred deaths per day and cost the US economy upward of $1.5 trillion in 2020 alone.

A new strategic approach

Drawing lessons from successful counterterrorism campaigns, the administration should pursue a multi-faceted strategy that would fundamentally reshape the approach to combating cartels. As with the first Trump administration’s successful campaign to dismantle the caliphate of the Islamic State of Iraq and al-Sham (ISIS), the strategy should include both taking military action against criminal organizations’ infrastructure and strengthening diplomatic partnerships with regional allies. Equal emphasis must also be applied to targeting the financial networks that facilitate drug trafficking, as well as addressing the corruption and institutional weaknesses that enable cartel operations to flourish.

This threat must be understood within the broader context of strategic competition with China, as these cartels are effectively serving as proxy forces in a nefarious indirect attack on the United States.

Looking forward

Success will require sustained commitment from both the Mexican and US governments, along with unprecedented levels of international cooperation. Any proposed AUMF would provide a legal framework for military operations, but that force must be combined with other elements of national power to achieve lasting success.

Such an initiative is ultimately about creating alternatives for the Mexican people while eliminating the cartels’ ability to serve as proxies in China’s unrestricted warfare against the United States. This approach addresses both the United States’ and Mexico’s shared security interests and creates opportunities for mutual economic benefit.

As the administration moves forward with these proposals, influential members of Congress are already signaling support for expanded authorities to combat cartel influence. With bipartisan concern over fentanyl deaths and growing awareness of Chinese strategic involvement, the stage appears set for a significant shift in how the United States confronts this evolving threat to national security.

Doug Livermore is a member of the Atlantic Council’s Counterterrorism Program, the director of engagements for the Irregular Warfare Initiative, the national vice president for the Special Operations Association of America, national director for external communications at the Special Forces Association, and the deputy commander for Special Operations Detachment–Joint Special Operations Command in the North Carolina Army National Guard. He also previously served in the Department of Defense as a senior government civilian, intelligence officer, and contractor.

The views expressed are the author’s and do not represent official US government, US Department of Defense, or US Department of the Army positions.

The post To tackle China-enabled drug cartels in Mexico, Trump will need military authorization appeared first on Atlantic Council.

The United States, Canada, and the European Union (EU) have led the way on these sanctions, and between them have created an extensive list of individuals who have seen their assets frozen, been denied visas, and been shut out of the financial order in these countries. This tracker provides an interactive tool to search the list by sanctioning country or individual, with the aim of highlighting gaps in sanctions between countries and visualizing the progression and composition of country-specific sanctions regimes.  

Venezuela individual sanctions tracker

Explore the tracker below to see which individuals are sanctioned by which countries. Select the column titles to sort alphabetically or by country.

US sanctions timeline: Major milestones

This graph does not include sanctions issued by the United States on January 10, the date of Nicolás Maduro’s illegitimate re-inauguration.

The Obama administration sanctioned seventeen individuals in the early years of Venezuela’s crisis, the first Trump administration sanctioned 135, and the Biden administration sanctioned 50. So far, the second Trump administration has not sanctioned any individuals linked to Venezuela’s crisis. 

Lucie Kneip is a program assistant at the Adrienne Arsht Latin America Center. 

Geoff Ramsey is a senior fellow at the Adrienne Arsht Latin America Center. 

Created in partnership with the Atlantic Council's Economic Statecraft Initiative.

Jul 24, 2024

Venezuela Solutions Group

The Adrienne Arsht Latin America Center’s Venezuela Solutions Group is a diverse group of experts and practitioners from Venezuela, the United States, Latin America, and Europe, brought together to advance the conversation on how to reach a peaceful, democratic, and negotiated solution to the crisis in the South American country. The group comprises former government officials, civil society leaders, private sector leaders, humanitarian voices, economists, and leading experts on Venezuela who work to promote debate and propose actionable and concrete policy recommendations in order to advance policy innovation in addressing the situation in Venezuela. 

Issue Brief Jan 8, 2025

Recalibrating the use of individual sanctions in Venezuela 

By Geoff Ramsey, Lucie Kneip

As Maduro consolidates power in Venezuela, who has the United States sanctioned—and are those sanctions working?

Democratic Transitions Economic Sanctions

Online Event Tue, November 19, 2024 • 3:30 pm ET

Enhancing international coordination on Venezuelan migrant integration

How can the US and regional allies develop a comprehensive response plan for the expected increase in Venezuelan migration as Nicolas Maduro looks to extend his illegitimate rule?

Colombia Conflict Crisis Management Human Rights

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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Housed within the GeoEconomics Center, the Economic Statecraft Initiative (ESI) publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests.

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The Global Sanctions Dashboard provides a global overview of various sanctions regimes and lists. Each month you will find an update on the most recent listings and delistings and insights into the motivations behind them.

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Argentina is at a critical moment for the country’s economic stabilization, as Argentine President Javier Milei pushes forward his reform agenda seeking to grow the country’s economy while bringing down inflation. This is a goal that Argentina cannot accomplish on its own. It was no surprise, then, that when Milei visited Washington last week to speak at the Conservative Political Action Conference (CPAC), he also held meetings at the International Monetary Fund and with Trump.

Specifically, Milei used his trip to Washington to underscore his commitment to move Argentina toward a closer trade relationship with the United States. During his speech at CPAC on Saturday, Milei said that Argentina wants to be “the first country in the world to join this reciprocal accord that the Trump administration proposed on trade matters.” Yet despite the clear political and ideological alignment between the two administrations, there are a few bottlenecks for deeper bilateral commercial and investment ties. So, what does the US-Argentina trade relationship look like now and how could the two countries deepen economic opportunities that are mutually beneficial?

The status of US-Argentina commercial ties

The United States has historically enjoyed a structural surplus in bilateral goods exchanges with Argentina. The South American country is a net importer of US machinery, electrical equipment, transportation, pharmaceuticals, plastics, and chemical products. It is also a net exporter of agricultural goods, steel, aluminum, and metals to the US market. 

Over the past twenty-four years, Argentina ranks as the tenth-largest country in terms of the total US trade surpluses in goods for the totality of that period, as calculated with US government trade data. Moreover, as the chart below shows, the robustness of US net sales of “machinery, electronics, transportation, and other equipment” has a strong positive correlation with Argentina’s real economic growth. As such, when Argentina’s economy has grown, US net sales of these manufactured goods to Argentina have historically experienced an increase. And this correlation appears even more strongly when it comes to total US sales for these products. Looking forward, there is an opportunity to deepen this dynamic, especially as key sectors such as Argentina’s booming energy industry continue to demand further supplies of US goods. 

The United States is Argentina’s main source of foreign direct investment, and US companies stand to gain from moves that ease the flow of supplies from the United States to projects to develop Argentina’s vast natural resources, from oil to lithium. These factors point to the growth potential of closer bilateral trade relations, and it is surely the case that Milei made in his recent conversations with the Trump administration on deepening bilateral economic ties.

The potential of deeper US-Argentina economic relations

As the American Chamber of Commerce in Argentina recently argued, stronger economic ties between Argentina and the United States can help increase the exports of US manufactured goods and build a stronger supply of critical minerals for the United States. This would also further internationalize Argentina’s historically protectionist economy as a means of driving growth. Argentina’s economy is expected to grow between 4 and 5 percent in 2025, which could allow it to recover the lost ground of the 2023-2024 recession. If the Trump and Milei administrations can further build the two countries’ commercial ties, then there is an opportunity for both increased commercial flows and greater, long-lasting US foreign direct investment. To facilitate greater trade, the two administrations will need to work through mechanisms such as their Trade and Investment Framework Agreement.

Addressing bottlenecks to deeper bilateral economic ties can be mutually beneficial. And at a time of great trade policy uncertainty around the world, countries such as Argentina can help reduce, rather than raise, barriers to trade.

The future of US-Argentine commercial relations

Although challenging, there is precedent upon which Trump and Milei could build a closer economic partnership. During Trump’s first term in office, he negotiated quotas for Argentine steel and aluminum exempted from tariffs, lifted a ban on Argentine lemons, and readmitted Argentina as a beneficiary of the US Generalized System of Preferences, which allows a series of select goods from developing countries to access the US market duty-free.

So how should the two administrations proceed today? The government of Argentina is demonstrating a clear willingness to negotiate freer trade with the US. Therefore, the Milei administration should be proactive in its messaging, showing its US counterparts that freer trade with Argentina, and with South America more broadly, is a win-win for both countries. In the end, the United States holds deep trade surpluses with South America as a region, and Milei, who is pushing his Mercosur partners to reduce tariffs and liberalize trade, is aiming for deeper regional commercial ties that are mutually beneficial with the United States. At the same time, Milei’s government will need to be mindful of the potential implications for the EU-Mercosur trade deal that was negotiated this past December, given its enormous potential for Argentina and the risks it still faces during the ongoing ratification and implementation process.

And especially given this process, the Milei administration should continue to work closely with its Mercosur partners. Although Argentina can continue to reduce domestic barriers to trade, including nontariff measures, the country is still subject to Mercosur’s common external tariffs and the bloc’s prohibition for members to negotiate bilateral free trade agreements outside of the customs union. The benefits of the EU-Mercosur agreement are clear to Argentina and the blocs’ other members, and its potential implementation should not deter Argentina from stronger economic ties with the United States.

What should the United States do? In the context of the extensive review of US trade mandated by Trump, the administration should consider the Argentine proposal in the larger context of the administration’s renewed focus on Latin America. The deep and historic trade relations that bind North and South America present ample reasons for the United States to consider further engagement with the region as a means of strengthening hemispheric ties while empowering regional economies, whose growth and stability is aligned with US interests. 

Deepening US-Argentine economic ties, and US-South America trade relations, is in both parties’ interests. In the months ahead, Trump and Milei could have the opportunity to set the bilateral relationship on a course for deeper integration.

Ignacio Albe is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center. 

Valentina Sader is a deputy director at the Atlantic Council’s Adrienne Arsht Latin America Center.

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Andrés Rebolledo Smitmans is the executive secretary of OLADE. This essay is part of the Global Energy Agenda.

Latin America and the Caribbean constitute a green region. It is home to the planet’s most significant natural lung: the Amazon rainforest. In addition, it has an energy matrix with the highest levels of renewable energy participation at 33 percent compared to a global average of 14 percent. This fact allows us to state with pride, but aware of our responsibility, that we are the greenest region on the Earth.  

At the same time, this highly renewable resources region suffers more than any other from the growing and visible impacts of climate change. Events of unprecedented magnitude and frequency, such as extreme and prolonged droughts, coupled with unprecedented floods and hurricanes that most frequently affect Caribbean countries, are causing damage to infrastructure and families, and seriously jeopardizing the security of energy supply. The situation is reaching extreme levels in some countries, with cases of rationing impacting their economies and populations. 

We live in a region with a great wealth of natural resources, especially renewable resources, all of which are waiting for adequate exploitation. We have used only 30 percent of the water, 12 percent of the wind, and 1 percent of the solar radiation available. Our energy transition industry also has large reserves of critical minerals. In other words, the enormous availability of energy resources also promotes us as one of the world’s major producers and suppliers of low-emission hydrogen. 

The region shows substantial progress in its energy transition toward more decarbonized economies. According to the latest data published by the Latin American Energy Organization (OLADE) in the 2024 Energy Outlook for Latin America and the Caribbean, the share of renewable energy in electricity generation increased from 53 percent to 68 percent in the past ten years, while greenhouse gas emissions were reduced by 26 percent. In addition, 77 percent of the new electricity generation capacity incorporated last year was renewable. 

In the social aspect, 97.4 percent of electricity service coverage was achieved. However, 17 million people still lack access to electricity, 180 million live in poverty, and 77 million do not have access to clean cooking systems, which primarily affects women. These facts compel us to seek alternatives and encourage the region to work together in the search for more robust, flexible, and resilient energy systems that can benefit all. Based on the region’s energy wealth, it is essential to generate local value chains through the development of sources that create jobs and wealth. 

In this context, there are increasingly demanding and pressing challenges. The energy transition and the decarbonization of economies require investments in unprecedented volumes of materials, which must flow and materialize in relatively short periods. This endeavor requires consolidated institutional schemes, with policy and regulatory frameworks that spread the signals of stability and security sought by investors while maintaining the flexibility required by a changing technological environment. 

The lessons learned by countries that have already made progress in their energy transition processes also show that it is just as important to diversify energy production as it is to strengthen transmission and distribution. Also, this goal requires significant investments and favorable environments for their development.  

There are, jointly with opportunities, relevant economic and social challenges. We are responsible for focusing our efforts on making energy a transversal axis of development, contributing to closing the poverty gaps afflicting our region with better levels of access to energy, healthy cooking systems, and access to information and, in short, creating conditions of equity in the broadest sense of the concept. 

The energy setting experienced currently by the world and our region reaffirms the urgency and shared responsibility to act against climate change and its effects, as well as the need to increase and strengthen collective action. In this regard, the region needs to advance energy integration. Significant progress has been made in this area, but there is still a long way to go in consolidating a regional market. Collective action involves dialogue at the intersection of all public- and private-sector actors, academia, international organizations, multilateral banks, and civil society.  

Beyond expressions of goodwill, OLADE, an intergovernmental organization that brings together twenty-seven countries in Latin America and the Caribbean, has been working hard to create the right conditions to deepen and fast-track the energy transition processes in these regions.  

The OLADE Meeting of Ministers is the highest governance structure of our organization, which brings together the highest energy authorities of its member countries. At its recent meeting in Asunción, Paraguay, it adopted a series of resolutions that mark the path to be followed by the region. These decisions seek to improve energy efficiency in all member countries, eliminate the use of coal for electricity generation, and institute a Regional Energy Planning Council, which aims to further advance progress on our common energy and climate goals. 

Our main commitment is to integrate the region’s energy as an instrument that will allow us collectively to better face the impacts of the current environment, plan our future, and build, with the support of all, a better world for future generations. 

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The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

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The post Latin America and the Caribbean: Leading the green energy transition amid climate challenges appeared first on Atlantic Council.

Chairman Gimenez, Ranking Member McIver, distinguished members of the committee, thank you for the opportunity to testify on the important topic of Chinese strategic port investments in the Western Hemisphere and the implications for US homeland security. 

I want to assist your work by sharing insights gleaned from my more than two decades of experience working on US national security policy at the Central Intelligence Agency, Department of Defense, the Congressional Commission on the Strategic Posture of the United States, and now as a scholar at Georgetown University, and a vice president at the Atlantic Council. 

My message today is simple: China’s port investments in the Western Hemisphere pose a serious national security threat to the United States and its allies and partners in the region. Washington and regional states should work together to decouple from Chinese investments in ports and other areas critical to national security.  

China poses the greatest contemporary threat to US national security. It is a comprehensive challenge with economic, technological, diplomatic, ideological, and military dimensions. Ultimately, the rivalry concerns the leadership of global order.  

China employs overseas infrastructure investments, including in the Western Hemisphere, as part of its grand strategy. Countries in the Western Hemisphere are often attracted to China’s infrastructure investments, but they come at a cost. Through its investments, China cements access to resources, captures elites, gains leverage over governments, shifts national policies in its favor, and undermines democratic norms, transparency, and environmental standards. 

China’s investments in ports, including in Peru and Panama, pose a number of threats to US homeland security. Chinese-operated ports are used to facilitate the shipment of fentanyl precursors to the United States. China exploits the presence of technology and access to data for an intelligence advantage. China could restrict or block access to ports, threatening American trade and economic wellbeing. In the event of a crisis or war, China could hinder the passage of American naval vessels, undermining American war plans. China could also use deep water ports to host People’s Liberation Army Navy vessels, enabling the projection of military power into the Western Hemisphere. 

As Secretary of State Marco Rubio correctly stated, this status quo is unacceptable. There are a number of steps the United States should take to counter Chinese port investments in the Western Hemisphere and protect US and allied security, freedom, and prosperity.  

The United States should encourage countries in the Western Hemisphere to adopt a de-risking approach to China. Regional governments do not need to choose between the United States and China. They can continue lucrative trade with China in non-sensitive domains, such as agriculture. But US allies and partners should pursue a hard decoupling with China in areas of sensitive national security concern, such as: telecommunications, advanced technology, ground satellite stations, surveillance systems, military and intelligence cooperation, critical minerals, and critical infrastructure, including ports.  

President Donald J. Trump said, “China is operating the Panama Canal and we didn’t give it to China, we gave it to Panama, and we’re taking it back.” 

I applaud the Panamanian government’s subsequent decision to forgo renewal of their participation in China’s Belt and Road Initiative (BRI). Panama should use its current audit of operators in the Panama Canal area as an opportunity to sever the contracts with Chinese companies and to re-bid the contract to US or allied companies that will better ensure American and Panamanian interests. 

Pressuring regional countries to de-risk from China will often be doing these countries a favor. Many Latin American countries entered into agreements with China years ago under previous governments, in a different geopolitical environment. Today, these same countries now understand that undue Chinese influence in sensitive sectors is not in their interest, but they do not have the ability to stand up to China on their own. Pointing to American pressure, as the “bad cop,” can help these countries take necessary steps that would be difficult to take on their own. 

Washington cannot, however, expect regional countries to trade something for nothing. 

The United States must provide credible and affordable alternatives to Chinese infrastructure investments. The US government cannot compete with Chinese-subsidized infrastructure investments on price or scale, but it has a number of other advantages. 

First, it should incentivize its vibrant private sector to invest in the region. Institutions like the International Development Finance Corporation and the Export-Import Bank should continue their transformation into instruments to advance American interests in this new era of great power confrontation. 

Second, the United States should leverage its global network of allies and partners for great power competition in the Global South. The European Union and US allies in the Indo-Pacific, such as Australia, Japan, and South Korea, have world class technology companies, extensive trade relationships in the Western Hemisphere, and significant foreign aid programs. To be most effective, however, the various activities should be brought together in a coordinated fashion, guided by Washington. 

Third, the United States and its allies can compete on quality. While Chinese investments are often economically attractive, they come with strings attached. The United States and its free world allies can outcompete China on free and fair-trade practices, transparency, anti-corruption, rule of law, technical know-how, and high labor and environmental standards.  

Finally, as the Trump administration looks to increase defense spending and debates regional priorities, it should boost the budget of US Southern Command and increase SOUTHCOM training and exercises with regional partners. In the worst-case scenarios, SOUTHCOM must be prepared to step in and secure access to ports and open sea lines of communication. 

Appended to this statement is a copy of A Strategy to Counter Malign Chinese and Russian Influence in Latin America and the Caribbean, an Atlantic Council report I co-authored last year that explores these issues in greater detail and provides actionable recommendations.  

I am honored that the Committee on Homeland Security has invited me to share my views on these challenges, and I look forward to taking your questions. 

Staff

Matthew Kroenig

Vice President and Senior Director, Scowcroft Center for Strategy and Security

Scowcroft Center for Strategy and Security

China Defense Policy

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A clear warning

The tension became clear on January 26, when Colombian President Gustavo Petro revoked authorization for two deportation flights set to land in Bogotá. In a social media post announcing his decision, Petro accused the United States of treating the deportees like criminals, as they were deported on a US military plane in which they were handcuffed. Trump quickly retaliated by threatening harsh trade tariffs, sanctions, and visa restrictions against Colombian officials. Petro then countered on social media that he would impose tariffs on the United States as well. The diplomatic showdown ended after intense backchannel discussions between the two countries forced Petro to reverse his decision.

The Colombian president’s attempt to block the Trump administration’s mass deportation plan highlights the broader challenge Latin American leaders face in adapting to a dramatic turn in US immigration policy. During the Biden administration, US officials sought to foster partnerships with Latin American governments and nongovernmental organizations to create safe migration transits and open legal pathways for migrants seeking economic opportunities in the United States. This dynamic led at least five million people from the Western Hemisphere to enter the United States through the southern border, with and without authorization, between 2021 and 2023. Trump’s return marks the end of this approach. 

As Latin American leaders await further details of the Trump administration’s mass deportation plans, the US-Colombia standoff sends a clear warning that resisting the White House will come at a steep political cost. In Colombia, Petro’s failed attempt to block US repatriation flights led to the breakdown of his government coalition after the centrist Liberal Party withdrew two days later. His mismanagement of the crisis, which reportedly required intervention from former Colombian President Álvaro Uribe, gave many Colombians the impression that Petro was unprepared to handle this high-stakes diplomatic issue. Similarly, Honduran President Xiomara Castro’s attempt to rally Latin American nations against Trump’s mass deportation plan under the Community of Latin American and Caribbean States fell flat after other countries declined to attend her late January emergency meeting, forcing her to cancel it.

A struggle to adapt

The primary concern for Latin American leaders is the scale and scope of the Trump administration’s mass deportation plans. Estimates on the number of individuals who could be deported often focus on the approximately eleven million undocumented immigrants living in the United States. However, this figure fails to capture the full scope of the Trump administration’s deportation plans. The administration has made it clear that all foreign nationals who entered the United States during the Biden administration on temporary legal status will be expected to leave when their program status expires. So far, the administration has terminated parole programs, such as the Cuban, Haitian, Nicaraguan, and Venezuelan initiatives, which facilitated the entry of more than 528,000 people into the United States since January 2023. The Trump administration has also rescinded the previous administration’s extension of the temporary protected status designation for approximately 350,000 Venezuelan nationals, who will now lose their work authorization and may be ordered removed starting in April of this year. 

A massive influx of deportations, particularly of individuals who have lived in the United States for years and have few ties with their countries of origin, will strain Latin American nations already struggling with sluggish economic growth and high unemployment rates. Many returning citizens may struggle to reintegrate after returning with greater employment skills and experience honed for the US economy but fewer economic opportunities or skills suited for where they are being sent. The sudden uprooting of people from the US labor force could also have a destabilizing impact on the deportees’ families and the local economies of their countries of origin, many of which rely on remittances for financial stability. 

Left-wing Latin American leaders will likely find managing the shift in US immigration policy especially difficult. Despite their ideological opposition to Trump’s plans, they will need to cooperate with the United States to avoid retaliation, which would undermine their countries’ economic stability and erode public trust. But while compliance with US policy will be necessary to avoid an international diplomatic crisis, mass deportation could create domestic pressures that may invariably lead to a decline in public opinion of their governments. A larger number of young working-age people unable to leave their countries to work due to stricter US border security, coupled with a greater number of Latin Americans forced to return to their countries of origin, may deepen public disillusionment in the ability of governments to adequately address organized crime, corruption, and weak job markets.

Latin American governments also face the challenge of managing returnees who have committed violent crimes. If the scale of these deportations increases significantly, then it could put a strain on some Latin American countries, which will have to determine who is truly dangerous and whose violations are minor enough that they could safely be released. It is doubtful that any Latin American country has the resources to process the disposition of hundreds of thousands of returnees deemed criminals by the Trump administration. However, officials will need to assure their publics that dangerous criminals are not being released into the streets. 

These factors could in turn push left-wing governments in the region to moderate their agendas—particularly their fiscal policies—to survive. Otherwise, they risk losing ground to centrist and conservative opposition parties. This dynamic may create a favorable situation for the Trump administration: Latin American governments will be forced to come into compliance with its top agenda of curbing migration to the United States. As a result, the political and economic pressures caused by the reduction of Latin American nationals in the US workforce could force the region’s governments to make long-overdue reforms aimed at reducing public spending and fostering greater economic growth.

Alicia Nieves is a legal expert in immigration and refugee law, specializing in humanitarian assistance and conflict rescue. She is a member of the Atlantic Council’s Counterterrorism Project and co-founder of the Gaza Family Project, an initiative of the Arab-American Civil Rights League (ACRL) dedicated to helping American families impacted by the Israel-Hamas war. 

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On February 3rd, GCH nonresident fellow Leland Lazarus was quoted in NPR on how China’s significant trade in Latin America as Secretary of State Marco Rubio makes his first tour to the region.

Fellow

Leland Lazarus

Nonresident Fellow

Global China Hub

Caribbean China

The post GCH nonresident fellow Leland Lazarus in NPR appeared first on Atlantic Council.

He’s hitting the pause button—for now. On Monday, US President Donald Trump announced that he was pausing the proposed 25 percent US tariffs on goods from Mexico and Canada after those two countries’ respective leaders agreed to strengthen border security and invest more in counternarcotics initiatives. However, the 10 percent tariffs on all Chinese goods went into effect at midnight on Tuesday, with Beijing quickly retaliating. What’s next for the United States’ tariff policy on its North American neighbors and China? And what other countries might Trump threaten tariffs against next? Our experts offer their insights below. 

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the International Monetary Fund
• Reed Blakemore (@reed_blakemore): Director of research and programs at the Atlantic Council’s Global Energy Center
• Jason Marczak (@jmarczak): Vice President and senior director of the Atlantic Council’s Adrienne Arsht Latin America Center
• Barbara C. Matthews: Nonresident senior fellow at the GeoEconomics Center, former US Treasury attaché to the European Union, and founder/CEO of BCMstrategy, Inc.

China’s muted response

• China’s overnight retaliatory actions against the tariffs were “a muted response” that was meant to prevent further escalation, Josh tells us. For example, China excluded primary imports from the United States, such as soybeans, from its countermeasures. “What they’re hoping is that Trump stops here,” he says.
• China is “keeping its powder dry,” Josh notes, as it hopes for negotiations along the lines of the phase one trade agreement Beijing struck with the Trump administration in 2020. Meanwhile, he adds, China’s launching of an antitrust investigation against Google was a surprise move showing that Beijing could further target US tech companies if trade tensions persist.
• “The trend to watch” will be actions on critical minerals, says Reed, noting that China placed restrictions on exporting tungsten and indium to the United States on Tuesday. China is “very aware of where it can poke at the United States on these mineral supply chains,” Reed notes.

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Canada and Mexico’s continued concern

• Even with the thirty-day pause, Jason points out that the dispute will still affect North American trade, as there is now “significant fear and concern” in both Canada and Mexico.
• Jason says that wait times for cross-border traffic “will likely increase over the next thirty days” as Mexico cracks down on illicit shipments to the United States and that this slowdown will “have an impact on the US economy.” Over the longer term, he expects Mexico to continue diversifying its supply chains away from the United States; Mexico notably just struck a trade deal with the European Union (EU).
• The same goes for north of the border, where Reed says there are growing “conversations around de-risking from the US economic relationship,” and this question will feature heavily in this year’s Canadian elections.

Europe’s caution

• European leaders “have played this entire situation very well, very cautiously,” says Barbara, who notes that there hasn’t been much of a public response from the continent to Trump’s tariff threats. She adds that in the last month alone, European policymakers expanded their global footprint with economic and strategic partnerships in Japan, Mexico, and Malaysia. 
• However, Barbara points out a number of “very significant pressure points” that are “guaranteed to generate friction and headlines over the next couple of years.” These include the United States’ and EU’s vastly different views on climate issues, energy policy, and digital currencies. “I believe we will work our way through with our strategic partners, but they will be bumpy years,” says Barbara.

Who could be next?

• Europe could be a prime target. Barbara points to a United Nations Conference on Trade and Development report indicating that the countries most at risk for tariff tussles with the United States will be those that have both trade imbalances and high tariffs. For example, she says, “European tariffs on US imports are already higher than US tariffs on European imports, even before Europe’s Carbon Border Adjustment Mechanism goes fully into effect.”
• But it’s not just Europe. Given Trump’s threatened tariffs on the cars and auto parts from Canada and Mexico, “it doesn’t make sense strategically” to tariff those countries and not major auto exporters South Korea and Japan, Josh says. Otherwise, he notes, the North American auto tariffs would create “a very strange sort of dynamic” that would benefit South Korea and Japan “at the expense of American manufacturers.”
• Jason, meanwhile, thinks Nicaragua could become a target of Trump’s tariff measures because of the Nicaraguan government’s role in facilitating illegal migration to the United States. Tariff measures against Nicaragua, says Jason, “would be fairly in line with what he has been doing on the migration front.”

The post Where do the Trump tariffs go from here? appeared first on Atlantic Council.

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Once known as an “island of peace,” Ecuador has become a cautionary tale of how quickly a country can be destabilized by the corrupting power of organized crime, illicit trade, and weak institutions. The next president will inherit a country in crisis, facing the challenges of rebuilding trust in government and addressing the surge of crime that has made Ecuador the most violent country in the region—all while battling an economic recession.

Security and economic crises

In 2024, Ecuador achieved the dubious distinction of becoming the number one exporter of cocaine in Latin America and the Caribbean to Europe—a shocking turnaround for a country that doesn’t produce much of the drug itself. Sandwiched between the world’s two largest coca producers—Colombia to the north and Peru to the south—Ecuador is strategically located as a transit hub for international drug-trafficking networks. Criminal organizations associated with Mexico’s Jalisco Nueva Generación and Sinaloa cartels, Colombia’s Cali Cartel, and mafias in Europe, among other criminal groups, have exploited the country’s weak institutions and porous borders. Ecuador has become a hub to move drugs to international markets via small planes, speedboats, and even commercial seaports.

The consequences have been catastrophic. Nearly seven thousand people in Ecuador were killed in 2024 alone, making it the second deadliest year in the country’s history. An estimated 95,000 people fled the country last year, and territorial battles between gangs backed by overseas cartels have turned entire neighborhoods into war zones. Despite more than thirty-five states of emergency declared across three administrations and the militarization of conflict zones under the current president, Daniel Noboa, the security crisis is far from resolved.

Corruption has also permeated various levels of government, with police, military, judges, and prosecutors often linked to criminal networks. State institutions are weak, underfunded, and poorly coordinated, while law enforcement agencies’ capabilities are largely outdated and ill-equipped to combat sophisticated organized crime operations. This issue is further exacerbated by the rampant recruitment of children and adolescents from marginalized neighborhoods into organized crime, lured by the promise of money, weapons, and power.

Economic conditions offer little hope that the security crisis will improve. Ecuador’s economy contracted by 1.5 percent in the third quarter of 2024 compared to the same period the previous year, and the country faces a significant fiscal deficit. The next president will have to address the security crisis while attempting to rebuild an economy teetering on the brink of collapse.

A high-stakes but fragmented election

While security is the top concern for Ecuadorians, the upcoming election has offered little clarity on how the candidates plan to address the crisis. The field is fragmented, with sixteen candidates vying for the presidency, thirteen of whom poll below 3 percent. The race is expected to come down to a contest between the incumbent president, Noboa, and opposition candidate Luisa González. However, neither has presented a detailed security strategy or a comprehensive roadmap to address Ecuador’s urgent challenges.

Noboa’s campaign has been clouded by controversy. His year-and-a-half-long tenure has been marked by multiple crises, including the declaration of an internal armed conflict against twenty-two criminal gangs, widespread energy shortages that left cities without power for up to fourteen hours a day, and public disputes with Vice President Veronica Abad. Noboa’s approval rating plummeted from 72 percent in January 2024 to 45.9 percent by the end of the year. While his campaign portrays his administration as a force for change, critics question his commitment to democratic norms and point to his controversial political alliances. Notably, Noboa’s appearance at US President Donald Trump’s inauguration on January 20 gave his candidacy a significant boost in the polls and garnered extensive coverage in the Ecuadorian media.

In another strategic move, Noboa hosted a lunch on January 29 with Venezuelan opposition politician Edmundo González, whom the government of Ecuador officially recognizes as Venezuela’s elected president. Noboa also extended invitations to four Ecuadorian prefects and two mayors from the opposition party Movimiento Revolución Ciudadana. However, the opposition party has not acknowledged González as Venezuela’s president, and none of them accepted the invitations. This allowed Noboa to criticize their stance on authoritarian regimes and the Venezuelan crisis, an issue that has heavily impacted Ecuador, which has taken in nearly half a million Venezuelan refugees.

On the other hand, Luisa González, the Ecuadorian opposition candidate for Movimiento Revolución Ciudadana, has focused her campaign on nostalgia for her party’s years in power under former President Rafael Correa. This was a period when crime rates were lower and the economy was stronger. But her association with Correa—who remains in exile in Brussels after being convicted of corruption—has also limited her appeal. While she resonates with older voters who remember Correa’s presidency fondly, she has struggled to connect with younger voters, who make up 25 percent of the electorate and demand fresh ideas and solutions.

A forward-looking approach to Ecuador’s challenges

The next president will face the monumental task of dismantling the well-funded, highly connected operations of organized crime while restoring trust in government and revitalizing the economy. These challenges require more than the militarization of police forces or the declaration of states of emergency; they demand systemic reforms to strengthen state institutions, create opportunities for vulnerable populations, and root out the corruption that sustains criminal networks.

Ecuador cannot tackle this crisis on its own. The transnational nature of organized crime necessitates international cooperation, particularly with the United States, one of the world’s largest consumers of cocaine. The Trump administration has already shown that tackling drug cartels will be a focus of its diplomacy with Latin America—an agenda that could pave the way for closer collaboration with Ecuador. Both the United States and Ecuador have a shared interest in combating drug trafficking, stemming the flow of illicit trade, and addressing the violence and migration crises plaguing the region. Yet, this election could also determine Ecuador’s allies in this effort. While González has hinted at alignment with the BRICS nations—the grouping made up of Brazil, Russia, China, South Africa, and several countries that have joined in the past year—Noboa has sought stronger ties with the United States and the International Monetary Fund.

A sustainable solution must begin with reforming Ecuador’s fragmented and under-resourced law enforcement agencies. Establishing a specialized task force to apprehend high-value targets and strengthening international agreements both with neighboring countries and with the United States will be essential. Equally critical is addressing the root causes of crime—poverty, inequality, and lack of education—which have made Ecuador’s youth vulnerable to recruitment by criminal gangs. Faced with severe security and economic challenges that can’t be confronted alone, Ecuador’s next president will serve a four-year term, but their leadership will be pivotal in shaping the nation’s long-term trajectory.

Isabel Chiriboga is an assistant director at the Atlantic Council’s Adrienne Arsht Latin America Center.

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Trade war shots fired. US President Donald Trump today announced tariffs on Canada, Mexico, and China—the United States’ three largest trading partners. The tariffs, 25 percent on Canada and Mexico and 10 percent on China, were issued based on Trump’s declaration of a national emergency over drug trafficking and illegal migration. How will the tariffs impact the four countries’ economies? And how might Canada, Mexico, and China respond? Our experts explain below.

• Josh Lipsky (@joshualipsky): Senior director of the Atlantic Council’s GeoEconomics Center and former adviser to the International Monetary Fund
• María Fernanda Bozmoski (@MariaBozmoski): Director of impact and operations and lead for Central America at the Council’s Adrienne Arsht Latin America Center
• Joseph Webster (@Joe_Webster_CRR): Senior fellow at the Council’s Global Energy Center

For China, relief

• Given Trump’s earlier threats to impose 60 percent tariffs on Chinese goods, “China is likely breathing a sigh of relief,” Josh tells us. Policymakers in Beijing must be wondering why the United States “tariffed its allies at 25 percent and its greatest economic challenger at 10 percent.”
• One likely reason for this, Josh argues, is Trump’s desire to keep inflation down in the wake of the higher tariffs on Mexico and Canada since “there’s only so much price pressure US consumers are going to put up with.” Another factor, he notes, is that China is far less dependent on US trade than are Mexico and Canada.
• Faced with the tariffs, China “has a trick up its sleeve: currency devaluation,” Josh says. “Watch to see how the yuan moves this week. It’s likely that most of this increase can be absorbed through exchange rates.” If this works, Josh expects that China’s “rhetoric will be sharp” but that its “economic retaliation will potentially be more muted.”

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For Mexico, an economic blow

• The 25 percent tariffs on Mexico are “counterproductive to Trump’s goals of curbing immigration to the United States,” argues María, in part because the policy will “weaken the Mexican peso and the country’s economy.”
• The tariffs will also have a significant impact on the United States-Mexico-Canada Agreement (USMCA), María notes. She says that their implementation will “quickly erode the economic growth and interdependence” that directly resulted from the USMCA, along with gains in securing supply chains.
• Instead, María tells us, the relationship between the two countries is shifting, with the White House tariff announcement even accusing Mexico’s government of having an “intolerable alliance” with drug gangs. “This marks the first time in decades that US-Mexico economic collaboration has been so explicitly dependent on security concerns.”

For Canada, defining “energy” will be crucial

• Trump’s executive orders place a 10 percent tariff on Canadian “energy resources,” as compared to the 25 percent levy against all other Canadian goods. Joe says that “the impact on energy markets will depend on the tariffs’ duration and the definition of ‘energy resource.’”
• For example, “if the lower rate excludes imports of electricity, batteries, and minerals,” Joe explains, this could have a negative impact on a range of US markets, including electricity, batteries, defense technology, artificial intelligence, and drones.
• What is clear, says Joe, is that “US refineries will now pay higher prices for Mexican and Canadian crude in the wake of tariffs.” Refineries in Midwestern states will be hard-hit by the tariffs, Joe points out, since “they have few if any alternatives to Canadian crude oil and will pass along many costs to consumers.”

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Click to jump to an expert analysis:

Josh Lipsky: Beijing is breathing a sigh of relief

Jason Marczak: Can there be a short-term end game for Mexico?

María Fernanda Bozmoski: The tariffs on Mexico are counterproductive to Trump’s goal of curbing immigration

Joseph Webster: These tariffs could upend energy sector business models

Barbara C. Matthews: This historic move means US trade treaties now come with a caveat

Maite Gonzalez Latorre: Canada’s next prime minister must articulate how the country will navigate the Trump presidency

L. Daniel Mullaney: The tariffs genie is out of the bottle

Beijing is breathing a sigh of relief

Two things are true at the same time. These tariffs are more sweeping than any trade action we saw in the first Trump term and will impact over one trillion dollars in goods. The president has invoked the International Emergency Economic Powers Act (IEEPA) in an unprecedented way, levying major trade barriers all at once against the United States’ three largest trading partners. But it’s also true that China is likely breathing a sigh of relief.

Policymakers in Beijing have to be wondering how it happened that the United States tariffed its allies at 25 percent and its greatest economic challenger at 10 percent. Of course, the 10 percent comes on top of the already existing tariffs in several sectors, but it still means that most goods from Mexico and Canada will face a steeper fine than those from China. It’s much tamer than Trump’s campaign threat of 60 percent. (In fact, despite that threat, we predicted a China scale-down right after the election.) 

Why the softening toward China? Inflation is one reason. Trump knows his moves on Canada and Mexico will have an impact, and there’s only so much price pressure US consumers are going to put up with. But leverage is another. Mexico and Canada depend far more on the United States than the United States depends on them. (Though there’s no doubt every economy in North America is going to bear some cost in these new trade wars.) China is a different story. China’s economy is less dependent on trade than Canada and Mexico—and only 15 percent of its exports go to the United States, compared to nearly 80 percent for Washington’s neighbors.

Now faced with 10 percent tariffs, Beijing has a trick up its sleeve: currency devaluation. Watch to see how the yuan moves this week. It’s likely that most of this increase can be absorbed through exchange rates—and that’s one reason why Beijing’s rhetoric will be sharp but its economic retaliation will potentially be more muted.

—Josh Lipsky is the senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

Can there be a short-term end game for Mexico?

Mexican President Claudia Sheinbaum quickly responded to Trump’s announcement of 25 percent tariffs with an instruction for Economy Secretary Marcelo Ebrard to implement what she termed “Plan B” to include retaliatory tariff and non-tariff measures. If Mexico uses a similar playbook as to when Trump threatened tariffs in 2019, retaliatory tariffs will follow a red-state strategy. This could include pork from Iowa, dairy from Wisconsin, and industrial goods, including vehicles and electronics, particularly from Michigan and Ohio—all states that voted for Trump in 2024. 

Sheinbaum has until Tuesday to see how to de-escalate and what carve-outs may be possible. Back in 2019, Trump threatened escalating tariffs that didn’t end up going into effect since Mexico committed to specific measures to curb immigration. What can Mexico agree to do this time around that would satisfy Trump? The fact sheet announcing the tariffs stated that the purpose is to “hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country.” The Mexican authorities will be seeking to find some type of common understanding on new measures—like in 2019—that could be undertaken so the US president can claim a quick win.

Trump may be looking at the success of last Sunday’s tariff threats against Colombia—25 percent immediately with an escalation to 50 percent after one week—as proof that tariffs can deliver quick wins. Last week, Colombia acquiesced by the end of the day to Trump’s demands around acceptance of deportees. The Colombia tariff threats were the first test of this new administration as to whether governments would quickly capitulate. But Colombia is not Mexico or Canada.  

—Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

The tariffs on Mexico are counterproductive to Trump’s goal of curbing immigration

This evening’s announcement of 25 percent tariffs on Mexican imports—it is still unclear when they will take effect—is counterproductive to Trump’s goals of curbing immigration to the United States. The Trump administration has, oddly, made it cheaper for US manufacturers to source supplies from China than from Mexico. The tariffs will quickly erode the economic growth and improvements in supply-chain security that were direct results of the United States-Mexico-Canada Agreement (USMCA). China is stronger, and Mexico and the United States are weaker, because of this move. 

The implementation of these tariffs will weaken the Mexican peso and the country’s economy. Depending on how long the tariffs remain in place, Mexican exports could fall by over 10 percent, and its gross domestic product (GDP) contraction could reach up to 4 percent. However, it is clear from the White House statement that the logic behind these tariffs on Mexico is not economic; they are being used as a tool to force flashy results on the security front. The Trump administration has gone as far as accusing Mexico of colluding with drug trafficking organizations. This marks the first time in decades that US-Mexico economic collaboration has been so explicitly dependent on security concerns. Most importantly, the signals it sends to the United States’ top trading partner ahead of the revision of Trump’s signature trade agreement—the USMCA—are far from positive. Finally, the timing of this announcement could not be worse, as Secretary of State Marco Rubio embarks on a trip to Central America to build goodwill among allies in the same neighborhood. 

—María Fernanda Bozmoski is the director of impact and operations and lead for Central America at the Adrienne Arsht Latin America Center.

These tariffs could upend energy sector business models

Trump has issued an order imposing 25 percent additional tariffs on imports from Canada and Mexico and a 10 percent additional tariff on imports from China. According to the White House, “energy resources from Canada” will face a lower 10 percent tariff. If these tariffs are indeed implemented, the impact on energy markets will depend on the tariffs’ duration and the definition of “energy resource.”

Many US energy producers will never have imagined that supply chains in Mexico and especially Canada would ever face 25 percent tariffs. Consequently, some energy sector business models will break down if these tariffs are sustained.

It’s unclear which Canadian energy resources will qualify for the 10 percent tariff, though crude oil likely will. If the lower rate excludes imports of electricity, batteries, and minerals, this could significantly impact US electricity, battery, and defense technology markets. US capabilities in artificial intelligence and drones will be impacted, as well.

As David Goldwyn and I noted in our examination of USMCA energy trade, US refineries will now pay higher prices for Mexican and Canadian crude in the wake of tariffs. Texas refineries have historically taken in Mexican crude oil but will now be forced to pay higher input costs, harming their export competitiveness to other markets, especially Latin America. Midwestern refineries will also face higher prices, as they have few if any alternatives to Canadian crude oil and will pass along many costs to consumers. Finally, the US automotive sector could be severely impacted by these tariffs, due to deep supply chain interconnectedness with its North American neighbors. US development of autonomous vehicles will likely slow, perhaps considerably. The Midwest—especially Michigan—may be particularly squeezed by auto-related tariffs, as the mobility industry accounts for an estimated 27 percent of the Wolverine State’s gross state product.

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative; he also edits the independent China-Russia Report.

This historic move means US trade treaties now come with a caveat

Trump’s decision to impose tariffs on US trade treaty partners accelerates centrifugal forces that have been pulling at the global economy for over a decade.

The White House announced that the tariffs are being imposed under the president’s authority from IEEPA rather than through established trade treaties. This move is historic.

IEEPA provides the president with broad powers to address any “unusual or extraordinary threat, which has its source in whole or substantial part outside the United States.” Centering the tariff action on national security should make the move World Trade Organization-legal under the General Agreement on Tariffs and Trade’s Article XXI national security exception. If the Trump administration invokes the Article XXI national security exception, the United States and Ukraine will be the only nations ever to do so.

Trump has now asserted that the United States faces a dire national emergency as China exploits the free trade area created by the USMCA. The tariff policy implies that the United States’ closest trading partners are turning a blind eye to the fentanyl trade.

This is not, however, the first time that the United States has imposed tariffs to address non-trade vulnerabilities. President Richard Nixon invoked the Trading with the Enemy Act to impose across-the-board 10 percent tariffs after the United States left the gold standard in the early 1970s. His goal at the time was to avoid a balance of payments crisis. Nor would the United States be the only nation to use tariff policy to promote domestic policy priorities. The European Union is creating import levies based on their estimated embedded carbon emissions under the Carbon Border Adjustment Mechanism.

The harsh truth is that international economic interdependencies also create real vulnerabilities. The world has been adjusting to those vulnerabilities since the COVID-19 pandemic. Today’s tariff decision being premised on a national emergency shifts US trade policy past the trade paradigm. It signals that Washington no longer considers international trade to be either benign or always beneficial.

The United States’ trading partners have had time to prepare for this action. Geoeconomic alliances are already shifting. Canada’s prime minister has turned inward, encouraging domestic provinces and territories to decrease their own internal trading barriers to offset the disruption in trade flows with the United States. The European Union this month concluded a new trade agreement with Mexico. 

Today’s tariff decision tells the world that the United States’ trade treaty commitments come with a caveat: trading partners must support US policy priorities. The United States already exerts considerable economic influence through economic statecraft associated with US dollar sanctions policy. Tariff policy has now been enlisted into action as well.

—Barbara C. Matthews is a nonresident senior fellow with the Atlantic Council. She is also CEO and founder of BCMstrategy, Inc.

Canada’s next prime minister must articulate how the country will navigate the Trump presidency

As Canada navigates a race to determine who will lead the Liberal Party and become the next prime minister, the 25 percent Trump tariffs could potentially devastate Canada’s economy, shrinking its GDP by 2.6 percent (approximately 78 billion Canadian dollars), according to the Canadian Chamber of Commerce. While these tariffs would also harm the US economy, reducing its GDP by 1.6 percent (roughly $467 billion), Canada is more vulnerable due to its greater reliance on trade with the United States.

As the Liberal Party chooses its next leader, it is crucial for the party to present a strong, unified front to the public, despite internal challenges. More importantly, the candidates must articulate how Canada will navigate a Trump presidency, and fighting against these tariffs could provide an opportunity to achieve unity on this issue. Prime Minister Justin Trudeau said the country is readying a “forceful and immediate response,” which signals a strong, unified Canadian front.

Canada and the United States have long maintained a strong and vital economic and diplomatic relationship. The next Canadian government has the opportunity to assert itself and push back against unfavorable policies like the 25 percent tariff. This week, Rubio met with Canadian Foreign Affairs Minister Mélanie Joly in Washington to discuss collaboration on shared global challenges, including securing borders and ensuring energy security. With the United States emphasizing energy policy, Canada’s role as a key ally in this sector will become increasingly significant and could be a way to fight back against the tariffs.

—Maite Gonzalez Latorre is a program assistant at the Atlantic Council’s Adrienne Arsht Latin America Center.

The tariffs genie is out of the bottle

With this action, the United States has crossed a Rubicon. Previous tariffs have generally been in response to the injurious impact of some set of unfair trade practices, import surges, or balance of payments issues. Using the emergency power to impose tariffs in response to unrelated issues like drugs and immigration sets the stage for further tariffs in response to any number of other non-trade priorities. The genie is out of the bottle.  

—L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He previously served as assistant US trade representative for Europe and the Middle East.

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In a Wall Street Journal opinion piece published on January 30 titled “An Americas First Foreign Policy,” Rubio summed up the purpose of the trip: “El Salvador, Guatemala, Costa Rica, Panama and the Dominican Republic—the countries I will visit on this trip—all stand to benefit tremendously from greater cooperation with the U.S.” He went on to note that “Making America great again also means helping our neighbors achieve greatness.” One of this essay’s authors has just returned from Panama’s capital, where there was a palpable excitement among Panamanians that the US secretary of state is making their country his first foreign stop.

Rubio’s full trip includes all countries party to the Dominican Republic-Central America Free Trade Agreement, with two notable exceptions. The secretary will skip Nicaragua, which is run by the dictator Daniel Ortega, and Honduras, which is governed by a president who is in her last year in office and has decided to cast her lot with Venezuelan dictator Nicolás Maduro.  

In all the countries Rubio is visiting, the secretary will likely seek to reinforce the United States’ willingness to continue working with the region on migration, security, and economic cooperation. In all five countries, Rubio will find pragmatic leaders who recognize the importance of a prosperous and safe hemisphere for all. But each stop will also have unique aspects—both opportunities and sticking points—based on the specifics of each country.

Stop 1: Panama

Rubio and his Panamanian counterparts will have an ambitious agenda to deliver on US President Donald Trump’s inaugural address statement that the United States is “taking back the canal.” The operation of container ports by a China-based company at each end of the canal will be top item for discussion. So, too, will be the bridge being built over the canal and the tunnel underneath it for Panama City’s subway—both being constructed by China-based companies. Panama didn’t recognize China until 2017, when it switched relations from Taiwan, and since then ties have grown quickly, as have questions on the contracts agreed to with China-based companies. Another issue on the agenda will be the fees set by the Panama Canal Authority and items such as maintenance of the watershed to ensure correct water levels. Here, there’s an opportunity for the United States to partner with Panama on much-needed infrastructure upgrades in water management

With a strongly pro-US government led by President José Raúl Mulino, the visit should be a positive one as many areas of common interest align—even though Mulino reacted swiftly to Trump’s statements on the canal, saying he will not negotiate its sovereignty. Both countries also share a deep interest in stopping unauthorized migration coming through the Darién Gap and in clamping down on the criminal groups—now designated as foreign terrorist organizations by Trump—that profit off selling these illegal journeys to the United States. Expect further discussions on ways to further coordinate migration-related efforts.

Stop 2: El Salvador

Just a decade ago, San Salvador was one of the most dangerous cities in the world. As we both witnessed a couple weeks ago when walking in San Salvador’s historic downtown, El Salvador has seen a tremendous transformation in public safety. Since 2019, President Nayib Bukele has undertaken an unapologetic approach to dismantling organized crime. Rubio’s visit will reinforce the bilateral commitment to security cooperation. Bukele is personally close to the current US administration, but the affinities do not guarantee a tension-free relationship over the next four years.

Another important issue on the Rubio-Bukele agenda is migration. The Trump administration previously negotiated a “Safe Third Country” agreement with El Salvador, which allows the United States to send non-Salvadorans back to El Salvador. This visit from the secretary will surely include discussions on reviving and expanding that framework, which was ended by the Biden administration.

Stop 3: Costa Rica

Costa Rica has long been a stable, democratic partner of the United States, but the country has recently grappled with rising levels of citizen insecurity due to organized crime. The country also faces significant regional challenges, including the growing threat posed by Nicaragua’s Ortega regime—with lots of Russian and Chinese security and military presence—and increasing migration pressures from Nicaraguans in search of a better life. Costa Rica has been impacted by the destabilizing actions of the Ortega regime, which has driven waves of refugees into Costa Rican territory.

Rubio’s meeting with Costa Rican President Rodrigo Chaves could focus on strengthening security ties (including cybersecurity) and reinforcing Costa Rica’s role as an important partner in countering China’s economic influence in the region. Additionally, Rubio will have an opportunity to double down on existing opportunities for economic cooperation, particularly in advanced manufacturing, a sector in which Costa Rica has emerged as a regional leader through the CHIPS Act.

Stop 4: Guatemala

Since taking office in January 2024, Guatemalan President Bernardo Arévalo has shown a willingness to work closely with the United States on migration enforcement and economic development. Rubio will meet with Arévalo to discuss ways to deepen this cooperation and ensure that Guatemala remains a strong US partner in the region. Migration will be a top issue, with Guatemala’s continued role in receiving deportation flights. As with neighboring countries, the Trump administration has in the past prioritized agreements that allow for the expedited return of migrants. The agenda will also likely cover economic opportunities, with a particular focus on integrating Guatemala more closely into US supply chains through nearshoring efforts.

But most importantly, Guatemala is the largest of the seven countries in the Western Hemisphere (of twelve globally) that continue to diplomatically recognize Taiwan. The Guatemalan government also shares the administration’s support for Ukraine and Israel. The Taiwan question is perhaps the strongest point of alignment with the United States right now, with Arévalo focused on how to deepen economic ties with Taiwan to ensure the relationship continues beyond his mandate. Expect Rubio and Arévalo to discuss ways in which the United States can more fully support such efforts.

Stop 5: Dominican Republic

The Dominican Republic is much more than just pristine coastlines. President Luis Abinader and his government have transformed the country with a focus on rule of law, transparency, and strong democratic institutions. The Dominican Republic is focused on becoming a nearshoring destination and taking steps to attract US companies, with US foreign direct investment increasing by 40 percent since 2019 as the country has become an important player in the US supply of medical devices. As Rubio wrote in the Wall Street Journal: “Relocating our critical supply chains to the Western Hemisphere would clear a path for our neighbors’ economic growth and safeguard Americans’ own economic security.” Prioritizing nearshoring is in the United States’ economic security interest, and it is why the Atlantic Council’s Adrienne Arsht Latin America Center has a working group dedicated to moving this forward with a focus on all five countries in the Rubio itinerary.

The Dominican Republic also shares an island with Haiti. And as Special Envoy for Latin America Mauricio Claver-Carone noted in his press briefing to preview the trip, the Dominican Republic “has also been the country most affected by the challenges and, frankly, the vacuum created by the previous administration in Haiti which has led to, frankly, chaos in Haiti.”

In addition, the Dominican Republic will host the Summit of the Americas later this year—a gathering of regional heads of state to collectively tackle priorities that require collective action. Few threats are as severe and require as much constant cooperation as battling the scourge of violence and insecurity of transnational criminal organizations. Rubio’s visit should be an opportunity to discuss such shared priorities as part of the summit. Hopefully, it will also advance US participation in the summit at the highest diplomatic level.

Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

María Fernanda Bozmoski is the director of impact and operations and lead for Central America at the Adrienne Arsht Latin America Center.

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Welcome to the inaugural edition of “Beyond the border: Your briefing on US-Mexico commerce.”

The US-Mexico bilateral relationship has profound direct—and indirect—implications for most of the over 460 million people living in the two countries. So, where is the relationship headed and how can the United States and Mexico make its commercial ties work better?

This newsletter will offer new ways of thinking about US-Mexico ties with concise, sharp analysis and data-driven insight on some of the most pressing issues shaping our two countries’ futures.

Our vision is simple: to bring together some of the best minds in business, policy, and academia to offer fresh perspectives on what lies ahead for the United States and Mexico and how the United States can best position its ties to achieve national objectives. Dive into these perspectives and much more below.

Staff

Jason Marczak

Vice President and Senior Director

Adrienne Arsht Latin America Center

Americas Caribbean

Here’s the deal: The pandemic ushered in a new era of trade, and states across the United States are now more interconnected than ever with Mexico.

The takeaways

First: Mexico and the United States have become increasingly interdependent—supply chains transcend borders to optimize production. Supply chains cross the border multiple times. For example, for every dollar in manufactured goods that Mexico exports to the United States, about 30 cents of every dollar’s value comes from US-produced content or materials. Two years ago, Mexico became the United States’ top trading partner (see our graph on US imports by country), a position it solidified in 2024, surpassing China, Canada, and other advanced economies. This reflects the revitalization of Mexico’s export sector—a result of many factors including nearshoring trends and intensifying US-China competition that has favored Mexico. With the likely implementation of 25-percent US tariffs on Mexico as soon as February 1, these growth trends may evolve: For example, Mexico’s commercial growth related to the United States may substantially slow down.

Second: US states heavily rely on imports from Mexico—in some cases, for close to half of all their imports (see our map on key states that rely on imports from Mexico). These imports would, presumably, be subject to the 25-percent tariffs. And while US state-level exports to Mexico (when taken as a percentage of global exports) are not as significant, they could be subject to retaliatory tariffs from Mexico and thus could further shrink in size (see our map on key states that rely on exports to Mexico).

“So, you know, just as an example, with Mexico—we’re dealing with Mexico, I think, very well.” —US President Donald Trump, in remarks at the World Economic Forum in Davos, Switzerland

On January 20, Trump was inaugurated as president for the second time. During his first administration, Trump delivered on his promise to end the North American Free Trade Agreement—which he called “the worst trade deal ever.” He replaced it with the United States-Mexico-Canada Agreement (USMCA), an agreement the president called the “most modern, up-to-date, and balanced trade agreement in the history of our country.” At Davos this year, the US president said, “we’re dealing with Mexico, I think, very well.” Days earlier, US Secretary of State Marco Rubio stated during his nomination hearing: “Mexico’s economy in many ways is a very vibrant one and has made tremendous advances and continues to be a very strong regional power . . . Our economic interests are so deeply intertwined.”

In this new term, Trump is likely to focus more on improving security, stopping migration, and reducing Chinese influence and fentanyl flows, by utilizing tariffs—such as the ones expected to be placed on Mexico as soon as February 1—to help accomplish these goals. Mexican President Claudia Sheinbaum has presented the ambitious “Mexico Plan,” which will concentrate efforts on boosting nearshoring, strengthening coordination with the private sector, and increasing the independence of North American production chains from Asia. Countering China’s growing footprint in North America will require both countries to align strategically, seeing as the US and Mexican economies are intertwined at the local, state, and federal levels. This is especially the case for areas such as manufacturing, the automotive sector, the aerospace industry, and high value-added technological production. Long-term policy to diminish Chinese influence will invariably require bipartisan leadership and support in the US Congress. 

Mexico has an outsized role in US jobs and economic security. The United States and Mexico trade over $800 billion annually in goods (nearly $300 billion just from the top six exporting states, as shown in the graph above). More than one million US jobs are tied to cross-border commerce and over five million US jobs depend on commerce with Mexico, all intertwined in a highly diversified supply chain that keeps everything from cars to avocados flowing.

What they’re saying

US Representative Juan Ciscomani (R-AZ-6): “I always say, there are three buckets related to the southern border—security, immigration, and commerce. We can, and must, work to address and improve these three areas. Mexico is Arizona’s largest trading partner by four, encompassing nearly twenty billion dollars in trade every year. The goods, services, and tourism that flows between Mexico and my district is vitally important to the economic well-being of my constituents.

As vice-chair of the Arizona-Mexico Commission, I worked extensively to facilitate trade, tourism, and investment opportunities. That’s why, in Congress, I am committed to advancing policies that promote trade and tourism, which are essential to the success of both our economies.

In particular, I am concerned over China’s efforts to increase their influence in Mexico, and across Latin America. The Americas are our hemisphere. We must do more to promote commerce between us while limiting China’s malign attempts to undermine US interests. We must work collaboratively with our partners in the region to ensure they know the value of our collaboration not only on trade, but for security cooperation and supply chain resiliency as well. In his first term, President Trump negotiated the United States-Mexico-Canada Agreement (USMCA), which greatly benefited Arizona’s trade relationship with Mexico and Canada. I look forward to working with the president to strengthen our important bilateral relationship.”

US Representative Veronica Escobar (D-TX-16): “The United States-Mexico-Canada Agreement (USMCA) has been instrumental in enhancing economic integration across North America. In 2019, I supported the USMCA, recognizing its potential to benefit all of the El Pasoans dependent on a prosperous border economy.

As we approach the 2026 review, it’s imperative to focus on:

• Ensuring that labor provisions are effectively implemented to protect workers’ rights across all member countries.
• Strengthening commitments to environmental protections to promote sustainable development. There are communities on both sides of the US-Mexico border that have endured decades of environmental harm and we need to do everything possible to address these issues. In El Paso, we have already started this work by pushing towards removing commercial traffic from the Bridge of the Americas.
• Enhancing infrastructure at ports of entry to streamline trade and address bottlenecks. Additionally, we need to ensure both the US and Mexico are investing in the roads travelers use to get to these ports of entry.”

Senator Waldo Fernandez, chair of the USMCA Oversight Committee, sent us his thoughts on the future of cross-border commerce.

1. What is your view on the USMCA, its importance, and its impact?
   The USMCA is a strategic agreement that has successfully consolidated North America as an integrated and highly competitive region. The economies of the United States, Canada, and Mexico have significantly benefited from the agreement in terms of employment, trade, and investment. The agreement contains clear and expeditious mechanisms to resolve disputes between partners. That is why the USMCA provides certainty for trade, business and investment. But it goes further: Besides being economic partners, the three nations are today strategic allies, who face common challenges such as security and migration. Therefore, we must continue working together, promoting dialogue and collaboration to boost competitiveness, trade, and investment, as well as strengthening supply chains and coordination to face challenges.
   
2. What are the lessons learned in the first five years of the USMCA? What needs to be done?
   The economic and commercial relationship between Mexico, Canada, and the United States is broad, solid, and constantly evolving. It has been a constructive, deeply positive relationship not only for Mexico but also for our neighbors in the north. Thanks to the treaty, we have consolidated important markets at the international level, such as the automotive and agricultural markets. Thus, the first five years of the USMCA confirm that more things unite us than divide us. Throughout these years, the will and willingness to build agreements prevails. It seems to me that in the revision of the treaty, this goodwill will continue to be important, as well as the recognition that today the three nations are of equal importance and relevance in the agreement.
   
3. What are the main challenges that North America is facing?
   There are challenges in terms of commercial triangulation, customs fraud, and unfair trade practices by some countries in Asia that export to North America. In that sense, the USMCA has been a very effective instrument to counteract or at least mitigate these challenges. The rules and mechanisms of the USMCA have worked successfully to resolve differences, provide certainty to businesses, and combat unfair trade.
   
4. What are the main opportunities for the countries of the region?
   The 2026 review of the USMCA represents the main opportunity to build in North America the most competitive and most dynamic region in the world in terms of trade, investment, growth, technology, and innovation. In addition, the review of the USMCA in the context of the relocation of companies could be used to establish conditions for the benefit of the population, such as job generation, regional content promotion, development of technology, and clean energy projects, among others.
   
5. Finally, how do you see the relationship between the United States, Canada, and Mexico after the 2026 review?
   I am sure there will be a recognition of the need to maintain and strengthen a stronger, more united, and more competitive region. Only this way will we be able to successfully face global challenges as a bloc.

Glenn Hamer, president and CEO of the Texas Association of Business: “Trade with our largest trading partner, Mexico, is responsible for over five hundred thousand jobs in Texas and $270 billion in economic activity. Tariff-free trade with Mexico allows Texas companies to maintain efficient supply chains, which increases the competitiveness and resiliency of our economy. Simply put, we build products together. As the nation’s top export state, the USMCA has benefited Texas more than any other state. More trade with Mexico would mean more prosperity for Texans. The Texas Association of Business is committed to building on the USMCA, which is probably the most important trade deal in US history.

Gerry Schwebel, executive vice president, Corporate International IBC Bank–Texas and Oklahoma: “Communities along the US-Mexico border are so integrated economically and culturally that we often say we are ‘one city in two countries.’ We border communities experience the benefits of a robust bilateral trade relationship between the United States and Mexico every day and are an integral part of the success of an equally robust supply chain network.”

Mexican Senator Cynthia López Castro: Why an integrated US-Mexico relationship is vital

North America’s success as an economic region is indisputable. According to the International Monetary Fund, North America contributes 17.9 percent of the world’s gross domestic product (GDP). That means that just three countries contribute almost one-fifth of the world’s GDP. The integration of North America as a region is an indisputable foreign policy success of the three countries.

NAFTA succeeded in integrating value chains, connecting Mexico’s economy with the world (and specifically, the United States and Canada). It created a collaborative industrial ecosystem in the region characterized by the transfer of knowledge, with the capacity to produce complex goods such as automobiles. While there are many critics and doubts about the domestic benefits of NAFTA and then the USMCA, the benefits of the free trade agreement are tangible: Twenty-five years after the agreement came into force, trade with Canada and Mexico had nearly quadrupled, reaching $1.3 trillion; and Canada and Mexico bought more than one-third of US merchandise exports. In addition, 68 percent of inputs for US-produced goods come from Canada and Mexico, and trade with Mexico and Canada supported fourteen million US jobs.

Needless to say, the trade relationship with the United States is indispensable for Mexico. However, this relationship is asymmetrical: The United States is the destination for more than 80 percent of Mexico’s exports and the source for 40 percent of Mexico’s imports. Most analysis focuses on the enormous concentration of Mexico’s exports and the vulnerability that this entails, but rarely does it highlight the global importance of Mexico’s trade relationship with the United States. Mexico’s importance to the United States is so significant that, in 2023, Mexico was the top US goods trading partner in 2023, with total two-way goods trade of $807 billion, surpassing China.

To put this into context: The United States remains the undisputed economic superpower of the world, and Mexico is its leading trading partner, not only surpassing but displacing the rising superpower that is China. It should be clear to both sides that the narrowness of the US-Mexico relationship protects the United States from becoming too dependent on its main commercial and political rival and guarantees Mexico privileged access to the world’s most important market for its agricultural and manufactured products. Taking care of it is not optional for any of the parts involved.

Mexico’s relationship with the United States is unavoidable, and strategically vital for both countries, in terms of not only trade but also security, migration, and the environment. For example, whether the United States cooperates with Mexico on security is not a question, seeing as Mexico defends North America. The government of Mexico (through its president, Claudia Sheinbaum) has reiterated that it is committed to the bilateral relationship because it is aware of both the relationship’s present relevance and its future potential.

Cynthia López Castro, member of the Mexican Senate, member of the North America Commission, and Atlantic Council Millennium fellow (2024-2025)

• How Sheinbaum can strengthen US-Mexico ties in Trump’s first 100 days – Atlantic Council
• Experts react: Claudia Sheinbaum is Mexico’s new president. Here’s what to expect. – Atlantic Council
• Following President Trump’s announcement around potential 25-percent tariffs on imports from Mexico, what are the possible economic implications for both the United States and its southern neighbor? The measure could go into effect as soon as February 1, 2025. This explainer provides key data and perspectives to understand this topic.

The Adrienne Arsht Latin America Center broadens understanding of regional transformations and delivers constructive, results-oriented solutions to inform how the public and private sectors can advance hemispheric prosperity.

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Evolution of freedom

In order to adequately assess Peru’s performance in the Freedom and Prosperity Indexes, it is important to note the extremely difficult situation in the country during the late 1980s and early 1990s, immediately before the period covered by the Indexes. The extreme episode of hyperinflation that began in 1988 and peaked in 1990, with an annual inflation rate above 7,000 percent, and the intensification of the internal violent conflict generated by the Shining Path (Sendero Luminoso), a Maoist guerrilla group, are two examples of the challenges Peru faced in the decade before 1995. The Freedom Index coverage begins in the middle of Alberto Fujimori’s presidency, once most of his economic reforms were already in place, and when some of his authoritarian tendencies were evident. Thus, the economic subindex score in 1995 is relatively high compared to the regional average, while the political subindex is significantly lower, thirty points below the mean for Latin America. The return to free elections in 2001 is reflected in the large jump in the political subindex in that year. 

Before discussing the Freedom Index evolution, it must be noted that many of its constituent components reflect the country’s written laws, not their actual implementation and enforcement. The potential gap between the situation de jure versus de facto is a typical issue with many indexes that try to assess politico-institutional variables, and it is often more pronounced in emerging and developing countries. This is crucial because we should expect institutional reforms to produce significant effects on prosperity only when they are effectively implemented. Peru is probably one of the clearest examples of this difficulty, with a set of written laws and regulations comparable to the most advanced countries of the world, but a level of implementation and enforcement that is far from such standards. Therefore, the picture portrayed by the Freedom Index may be too generous, especially in components such as women’s economic freedom and judicial independence and effectiveness. With this important caution in mind, it is possible to analyze the Peruvian experience as captured by the three different freedom subindexes. 

The economic subindex level and trend since 1995 are explained by two main factors. First, Peru’s relatively high score compared to the regional average at the beginning of the period is the product of the large body of economic reforms implemented in the 1990s, in particular in terms of trade and f inancial openness. In the last thirty years, Peru has had very low tariffs on imports, including no tariffs on capital goods, and has entered into a number of free trade agreements worldwide. Moreover, it has imposed very limited restrictions on capital movement within and across borders. From a purely de jure perspective, capital account openness in Peru is comparable to the most open countries of the world. The Chinn-Ito index of financial openness has assigned the highest possible score to Peru since 1997, and the Fraser Institute’s Economic Freedom of the World Index gives the country a perfect score in its financial openness sub-area since the year 2000. However, Peru loses points due to the regulatory uncertainty and bureaucratic burdens that create constraints on investors, especially foreign investors; these barriers are considered in the investment freedom component. Reflecting a large increase in regulatory uncertainty during the election period of 2006, the investment freedom score abruptly fell twenty points, recovering in subsequent years as investors’ fears of strong government intervention in private sector affairs ultimately did not materialize. 

Second, the overall positive trend since 1995, with a total increase of more than ten points in the 1995–2023 period, is to a great extent driven by the thirty-point improvement in the component measuring women’s economic opportunities. This is a good example of the legislation–practice gap. It would be hard to find a specific legal norm that includes any form of discriminatory treatment based on gender, especially in economic matters. But the actual situation is not so optimistic. Think for example about the so-called “child penalty,” the impact in terms of labor outcomes when a worker has a child. Forty-one percent of women in Peru quit their jobs when becoming mothers, while men barely see any change in their labor force participation. Moreover, recent research shows that only 51 percent of working age women participate in the labor market, and there is also a 25 percent pay gap with men.

The property rights component remains at very low levels. This is largely explained by significant problems with land titling, bureaucratic inefficiencies, and corruption in the judicial system; all of which translate into significant constraints for safeguarding and formalizing property ownership. The lack of clarity on property rights regarding land ownership disincentivizes investment and severely limits the ability of small enterprises, particularly in rural areas, to access credit, as land cannot be used as collateral for loans. 

My impression regarding economic reforms in Peru is that, since the late 1990s, progress has been slow and limited. The various administrations since 2000 have not managed to implement a new wave of comprehensive structural reforms that could serve as an engine of sustained growth. There have been reforms, but they have been partial or hindered by significant implementation challenges. Fortunately, sound macroeconomic policies have been maintained in the last two decades providing economic and financial stability. But while macroeconomic stability is certainly necessary, it is not sufficient to drive sustainable growth. The period of Peru’s highest economic growth, from 2004 to 2014, was clearly facilitated by the global commodity boom, as the country is a significant producer of copper and other raw materials. However, when external growth engines slowed, the inaction of several governments in implementing essential economic structural reforms left the country without the much-needed internal drivers for sustained growth. 

Turning now to the political side, I am skeptical about the very favorable assessment of the political system illustrated by the political subindex and its four components. Although declining in recent years, Peru’s political subindex is at a similar level to the average of the Organisation for Economic Cooperation and Development (OECD) countries, scoring around ninety out of one hundred since the end of Fujimori’s presidency. This does not capture the actual functioning of the Peruvian political system, which is far from that of well-established liberal democracies in Europe and North America, or even the most advanced countries of Latin America such as Chile or Costa Rica. 

Source: Freedom and Prosperity Indexes, Atlantic Council (2024).

One of the most evident recent political problems in Peru is the lack of a deep-rooted party system. With few well-established political parties, the political spectrum is plagued with small and not very institutionalized political parties that appear and disappear in every electoral cycle, whose leaders often lack political experience and are prone to populist rhetoric and tactics. This political fragmentation is making it extremely hard for any government to pass substantial legislation or implement its policy agenda. A good example of the extremely dysfunctional political environment is the evident weaponization of the Constitution during the last decade, regarding the respective powers of the presidency and parliament. The Constitution enables Congress to denounce the president as incompetent and remove him from office, and also grants the president the power to dissolve Congress, under certain circumstances. Although this system was intended to create a balance between the legislative and executive branches, it has been used recklessly since 2016, leading to Peru having six different presidents in eight years, with only one of them staying in power for more than two years. To some extent, these developments are reflected in the decline in the legislative constraints on the executive component. 

The general citizenry is very aware of the political situation of the country. Public opinion is strongly negative toward politicians and political parties. Recent waves of the Latinobarometer opinion survey clearly show that Peruvians are among the populations that have least confidence in the potential economic and development benefits of a free political system. This is worrying; once citizens become skeptical about the capacity of democratic institutions to deliver for all, the road to populism and authoritarianism is paved. 

In the legal subindex, the judicial independence and effectiveness component faces the same criticism. The sharp rise in this component’s score, along with the improvement in the clarity of the law component, drive the clear discontinuity observed in the year 2000, which virtually closes the gap with the rest of the region. In the last twenty years, the legal subindex score for Peru has been relatively close to that of neighboring countries such as Colombia, and the gap with respect to the top performers in the region is moderate. However, I have doubts about whether this captures the real situation regarding enforcement of the law. A comparison with the World Bank’s Worldwide Governance Indicator’s (WGI) rule of law measure can be enlightening here, as the latter captures to a much greater extent the actual enforcement of the law. Figure 1 compares Peru to Chile and Costa Rica. The difference between Peru and Costa Rica is substantial, with Costa Rica’s score around twice Peru’s for all years since 2000. The gap with Chile is even wider. Figure 2 shows a similar picture when looking at another related variable of the WGI, namely government effectiveness. That is, when using a measure of actual practice and enforcement of the law, Peru falls considerably behind the top scorers of the region, not to mention developed countries in Europe or North America. 

Finally, the prevalence of informal labor and production relations in Peru is among the highest in the region, with some estimates reaching close to 70 percent of the total labor force. The World Bank estimates that the share of gross domestic product (GDP) contributed by informal production is around 50 to 70 percent higher in Peru than Mexico or Colombia, which are by no means the region’s best performers in Evolution of Prosperity this metric. The improvement captured in the informality component from the early 2000s is most likely a by-product of the commodity boom, a period of high economic growth that benefited employment and workers’ formalization, although some labor market reforms also supported this outcome. Nonetheless, informality is still a pressing issue for Peru, and a strong constraint on the future development of the country. 

Evolution of prosperity

The poor quality and effectiveness of Peruvian institutions stand in sharp contrast to the relatively stable macroeconomic situation in the country, and the favorable perception of Peru’s economic performance and prospects among the international community. This is a paradox, as similar levels of political instability have produced very volatile macroeconomic environments in other emerging market economies, plagued with sudden stops in financial f lows, high levels of inflation, and default episodes. Many commentators attribute Peru’s macroeconomic stability to the deep scars the hyperinflation of 1988–90 left among the population and the political elites. The dramatic consequences of this event, with empty stores, lack of basic goods and services, and a rapidly impoverished middle class, are very much embedded in the citizens’ minds, and avoiding its repetition has been an absolute priority for all subsequent governments. 

This fear has generated an implicit consensus, and politicians across the ideological spectrum have left management of the macroeconomic situation out of the political debate. The functioning of the Central Reserve Bank of Peru is the paradigmatic case of this arrangement, as illustrated by the fact that the Bank’s chairman has held this position since 2006, under eight different presidents. As a consequence, Peru’s macroeconomic performance in the last twenty-five years has been truly impressive, with a very credible commitment to a low inflation target, low levels of public debt to GDP (around 33 percent in 2023) and controlled government deficits, which granted the country’s public debt the investment grade in 2007. 

The evolution of the Prosperity Index reflects this situation, showing an increase of almost fifteen points in the 1995–2019 period, eliminating the gap with the rest of the region. The income component largely follows the same pattern as the overall index. Nonetheless, a careful analysis of this trend reveals an evident slowdown of economic growth, especially since the end of the commodity boom. In my view, this stagnation is the direct consequence of a combination of weak institutional quality and a f lawed political environment. As a result, it is likely to persist unless a new and comprehensive reform process is undertaken. 

The inequality component shows an impressive improvement in the last two decades, but it is important to take into account the really low level of this indicator in the early 2000s. The commodity boom undoubtedly helped reduce income inequality by pulling large numbers of workers into the formal sector and expanding the middle class. Although poverty- and inequality-reducing policies are in place across the country, and have played a role in supporting reductions in inequality, the limited capacity of many sub-national governments often means inefficient implementation and inadequate provision and quality of public services. As a result, regional inequality is a pressing problem in Peru. For example, according to a recent report by the World Bank, although more than half of urban households have access to piped water, sanitation, electricity and the internet, only 6 percent of rural households have access to these four services. Regional inequalities are also seen. For instance, residents in Loreto, a region in the Amazon, have eight hours a day of water access, in comparison with the country average of almost eighteen hours. There is extensive research showing that regional inequality is a serious issue, and some regions are noticeably being left behind.

I am somewhat critical of the education component, which is based on measurements of “quantity” of education, such as the expected and mean years of schooling, but does not take “quality” into account. The period of rapid growth enabled an increase in the government’s education budget, resulting in a significant rise in the percentage of children completing elementary, primary, and secondary education. However, while there have been advances, the quality of education remains a serious concern. For example, Peru was in the lowest quartile of the PISA global rankings. In the most recent PISA results, almost no students in Peru were top performers in mathematics, and only 34 percent attained at least a basic level of proficiency in mathematics, significantly less than the average across OECD countries (69 percent).¹An educational reform introduced in 2012, building on the reform of 2007, aimed to improve teacher quality and student learning outcomes. A key goal was to transition from a system that allows hiring and promotion of teachers based on political connections to one based on merit. A major obstacle, however, has been political. The teachers’ union protested against elements of the reform, such as evaluations that could lead to job losses for underperforming teachers. The insufficient educational quality in Peru is a major constraint on long-term growth, as it limits the accumulation of human capital, essential for sustained economic progress. Many graduates lack the skills necessary to succeed in the labor market and are limited to low-paying jobs in the informal sector. 

There is also a lack of quality measures in the health component. In particular, the indicator does not capture the large deficiencies in health infrastructure and the resulting shortcomings in patient care. For instance, studies conducted before the COVID-19 pandemic revealed that more than half of the establishments offering primary healthcare lacked a single doctor and were staffed only by nurses or technicians. The pandemic exposed serious deficiencies with the healthcare system, with devastating consequences. Peru reported the highest number of deaths per million inhabitants globally. Unsurprisingly, the country’s health score fell twice as much as the average for the region. 

The very significant improvement in the environment component is almost exclusively driven by one of the variables used in its construction, namely the share of the population with access to clean cooking technologies, which has increased from 40 percent to more than 85 percent in the 2000–20 period. This is certainly good news, but there is still significant room for improvement in both indoor and outdoor air quality, as well as other environmental challenges. Examples of environmental challenges include illegal mining, especially in the Madre de Dios region, which leads to deforestation, mercury contamination and loss of biodiversity. Water contamination from untreated sewage and industrial waste is another major issue and there is a lack of effective waste disposal in many cities, contributing to plastic pollution, especially in urban areas along the coast. In addition, Peru is highly vulnerable to natural disasters exacerbated by climate change, such as extreme weather events and rising sea levels that affect the coastal area and fishing. 

As reflected in the relatively low score assigned to the minorities component, protection against discrimination based on gender, race, sexual orientation, and other characteristics is relatively weak in Peru, falling significantly below the regional The Path Forward average, with the gap widening in recent years. Although there have been improvements, cultural and social norms continue to limit advances on this front. Another pressing issue is gender-based violence. A recent World Bank report highlights that the institutions responsible for protecting women and girls, including the police, the judiciary, and health providers, do not effectively protect them from abuse. Consequently, there is widespread mistrust among women toward government institutions in Peru. 

The path forward

Peru’s prospects for prosperity are at a critical juncture. The previous discussion highlights that deficiencies in the capacity of the state to deliver public goods and services, including ensuring security and enforcement of the law, significantly constrain the country’s potential for regaining economic growth and overall prosperity. The weakness of institutions and governance, reflected in excessive bureaucracy, corruption, and a weak and inefficient judiciary, hampers domestic and foreign private sector investment. While maintaining a stable macroeconomic framework is key, it is not sufficient to provide the certainty and security investors need for long-term and productive investments. 

A major challenge in implementing state reforms is political fragmentation, which prevents reaching consensus. Currently, ten political parties are represented in Congress and the number of parties may rise in the lead-up to the April 2026 presidential elections. This fragmentation is partially explained by weak legal requirements for forming political parties, which allow small groups to establish a party. The decline of traditional World Bank, Rising Strong: Peru Poverty and Equity Assessment. parties, such as Alianza Popular Revolucionaria Americana, and Acción Popular, has left a vacuum. This decline is another reflection of the population’s mistrust in institutions, which fuels the rise of new political movements, often led by charismatic but inexperienced leaders seeking to capitalize on widespread discontent. 

How can much-needed pro-growth and inclusive structural reforms occur in this fragmented context? Fortunately, there is a promising opportunity for Peru in the coming decade: the green transition. Peru is rich in copper, lithium and other natural resources that are essential for clean energy technologies, which can position it as a crucial partner for the rest of the world. Additionally, its diverse geography provides significant renewable energy potential, especially in hydropower, solar and wind, which can reduce dependence on fossil fuels, create jobs, attract foreign investment, and improve energy security. 

I am hopeful that recognizing the potential benefits of a comprehensive green transition strategy—such as growth, poverty reduction and equity improvements—can catalyze consensus even in a fragmented and polarized political climate. The increasing global push for environmental initiatives, along with efforts in other Latin American countries, could incentivize policy actions in Peru. If even partial consensus around this agenda is achieved, three areas of reform must be prioritized. 

First, major investments in infrastructure and other projects are necessary to support the green transition. Improving the public sector’s capacity to execute these projects requires a systematic effort to build the technical capacity of subnational governments. This includes providing technical assistance and facilitating the hiring of trained personnel, including from abroad. Ideally, a comprehensive reform of subnational governments would involve consolidation of local and even regional governments, as some are currently too small to function efficiently. Yet while this reform needs to remain a long-term goal to improve efficiency, in the short term, in the context of high political polarization, this type of proposal could be weaponized, further increasing resistance to reform. 

Second, to develop value chains related to the green transition—such as green manufacturing, renewable energy and eco-tourism—it is essential to facilitate the formalization of firms and workers. This requires significant labor market reform. Liliana Rojas-Suarez Currently, the very high costs of hiring, firing, and non-wage labor costs, above the region’s average, reduce incentives for firms to hire workers and for small and medium-sized firms to formalize. A more f lexible labor market would allow Peru to compete globally in emerging industries linked to the green transition. 

Third, human capital development is crucial. The workforce needs to be equipped with the necessary technical skills to meet the demands of the green transition. Given the pace of technological change, workers must not only be prepared for current jobs but also possess the ability to adapt and learn. That means that serious improvements in the education and health systems are necessary. This will require sustained efforts across multiple government administrations to bear fruit. 

Notwithstanding, if political consensus is achieved around the goal of advancing Peru’s role in the green transition, there is hope that political parties can form a common front to improve the quality of Peru’s future labor force. Sustained prosperity will then follow. 

Liliana Rojas-Suarez is the director of the Latin American Initiative and a senior fellow at the Center for Global Development. Rojas-Suarez also serves as president of the Latin American Committee on Macroeconomic and Financial Issues. Rojas-Suarez has held senior roles in the private sector and at multilateral organizations, including Deutsche Bank, the International Monetary Fund, and the Inter-American Development Bank. In 2022, Forbes named her one of the fifty most influential women in Peru. 

The Atlantic Council and its staff, fellows, and directors generate their own ideas and programming, consistent with the Council’s mission, their related body of work, and the independent records of the participating team members. The Council as an organization does not adopt or advocate positions on particular matters. The Council’s publications always represent the views of the author(s) rather than those of the institution.

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The Canadian energy partnership is a case in point. Canada is the United States’ largest crude oil partner, by far, and many landlocked US markets lack alternative suppliers. Through the first ten months of 2024, the True North comprised about 62 percent of all US crude oil imports. Mexico is also a significant player, accounting for about 7 percent of all crude oil imports over the same period (and more in markets along the southern border). It is also the largest purchaser of US natural gas and petroleum products, as well as a supplier of crude oil to US refineries.

Tariffs on Canada and Mexico, the two largest crude oil exporters to the United States, would have profound implications for US energy markets. That’s because crude oil imports, including from these two countries, are transformed by US refineries into crude products for domestic consumption or export.

Take heavy oil imports (HTS Code: 2709001000). Notice that Canada is by far the largest exporter of heavy crude oil to the United States. In some US markets, such as the Midwest, there is no alternative import supplier of heavy oil.

Nor can domestic US crude production completely replace imported crude. US crude oil production is typically of light, sweet grades, while the United States’ “complex” refineries are optimized to run on heavier grades—such as Canadian and Mexican crude. Indeed, imports account for about 39 percent of the crude used by domestic refineries.

Accordingly, if the United States imposes 25 percent tariffs on imports of Canadian crude oil, domestic energy prices would likely spike, especially in states in the US Midwest. Most of the economic literature suggests that costs would be passed on immediately to consumers in the form of higher retail gasoline and diesel prices.

Tariffs on crude oil imports will also impair US exports of crude products, like fuel oil, diesel, and gasoline. Additionally, over time there could be negative impacts on the US natural gas trade, as countries in Latin America, Europe, and Asia potentially see reliance on US supply as a political vulnerability. Mexico, the largest recipient of US oil and gas exports, could also look to liquefied natural gas (LNG) to hedge against the reliability of the US supply.

To see how tariffs could harm US exports, consider the recent US-Colombia trade spat. Due to a dispute over migration, Trump threatened a 25 percent tariff on Colombian imports, with a potential increase to 50 percent, while Colombia threatened its own retaliatory tariffs. While imports of Colombian crude only comprise about 3 percent of total US crude oil imports, this isn’t true across all markets and products. Colombia provides a significant amount of heavy crude oil imports (HTS Code: 2709001000) to the United States—and especially to Houston, where it shipped more than 137,000 barrels per day through the first eleven months of 2024, according to the US Census Bureau.

Since Houston exports more refined products than any other US district, tariffs on Colombian oil would, all things being equal, raise the prices of heavy US crude products, such as marine fuel, diesel, and gasoline. Accordingly, tariffs on Colombian (or Canadian, or Mexican) imports would likely make US exports relatively more expensive and therefore less competitive in international markets—even before considering second-order consequences, such as reciprocal tariffs.

Disruptions to US crude product exports could also have geopolitical ramifications across Latin America, including for the US-China competition. Several Latin American countries lack domestic refining capacity and rely on the United States for their energy security needs. To hedge against US unpredictability, Latin American countries may seek out other arrangements, including by finding alternative suppliers.

If US crude products become less attractive for importers across Latin America and beyond, China might attempt to exploit the opportunity. China is the world’s largest refinery market, by capacity, and its domestic gasoline and diesel demand may have already peaked due to a combination of electric vehicles and LNG for trucking. Accordingly, Chinese refineries may increasingly seek to export crude products abroad, including to Latin America, although it’s worth noting that Chinese global fuel exports are currently subject to export quotas.

US policymakers should think deeply before placing tariffs on energy imports to Canada or Mexico. Domestic markets will be impacted by higher taxes on crude oil imports because they will raise refiner acquisition costs. In many US markets, such as states in the US Midwest, there is no alternative to Canadian oil imports, so the inflationary impact will be immediate and likely proportional to the size of the tariff.

The United States should also not discount the potential impacts of retaliatory tariffs. While Mexico is most likely to retaliate against US tariffs by imposing duties on agricultural products, any serious reduction of US exports of natural gas or petroleum products to Mexico would sharply lower prices in the United States, potentially impacting domestic crude oil production. Refinery economics would be punished to the extent that importers substitute crude oil from other countries. If Mexico and Canada are targeted, there’s no question that Brazil, Argentina, and other major markets in Latin America will be watching as well. Rather than establishing US energy dominance, tariffs on energy products could accelerate the desire of major US hydrocarbon partners to diversify trade with other countries, including China.

Energy tariffs could impact the competition with China in other ways. Tariffs on Canadian electricity and advanced energy exports might hamstring the US artificial intelligence (AI) development complex and military capabilities. In 2023, the United States imported 33 terawatt hours of electricity from Canada, helping power US data centers needed for AI. If domestic electricity prices rise, then US AI capabilities would suffer. Additionally, Canada is a significant exporter of lithium-ion (Li-ion) batteries to the United States, and these batteries often have dual-use implications, including for drones. If the United States places tariffs on Canadian Li-ion imports, then it could diminish US and allied military capabilities.

Trump has made it clear that he seeks to address migration and fentanyl trafficking, and that he intends to do so with the threat and possible use of tariffs. These threats have certainly drawn the attention of US neighbors. But the short-term gains earned by threatening or imposing tariffs could lead to harmful direct and second-order consequences. A number of factors need to be weighed, and it would be useful if the administration paused major actions until its appointees were in place so they can provide strategic thoughts and input before precipitous actions are taken.

David Goldwyn is president of Goldwyn Global Strategies, LLC, chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group, and the former special envoy and coordinator for international energy affairs at the US State Department.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative and editor of the independent China-Russia Report.

This article reflects their own personal opinions.

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While trade barriers will likely restrain BYD’s access to the US market—at least in the short term—the company’s presence in Mexico isn’t about the United States. It reflects a broader ambition to use EVs to embed the company within Mexico’s critical infrastructure.

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Without a sure export market in the United States, BYD’s ambitions in Mexico could challenge the country’s underdeveloped EV infrastructure. BYD plans to expand auto sales sixfold in the country—but with fewer than 3,000 public charging stations, Mexico needs to invest $1.73 billion annually in its charging infrastructure over the next six years to keep up with demand.

Chinese firms, with their experience building renewable energy infrastructure, are filling this gap—and exploiting an opportunity to expand into Mexico’s critical infrastructure. BYD and partner companies are quickly deploying chargers to support Chinese EV ownership in Mexico. Vemo, a Mexican cleantech company, is actively working with the company to double the number of BYD-compatible chargers in Mexico to 1000 in 2025.

Moreover, Mexico’s grid already faces an energy deficit and will struggle to keep up with rising power demand from EVs. In November 2020, China’s State Power Investment Corporation (SPIC) acquired Mexican renewable energy company, Zuma Energia—now the second-largest private renewable energy producer in Mexico—which is involved in fast-charging facilities, storage, and solar panels. As of September 2024, SPIC reported investments of more than $1 billion in Mexico and expressed its intention to continue expansion in the country. 

An opportunity for Mexico

Mexico has much to gain from securing a piece of the EV market. New manufacturing facilities could create high-paying jobs, expand one of Mexico’s main export industries, and attract new investments. Jorge Vallejo, BYD’s general director in Mexico, stated that the new EV plant will create around 10,000 new jobs in Mexico.

Currently, EVs remain out of reach for many consumers. In Mexico, the cheapest Tesla model costs a prohibitive $40,000. However, localizing production could lower prices by reducing transport costs and bypassing tariffs.

Other automakers in Mexico are already struggling to compete with BYD. The Song model, BYD’s $30,000 plug-in sport utility vehicle, is edging out rivals. A local factory threatens to slash prices even lower.

EVs are just the first step

BYD is a risky business partner because of its ability to rapidly integrate itself within a country’s energy system, quickly replacing competitors in not only the EV market, but the larger cleantech industry.

BYD’s goal in Mexico is not just to sell electric vehicles. Similar to how the company has operated in Brazil, first come the EVs—then, BYD provides the manufacturing logistic software, charging systems, storage, and generation needed for the EV ecosystem to operate.

BYD is not just an auto company, it’s a software company, with its own chip-making subsidiary and artificial intelligence (AI) program. The company produces batteries, trucks, skyrails, energy storage systems, digital logistic management software, communication equipment, and 5G and AI technology. BYD uses this expertise to vertically integrate itself into a country’s energy system, allowing it to dominate large parts of the green economy.

In Brazil, where Chinese brands have a 9 percent share of new car sales, BYD builds electric buses, operates solar farms, supplies trains, partners with lithium miners, and manufactures consumer EVs. For BYD, EV production is a beachhead for gaining access to broader energy infrastructure, creating dependency on Chinese technology and investment to support the very industries Chinese companies help establish.

In Mexico, China’s footprint in the energy system is growing. In 2023 alone, Chinese companies announced over $12.6 billion in infrastructure projects in Mexico, focusing on EVs, mining, transit, container ports, and telecommunications. China-based miner Ganfeng has also been involved in a years-long dispute with Mexico over the rights to mine lithium in the Sonora desert.

The party’s favors

BYD’s rise in Mexico comes at a time when Chinese companies are under scrutiny for unfair trade practices, supply chain meddling, and security concerns, which have prompted several Mexican states to dial back tax and resource incentives for BYD.

But this means little for a company that is essentially at the service of the Chinese Communist Party (CCP). Since the late 1980s, China’s Go Out policy has encouraged investment abroad to obtain domestically scarce strategic resources. By acting as a key player in the CCP’s economic efforts, BYD gains unfair advantages in an increasingly competitive global automobile market. High subsidies, strong domestic policy support, and access to military intelligence that could guide transnational business decisions give BYD the competitive edge needed to make it one of the top-selling automakers in the world.

BYD’s ties to the CCP run deep: it has supported China’s military-civil fusion strategy, integrating defense and civilian research to bolster national objectives. In 2019, the company received a prestigious state award for contributions to military technology and has developed at least three military-civil fusion enterprise zones focused on research and development in the defense industry, as directed by the military.

BYD’s leadership maintains an extensive interpersonal network—and even a revolving door—with CCP leadership. BYD founder Wang Chuanfu has held a number of CCP posts, including as a delegate to the People’s Congress of Shenzhen from 2000–2010.

Perhaps uncoincidentally, BYD is also one of China’s most heavily subsidized companies. In 2022, BYD received $2.1 billion in direct subsidies from the Chinese government, significantly higher than other domestic manufacturers. These subsidies help BYD’s expansion efforts, especially as countries concerned with Chinese influence impose tariffs on Chinese EVs.

BYD did not become the world’s largest EV manufacturer by mistake. The CCP has called on BYD to “go out” and conquer foreign markets, and it has supported the company’s efforts through military collaboration, funding, and heavy subsidies. This intense collaboration has made it difficult to differentiate BYD’s corporate strategies from government orders.

A larger prize at stake

Through its vertically integrated approach—from electric vehicles to renewable energy infrastructure—BYD not only captures market share, but also secures lasting influence over the systems driving Mexico’s clean energy transition—to the geostrategic benefit of Beijing.

China’s expansion into Mexico’s EV market, led by BYD, is more than just a response to rising local demand for affordable electric vehicles. It is part of a wider strategy to embed Chinese influence in Mexico’s broader energy and infrastructure systems—and signals a much deeper geopolitical play.

Mexico’s demand for EVs is quickly growing—and BYD’s potential to dominate the market is undeniable. The rapid vertical integration of Chinese firms into sectors needed to support EV adoption can leave Mexico increasingly dependent on China for critical energy and industrial systems.

As Mexico looks to capitalize on the EV boom, policymakers must weigh the long-term trade-offs of Chinese partnerships. While BYD promises immediate economic benefits, the country risks ceding control over strategic assets and becoming overly reliant on Chinese technology and investment.

For Mexico to achieve sustainable, independent growth in cleantech, it must balance foreign collaboration with efforts to strengthen its own domestic capacity and regulatory oversight.

Haley Nelson is assistant director at the Atlantic Council Global Energy Center.

EnergySource

EnergySource is the Global Energy Center’s (GEC) online publication providing commentary and analysis on developments in the energy and climate sector from a wide-array of thought leaders, politicians, and experts.

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The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.

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The post What China’s BYD really wants from EV investments in Mexico appeared first on Atlantic Council.

After the Ancon, the voyage did become routine. By the mid-1920s, annual traffic on the canal surpassed five thousand ships. Today, more than twelve thousand ships per year make the voyage across the isthmus. The quicker, cheaper, and safer way to bridge the oceans has transformed global trade and the Western Hemisphere.

Today, however, an observer coming upon the scene might sense dark clouds on the horizon. In his inaugural address, US President Donald Trump said that the canal had “foolishly been given to the country of Panama.” Panama is treating the United States unfairly and China is operating the canal, he argued, without providing specifics. “We’re taking it back,” he declared. The bridge, it seems, has become an impasse. 

Difficult waters require steady guides. Below, Atlantic Council experts deftly steer us through how the canal came about, why it matters today, and what to expect next.

The Panama Canal was the largest US engineering project to date when the SS Ancon (pictured) officially opened the waterway. Direct costs between 1904 and 1914 exceeded $352 million (more than eleven billion dollars today, adjusted for inflation). Records show that 5,609 people died from accidents and disease while working on the canal over this same period, though the true figure is likely higher.

1. What was the US role in building the canal?

US President Theodore Roosevelt’s use of “gunboat diplomacy”—with US warships deployed along Panama’s Pacific and Atlantic coasts—was instrumental in Panama securing its independence from Colombia. In exchange for US assistance, Washington secured its main objective for helping the Panamanian cause: rights to build the canal. In 1903, the Hay-Bunau-Varilla Treaty gave the United States control of a fifty-mile by ten-mile stretch of Panama that divided the country in half and came to be known as the Canal Zone. Ten years later, US President Woodrow Wilson opened the canal, which was constructed with locks designed by the US Army Corps of Engineers and with workers largely imported from Caribbean islands. 

—Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

2. When and how did Panama take ownership of the canal?

Throughout the twentieth century, the United States—with increasing Panamanian animosity—controlled the Canal Zone. Increased tensions, perpetuated by the stark difference between US-controlled Canal Zone life and that outside the zone, led to demonstrations in 1964 that turned violent and resulted in the deaths of both Panamanians and US Marines. This incident sparked new interest across administrations to resolve tensions around the canal, which came to the fore during the presidency of Jimmy Carter, who entered office seeking a new beginning with Latin America.

In 1977, Carter came to an agreement with Panama on a transition for the canal: joint administration until 1999, at which point Panama would fully take over the canal. Among other things, the Permanent Neutrality Treaty requires (a) efficient canal operation; (b) transit fees that are “just, reasonable, equitable, and consistent with international law,” and (c) neutrality of the canal. The Panama Canal Authority, an autonomous entity, was set up to administer, operate, modernize, and set fees for the canal. Since taking over canal operations, Panama has invested more than five billion dollars to expand the canal in order to accommodate larger ships.

—Jason Marczak

3. What is the canal’s role in international trade today?

The Panama Canal is among the most significant waterways for global trade, servicing 5 percent of the total volume of maritime trade globally. For the United States, the canal is critical for efficient trade. Forty percent of US container traffic passes through the canal annually, carrying about $270 billion in cargo. The Panama Canal is, during standard operating times, the fastest route for trade between the US East Coast and Asia, for example from New York to Shanghai. Trade from Europe to the US West Coast, or South and Central America to Asia (i.e. Brazil to China) also relies on the canal. Still, over 74 percent of the trade volume that flows through the Panama Canal is headed for, or coming from, the United States.

When El Niño exacerbated drought conditions in 2023-2024, causing low water levels in the canal’s largest reservoir, Gatun Lake, the disruption proved the economic value of the canal’s smooth operation. Lower water levels decrease not only the number of vessels able to transit, but also the volume of cargo they can carry.

Canal shipping is not immune to the laws of supply and demand; the fewer vessels able to transit the canal, the higher the price. Furthermore, the Panama Canal Authorities levy a “freshwater surcharge,” which increases when water levels are low, to incentivize water conservation and decrease traffic. The more ships that don’t divert or make reservations during drought, the greater the wait time, which reached a peak of twenty-one days in the summer of 2023. Increased costs and shipping times during the recent drought likewise increased the shipping costs as much as 14 percent year-over-year for dry bulk goods (such as grains and coal), 12 percent for vehicle carriers, and 5 percent and 3 percent for liquefied petroleum gas and liquefied natural gas, respectively. 

—Sophia Busch is an assistant director with the GeoEconomics Center.

Container cargo dominates eastward trade while oil goes west

4. What is the canal’s role in energy markets?

The Panama Canal plays a significant role in facilitating energy trade between the Americas and Asia. Shipments of US and Brazilian (as well as Canadian barrels re-exported from the United States) cargoes of crude oil, refined products, and liquefied natural gas (LNG) destined for Asia often transit the Panama Canal. The canal is particularly crucial for LNG, since virtually all operating US LNG capacity is on the US East and Gulf coasts. Finally, liquefied petroleum gas (LPG), an unheralded but vital input for petrochemicals, heating fuel, and engine fuel, is highly dependent on the Panama Canal. The US Gulf Coast accounts for about 40 percent of all seaborne LPG shipments; most of those volumes are directed to Asia.

However, increasing strains on the canal’s capacity to handle transit have, over time, reduced its use as a transit point for energy in favor of other routes. Average Asian volumes of imported crude, clean products, fuel oils, and LNG decreased by 6 percent in 2024 as compared with the average volume between 2021 and 2023.

Though Asia has historically sourced these energy cargoes from a number of sources, particularly the Middle East and the Indo-Pacific, decreasing reliability of the canal has significant consequences for the United States’ ambitions to use energy as a fulcrum of foreign policy partnerships in the region. For example, average monthly volumes of LNG bound for China, Japan, South Korea, and Taiwan from the United States via the Panama Canal decreased by 82 percent compared to the average transit between 2021 and 2023, whereas average monthly volumes transited via South Africa’s Cape of Good Hope increased by 472 percent. As a consequence, US cargoes to Asia are more costly and have a higher emissions footprint.

In the absence of a plan to address either the canal’s capacity issues or clear-cut alternatives for westbound cargoes, the Trump administration’s ability to use energy trade as a tool in its foreign policy with Asia will continue to be limited. The challenge could even deepen as drought and water availability further constrain passage. With this in mind, it’s clear why the canal’s limitations have been elevated from a persistent theme in energy markets to a headline issue for the White House. 

—Reed Blakemore is director of research and programs at the Atlantic Council Global Energy Center.

Trump’s warning on the Panama Canal

5. What is Trump’s history with the Panama Canal?

Trump’s concerns about the Panama Canal Treaties didn’t materialize in just the last few weeks. In 2003, when the then Trump-owned Miss Universe contest was held in Panama City, he first got to know the country. Even at that time, Trump expressed the view that the United States got ripped off by the treaties. Interactions with Panama came to a head in 2018 when a legal dispute arose between the Trump Organization and a Miami-based hotel investor who was trying to break off ties with the Trump business. The situation escalated into a standoff with Panamanian authorities. Eventually, Trump’s name was taken off the hotel in Panama City at the center of the dispute.

—Jason Marczak

New Atlanticist

Jan 20, 2025

What to know about Trump’s day-one promise to take back the Panama Canal

By Jason Marczak

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Americas Economy & Business

6. Trump says that US ships using the canal are being overcharged and not treated fairly in violation of the treaty that the United States and Panama have regarding the canal. Is that the case?

Trump’s claims that US ships using the canal are being overcharged and unfairly treated in violation of the Torrijos-Carter Treaty are not supported by evidence. The Panama Canal Authority (PCA), which manages the canal, charges fees based on the size and type of the ships that are using the waterway. Recently, natural factors like decreased water levels have started to affect the canal’s ability to support ships. As a result, in a normal supply and demand way, the pricing structure of the canal has also shifted. The rates are uniform, impartial, and nondiscriminatory, and they apply to all ships regardless of their nationality. What affects the pricing are factors like ship dimensions and design, the type of cargo it carries, and additional loading or unloading that would take place at the ports. The PCA offers a public maritime services calculator, accessible to anyone.

As a side note, the Torrijos-Carter Treaty did include specific and explicit provisions granting preferential treatment to vessels from northern and southern neighbors Costa Rica and Colombia, respectively. But the provisions apply primarily to warships and auxiliary vessels, which are entitled to the same favorable treatment as Panamanian vessels when transiting the canal. This provision, however, is mostly symbolic, and in no way impacts commercial shipping.

—María Fernanda Bozmoski is director of impact and operations and lead for Central America at the Atlantic Council’s Adrienne Arsht Latin America Center.

7. Trump says that China has too much influence over the Panama Canal. What exactly is China’s involvement with the canal, how did it come about, and should the United States be concerned about it?

Latin America is seeking options for infrastructure investment—including port infrastructure—and Chinese companies are leaning into those opportunities across the region, just as they are everywhere else. Beijing is not “operating” the Panama Canal, as Trump claimed. There are five ports adjacent to the Canal. Hong Kong-listed Hutchinson Whampoa operates two of them, one on the Caribbean side and another on the Pacific side. US, Singaporean, and Taiwanese companies operate the other three. 

Hutchinson Whampoa has operated its two ports since 1997 (when the US was still jointly managing the canal); China Harbor Engineering Company launched the cruise terminal in 2024. China Harbor is also building a new bridge over the Canal. That project is still underway.

There are multiple concerns when Chinese companies acquire strategic port assets. Beijing could conceivably use Chinese-held ports to position military assets, both overt and covert, near strategic targets in a future military crisis. Since entities affiliated with China operate ports on both ends of the canal, they could potentially slow or even block US and other Western commercial traffic as a coercion tactic. There is also an information-gathering risk, as PRC port companies can track the goods flowing through them and pass that information on to Beijing. That is primarily a concern with ports handling US goods and traffic, as that provides more access to and information on US activities. That concern extends to the equipment non-Chinese-owned ports use to move and scan commercial freight. For example, if a non-Chinese port authority uses PRC equipment to transport or scan shipping freight, that could provide an avenue for Beijing to monitor those activities, even if a Chinese company does not own the port itself.  

China’s growing infrastructure footprint is a global challenge. It is not specific to Panama. For example, Chinese companies recently acquired strategic port assets in Peru and Germany. According to recent analysis from the Council on Foreign Relations, Chinese companies have some degree of ownership in at least 129 ports around the world. 

For decades, the United States did not offer partner nations an alternative to Chinese investment. When US companies bid for ports and other infrastructure projects, they often bid alone. In contrast, Chinese companies enjoy strong support from China’s state-owned banks; they can offer low prices and attractive loan terms that US companies cannot match. The United States has woken up to this challenge and the need to put Western alternatives on the table. Under the Biden administration, the United States had some big wins outbidding Chinese firms—including Chinese state-owned enterprises—on infrastructure projects. 

The United State can prevail over China in this sector. In November 2023, when state-owned China COSCO Shipping Cooperation Limited was seeking to acquire the rights to develop the Elefsina shipyard in Greece, the US International Development Finance Corporation (DFC) stepped in and provided the financing that enabled a Greek company to win the bid, keeping the shipyard in Western hands. If the Trump administration is serious about tackling the challenges associated with Beijing’s growing infrastructure footprint, the way to do so is to put real alternatives forward, and to aggressively advocate for them. 

—Melanie Hart is the senior director of the Atlantic Council’s Global China Hub.

After nine years of construction costing more than five billion dollars, the newly expanded Panama Canal opened in June 2016. The first vessel to pass through was the Chinese container ship Cosco Shipping Panama (REUTERS/Carlos Jasso).

8. How does Panama view Trump’s concerns over the canal?

Panamanian President José Raúl Mulino has responded to Trump’s message that he wants to take back the canal with a clear message that the canal “is and will continue to be Panamanian.” The statement followed a similar message Mulino delivered in a December 22 communiqué. Following the inaugural address, Panama took the issue to the United Nations (UN)—where it currently holds a rotating seat on the Security Council—to express its concern that the United States is threatening the use of force, contrary to the UN Charter.

What is important to reinforce is that the Mulino government is actually quite aligned geostrategically with the United States and with the Trump administration on global issues, including in supporting Israel and seeking to curb the northward flow of migrants. Panama also wants greater US investment to diversify further from the growing—and concerning—influx of Chinese cash. But Mulino has to balance that with domestic political pressures and be a vocal and staunch defender of the canal—even though Trump’s message is likely meant as a negotiating tactic to gain more favorable terms and investment opportunities for US companies, and especially to mitigate concerns around Chinese-controlled ports.

—Jason Marczak

9. How does China view Trump’s concerns over the canal?

Thus far, Beijing views Trump’s statements with glee. Panama views the United States as its preferred partner; where the United States is willing to put forward alternatives, those alternatives are likely to prevail. Beijing, in contrast, is facing growing pushback over the strings it attaches to economic development. Beijing is utilizing Trump’s call to “take back” the Canal as an opportunity to present China as the partner that will recognize and respect Panama’s sovereignty. For example, China’s foreign ministry statements stressed on December 27 that “China will, as always, respect Panama’s sovereignty,” and on January 22 that “We agree with Panama’s President José Raúl Mulino that Panama’s sovereignty and independence are not negotiable . . . we respect Panama’s sovereignty over the canal.”

The current approach gives Beijing the opportunity to position itself as a preferred partner in the region. That is ironic given that Beijing frequently violates other nations’ sovereignty, deploying economic coercion and other forms of bullying to force partner countries to abide by Beijing’s political edicts. If the United States really wants to increase its influence in the region, the best way to do so is to present a valid alternative to China—one that nations will race to join. The Biden administration did so successfully in the semiconductor sector. If the Trump administration can do the same in strategic ports, that will be a massive win. Given the recent Chinese port opening in Peru, Latin America is a great place to start.

—Melanie Hart

New Atlanticist

Jan 9, 2025

The US is right to be concerned about China’s influence over the Panama Canal

By Gregg Curley

Legitimate concerns about growing Chinese influence over the canal demand Washington’s attention and warrant a measured, diplomatic approach.

China Latin America

10. What do you expect the United States to do next regarding Trump’s concerns? What should the United States do next? 

US Secretary of State Marco Rubio will break tradition this week by making his first international trip as secretary a visit to Central America. This is a welcome change. It’s a signal that the region will be top of the agenda in this administration, as Rubio will travel to Panama along with other Central American countries and the Dominican Republic. 

Such a quick and high-level diplomatic trip to Panama is an important next step to move beyond the exchange of words between the two countries’ presidents. The secretary of state may lay out more explicitly for his Panamanian counterparts the specific details of Trump’s grievances and hopefully begin to find a joint pathway forward to address them in alignment with US interests and Panama’s control of the canal. That could mean a discussion on transit fees and auction rates as well as exploring new opportunities for US investment in direct and indirect canal-supporting operations. The United States could then deploy tools of the federal bureaucracy, such as US International Development Finance Corporation funding, to support and incentivize US companies to invest further in the canal and rebuild a greater US presence and corollary stake in the canal’s future.

—Jason Marczak

The post Expert context: What’s going on with Trump and the Panama Canal? appeared first on Atlantic Council.

Following President Trump’s announcement around potential 25 percent tariffs on imports from Mexico, what are the possible economic implications for both the United States and its southern neighbor? The measure could go into effect as soon as February 1, 2025. This explainer provides key data and perspectives to understand this topic.

The post Explainer: US tariffs on Mexico appeared first on Atlantic Council.

The “maximum pressure” strategy employed from 2018 to 2022 against the illegitimate Nicolás Maduro regime in Venezuela did not serve US interests. Stringent oil sanctions imposed on Venezuela forced the retreat of Western oil firms from the country, principally benefitting adversaries. During the maximum pressure campaign, Venezuela’s oil production was rerouted to China at discounted prices, Iran supplied the diluent Venezuela required for oil production, and Russian investors became more critical amid a dearth on Western investment.  

A democratic transition remained elusive while repression and human rights violations continued. Venezuelans suffered, US adversaries expanded their influence, and Maduro remained. 

The current system of issuing specific licenses for Western oil producers to operate in Venezuela has yielded superior results. The benefits of this policy have been the following:    

1. Venezuelan oil exports have been diverted to friendly nations.
2. Treasury has increased visibility on all oil-related transactions, decreasing the clandestine shipment of oil through shadow tanker fleets operated by the Chinese defense establishment, Iran, or PDVSA.
3. Compensation to the regime is limited to taxes and royalties, which are required by Venezuelan law.
4. The system has enabled the return or reemployment of qualified engineers and technicians to restore production from degraded oilfield infrastructure.

The incoming US administration should prioritize inflicting more harm on the regime and its enablers than the Venezuelan people—or US interests.

To do so, sanctions must be linked to clear objectives. An uncalibrated reapplication of maximum pressure would cede influence to China, Russia, and Iran, while doing little to loosen the regime’s grip on power. Instead, the existing system of specific licenses should be maintained and expanded. To punish Maduro, the administration should continue to target individuals who enable his illegitimate rule, adding to the 180 individuals already sanctioned by the Treasury. A targeted sanctions policy—not maximum pressure—is the only way to ensure that US actions to confront the Maduro regime impose their desired effect, and do not play into the hands of Beijing, Moscow, or Tehran. 

Former staff

William Tobin

Former Assistant Director

Global Energy Center

Africa China

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Energy & Environment Energy Markets & Governance

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Energy & Environment Geopolitics & Energy Security

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Coupled with the fact that several of this new administration’s high-ranking officials have significant experience in Latin America, this focus reflects the president’s prioritization of the region.

Not surprisingly, the border featured just as prominently in Trump’s 2025 inaugural address as it did in 2017 when he argued on the Mall that “We’ve defended other nation’s borders while refusing to defend our own.” And Trump’s declaration of a national emergency at the southern border—a move he announced in his inaugural speech and formalized with an executive order hours later—mirrored many aspects of his February 2019 declaration.

But Trump’s 2025 speech deviated from his 2017 address with the president’s emphasis on Panama.

In a clear sign that his vocal concerns about the Panama Canal had not abated, Trump devoted nearly two full paragraphs to Panama, saying that “Panama’s promise to us has been broken” and that “China is operating the Panama Canal. And we didn’t give it to China, we gave it to Panama, and we’re taking it back.” Panamanian President José Raúl Mulino swiftly responded with an official statement reiterating Panama’s sovereignty over the canal.

Trump’s concerns about the Panama Canal Treaties didn’t materialize in just the last few weeks. In 2003, when the then Trump-owned Miss Universe contest was held in Panama City, he first got to know the country. According to reports, Trump even then expressed that the United States got ripped off by the treaties. Interactions with Panama came to a head in 2018 when a legal dispute arose between the Trump Organization and a Miami-based hotel investor, who was trying to break off ties with the Trump business. The situation escalated into a standoff with Panamanian authorities, and eventually, Trump’s name was taken off the hotel at the center of the dispute.

What’s the status of the canal?

The canal is operated by the Panama Canal Authority, an autonomous government entity, which is in charge of the operation, maintenance, and modernization of the canal and sets the fees for passage. According to the treaty, those fees must be “just, reasonable, equitable, and consistent with international law.” In recent years, fees have increased, and while they are largely in line with the Suez Canal, auctions to enter the canal can significantly bump up the total transit fees. Trump’s concern—and that of US Senator John Curtis (R-UT) who asked Secretary of State Marco Rubio about the canal at last week’s confirmation hearing—is about the extent of Chinese influence in the canal alongside the higher costs.

Back in 1997, a Hong Kong-based consortium won a bidding process to operate ports at each end of the canal. Since then, China’s growing interest in the canal, and in Panama overall, has generated concerns. Notably, in 2017, Panama cut ties with Taiwan, ushering in a new era of Chinese investment. In March 2024, then-US Southern Command Commander Laura Richardson noted at the Atlantic Council her concerns about China’s rising influence in the canal.

What can Trump do to “take back” the canal?

One option is to ramp up US investment in the canal and in the many businesses that directly and indirectly support canal operations. The United States needs to really get in the game to win the game. And that US investment would be welcomed by the Panamanians.

The new Panamanian government is more pro-US than its predecessors. Mulino, who took office in July 2024, has made great efforts to more closely align Panamanian policy with US positions and is a ready partner to accelerate US investment in Panama. Recently, in Panama, I saw and heard concerns about a disproportionate uptick in Chinese investment and a yearning for more US companies to invest in Panama, from its tech sector to its maritime industry.

In alignment with Trump’s vision, his presidency can be an opportunity to further use the tools of the US government to accelerate such investment so as to crowd out Chinese interests to the benefit of the United States and Panama. US economic and national security will be significantly advanced with greater US business presence and investment in construction projects around the canal. Here, Trump will find a willing partner with the Panamanians in his bid to take back the canal.

Jason Marczak is vice president and senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

Note: This article was updated on January 20 to reflect Trump’s formal signing of an executive order declaring an emergency on the southern border.

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The USMCA is set to terminate in 2036 at the close of its sixteen-year term. When the trio meets in July 2026, they can renew the agreement for a second sixteen-year term. However, if any one of the three decide not to renew the agreement, the trio will meet every year until they either agree to renew the USMCA—or run out of time before it expires in 2036. Although cumbersome, this process is designed to provide an opportunity for the three countries to regularly adapt the terms as they see fit. No other trade agreement has such an adaptable structure, providing an unprecedented opportunity to optimize trade within North America.

It’s possible that few other trade agreements will also have as much political pressure as the USMCA in 2026, with a range of issues now attached to its renewal including immigration, shipment of illegal drugs, and concerns about Chinese goods subject to tariffs making their way freely to the United States through the USMCA. The incoming administration’s fixation on the United States’ trade deficits with Mexico and Canada is perhaps the most traditional topic under review. 

The Trump administration’s proposed approach to these concerns is to create uncertainty through higher tariffs in order to negotiate better terms in the agreement. If the Trump administration does increase any tariffs on USMCA partners, except due to national security concerns, it will violate the terms of the agreement under Article 2.4. Canada and Mexico would likely retaliate by levying import duties of their own, effectively removing the free trade advantages provided by the USMCA. This will prove expensive and destabilizing for any company dependent on the highly integrated North American supply chains. These are the very same exporters on whom the administration relies for support. Before the administration would need to take that approach, it’s important to understand the economic leverage—and dependencies—each country has with the others. 

At the negotiating table

Canada and Mexico rely on the US economy far more than the United States relies on either of them—although the relationship is important for all three. Mexico and Canada sold 80 percent and 76 percent, respectively, of their exports to the United States in 2023. Comparatively, 32 percent of US exports in 2023 went to Canada and Mexico combined. 

The asymmetry here engenders a higher level of political importance for the USMCA within Mexico and Canada. Employment in Mexico is especially dependent on trade with the United States. When negotiations begin in 2025, Mexican President Claudia Sheinbaum will be under an entirely different level of pressure from her citizens to maintain favorable trade relations with the United States and Canada. The cards are favorably stacked for the United States to have the heaviest hand in negotiations––even without the threat of higher tariffs.

In support of US jobs

Even so, the United States has deep political interests in maintaining the USMCA. From Washington’s side, the agreement’s guiding objectives—creating more balanced trade in support of high-paying jobs in the United States—has been a point of continuity for businesses, receiving bipartisan support throughout the last four years. Of all the jobs in the United States that are supported by exports abroad, 33 percent are supported by exports to Mexico and Canada. No other regional trade relationship has a larger impact on US exporter jobs.

Although jobs supported by the USMCA make up only roughly 2 percent of total jobs in the United States, the agreement has outsized importance within key Republican constituencies. The incoming Trump administration, with its promise of creating a “manufacturing renaissance” with “millions of jobs” will need to consider that exports support roughly 40 percent of manufacturing jobs in the United States.

As for the USMCA, roughly a quarter of the US jobs supported by exports to Canada and Mexico are in manufacturing, with automobile manufacturing employing the most individuals. Manufacturing export jobs have a relatively greater importance on employment in red states—as well as key swing states such as Michigan and Wisconsin. These linchpin states helped the incoming president win the 2024 election; trade disruptions here could have high domestic political costs for the administration.

If the United States increases import tariffs and Canada and Mexico apply retaliatory tariffs, US exports will be more expensive and less profitable. Oxford Economics estimates that the proposed 25 percent tariffs would decrease trade in North America by 50 to 60 percent, which would push Canada into a recession in 2025. US exports to Canada, and, by extension, export-supported jobs would likewise falter due to slow demand. If the incoming Trump administration wishes to improve the odds for US exporters, it should maintain favorable trade conditions with the top buyers of US goods: Canada and Mexico.

Manufacturers are also importers

Of course, Mexico and Canada are not only buyers of US goods, but are also suppliers of US inputs. Tariffs will increase the cost of importing these goods, which will weigh on manufacturers’ overall production costs. Historically, higher input costs have been shown to have a negative impact on manufacturing employment. The increased input costs from the March 2018 steel tariffs directly lead to the loss of approximately 75,000 manufacturing jobs by the middle of 2019. 

Furthermore, trade within North America is highly integrated to the point that it might best be described as “circular.” Supply chains are so connected in part because of the incentive structure provided by the USMCA and its predecessor, the North American Free Trade Agreement. To qualify for duty-free trade, goods must meet rules-of-origin requirements, which generally require at least 60 percent of the value of a good to be made with regional inputs, or “content.” This influences companies to develop supply chains that cross North American borders multiple times throughout the production process—locating each phase of production where they can optimize costs. As a result, for each dollar that the United States imports from Mexico in manufactured goods, close to 30 cents is likely made up of US content, according to assessments based on the structure of these supply chains. The United States’ trade deficits with Mexico and Canada, therefore, might be viewed as much less problematic than deficits with other partners because the imports from these countries help generate demand for exports to these partners and are made up of US goods.

Assuming Mexico and Canada would retaliate in the event of US tariffs, each time a good moved across borders throughout the production process, the importer would have to pay a tariff, raising costs at every stage of the production process. A US company operating in Mexico, for example, might then be incentivized to relocate fully to the United States to avoid the tariff. On the other hand, the cost differential in doing so could be so great for some products that it might be more profitable to continue producing outside of the United States—even with the tariffs in place. In this case, consumers would still pay higher prices while supply chains stay intact.

With any increased barriers to trade among the United States, Mexico, and Canada, the administration should expect businesses to face added costs and risks from secondary effects. This includes the added costs companies would face purely from navigating the new legislative changes and in adjusting supply chains accordingly. For example, companies would likely attempt to receive exemptions from tariffs while adjusting production plans in the interim, which has labor costs and may cause production delays. These costs will weigh on small- and medium-size companies the most, as they have fewer resources to dedicate to managing their global supply chains.

Igniting a manufacturing “renaissance”

If the incoming administration wants to accomplish its goal of a US “manufacturing renaissance,” it should consider updating how the USMCA incentivizes manufacturing and fairer wages within the continent.

One such incentive is the regional content requirement. To improve the agreement in a way that generates political support, the United States should better enforce these requirements by evaluating nonregional (i.e. Chinese) companies that operate in North America to better determine if the content is truly local. The United States, Mexico, and Canada should consider if a 100 percent Chinese-owned business should be able to reap the benefits of the USMCA. It also matters how this legislation is written; the 2026 negotiations should prioritize closing any loopholes in its description of regional content.

Automotive manufacturing has the most advanced incentive structure under the USMCA and might be used as a model for a wider range of commodities. Under the USMCA, each vehicle must be produced with 75 percent regional content to satisfy the rules-of-origin requirements. Furthermore, 40 to 45 percent of the value-added content in any auto import must be made by workers making at least sixteen dollars an hour. This reduces offshoring incentives by making production in the United States more competitive, allaying a key fear.

To meet its objective of supporting US jobs, the White House could advocate for higher value-added content requirements or add a minimum wage requirement for critical manufactured products beyond automotive goods. To minimize disruptions to businesses and supply chains, the administration could propose a phased approach, whereby regional content and wage requirements would increase gradually throughout the next decade. This would still have to be targeted, of course, in order to make supply chains cost-effective, but would be a more business-friendly way to change the incentive structures to favor US and North American manufacturing.

The incoming administration has a strong enough advantage for the coming negotiations that it can expect to improve the agreement––and ensure the USMCA remains in place long after Trump leaves office.

Sophia Busch is an assistant director at the Atlantic Council’s GeoEconomics Center.

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So far, Trump’s foreign policy appointments have sent a clear message to Mexico. Security and the fight against fentanyl will be at the center of the Trump administration’s efforts. The challenge for Mexican President Claudia Sheinbaum and her administration is to articulate a response not only to security pressures but also to the economic implications of tariffs that could be immediately imposed.

In the year ahead, Mexico will have to manage several fronts of domestic policy and negotiations with the United States at the same time. Since coming to office in October 2024, Sheinbaum has taken several steps on security and trade that should help smooth relations with the incoming Trump administration. But the challenges during Trump’s first one hundred days in office will require more profound efforts to rebuild and strengthen US-Mexico ties for the years to come.

National security

The changes and innovations that Sheinbaum is implementing on security are already palpable. This includes institutional reforms to reinforce the Federal Secretariat of Security. These reforms are expanding its intelligence and investigation capabilities to prioritize the use of technology and data. The goal is to use these new capabilities to develop more effective strategies against criminal organizations in Mexico. A few weeks after this reform began, and also a few days after the first call between Trump and Sheinbaum, Mexican authorities carried out the largest fentanyl seizure in the country’s history, confiscating over a ton of pills in Sinaloa.

But those initiatives alone might not be enough for Trump. Besides concrete results and sustained efforts, it will likely take more persuasive strategies and greater evidence of crime reduction to convince him of Mexico’s commitment to binational security. This will be difficult to achieve, as the past several years have seen increasing mistrust and decreasing cooperation between the United States and Mexico. International Narcotics Control and Law Enforcement aid to Mexico, for example, has been significantly reduced.

The challenge for Mexico is to recover trust and propose new cooperation frameworks to avoid US unilateral action against crime. Mexican authorities clearly understand the significant risks of a potential intensification of the US unilateral approach. One recent case is the spiral of violence generated after the arrest in El Paso, Texas, of Sinaloa cartel leaders in July 2024. The lack of US coordination and communication with the Mexican agencies to accomplish this capture highlights the difficult hurdles that must be overcome to restore US-Mexican cooperation on transnational crime.

As Trump has maintained his stated willingness to use US military forces to strike Mexican cartels, the risks that US unilateral action poses to the bilateral relationship are even higher. Such measures, without appropriate coordination with Mexican authorities, could lead to more instability and violence throughout Mexico, creating even more distance and mistrust. However, such measures from the United States may not be avoided if Mexico does not develop new policy frameworks to cooperate with Washington on security. 

During the following one hundred days and beyond, Sheinbaum must continue her effort to innovate and improve Mexico’s security policies. But just as urgent for her administration is the need to rebuild trust and cooperation with US security agencies to ensure that unilateral US action does not upend her initiatives. 

Trade cooperation

In 2023, Mexico was the United States’ main commercial partner, and data suggest that Mexico maintained this position during 2024. In 2023, Mexican exports to the US market totaled $475 billion, surpassing China’s exports, which amounted to $427 billion. There are several factors behind Mexico’s recent strong trade numbers with the United States, including US tariffs on China and Mexico’s preferential status under the USMCA. But another important factor is the high level of diversification in the Mexican economy. This diversification is the greatest in Latin America and is based on the export of manufactures and successful industries, such as the automobile sector.

This diversification is a major strength of Mexico’s economy, which helps it attract foreign direct investment. It also creates opportunities to accelerate growth benefiting from an increase in “nearshoring,” as an Adrienne Arsht Latin America Center report highlighted in September. The capacity of Mexican economic structures to break the patterns of the commodity trap is attractive to foreign investors looking to concentrate on high-value-added production chains. At the same time, foreign investment increases the diversification of exports and the integration into North American markets, creating a virtuous cycle.

However, international and domestic factors could affect growth perspectives. Internationally, the imposition of US tariffs would considerably reduce the benefits of the United States-Mexico-Canada trade agreement, which began during the first Trump administration. New US tariffs could generate significant economic disruptions in employment, supply chains, and consumer prices. Domestically, several institutional changes in Mexico, such as the reform to the judiciary, have triggered uncertainty, worsening the government’s debt outlook.