Latin American exports have been steadily recovering after the COVID-19 pandemic, reaching an all-time high of USD 116.5bn in June 2022, according to aggregate data from the CEIC's Latin America Economic Activity Tracker. However, a deeper dive into the region's trade relations with its key partners signals that domestic demand might be weakening. China is a key supplier of manufacturing inputs, therefore, the lower demand for Chinese products is a consequence of the recently observed slowdown of Latin America's industrial activity.

Latin America's trade turnover with both the US and China, its major trading partners, has been following a downward path since September 2022, with the declines in imports being more pronounced than those of exports. In January 2023, the last month with complete data from the seven covered economies (Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, and Uruguay), trade turnover with the US was at a one-year low (USD 69.9bn), while that with China (USD 31.7bn) was at the lowest level since January 2021.

January traditionally experiences a seasonal dip in both imports and exports, hence a rebound should be expected in February and March. Further, China's reopening will provide a boost to global trade and Latin America should benefit from that too. However, the closer geographical proximity ultimately makes the US and its economic performance a more important factor for Latin America's exports. The annual growth rate of both imports from and exports to the US has been in the double digits throughout most of last year, with November and December 2022 being the only exceptions. By contrast, imports from China have been declining year-on-year for three consecutive months, as of January 2023. In that sense, China's reopening will definitely revive trade with Latin America, but no matter how robust and sustainable this reopening is, Latin America will be influenced mostly by the US.

Not surprisingly, Mexico is the main driver of the recent total exports' surge, as it accounted for 45.7% of Latin America's total exports in 2022. Brazil ranks second with a 26.4% share. Trade between Mexico and the US grew in January 2023 due to an increase in the bilateral trade in vehicles and electrical equipment, as well as an increase in Mexico's fuel imports from the US.