After decades in the making, the European Union and Mercosur signed a free trade agreement in Asunción, Paraguay on January 17, 2026. If the deal is ratified by the European Parliament, the European Council, and Mercosur member states, the trading zone will form a combined GDP of $24.4 trillion and a market encompassing 718 million consumers. The EU will gain access to new markets for machinery, vehicle, and pharmaceutical goods while Mercosur countries will secure tariff reductions on agricultural products. The agreement’s benefits, however, favour certain domestic constituencies over others – for example, the German automotive industry over French and Polish agricultural sectors. Some analysts have gone as far as to suggest that the trade deal will not produce larger economic aggregate effects. Beyond this equally important economic debate, the agreement’s strategic significance for the EU vis-à-vis China and the US – the dominant global powers – warrants consideration.
Autonomy and supply chains
Most tangibly, the deal addresses Europe’s vulnerabilities in critical minerals and rare earths. Materials like lithium, nickel, graphite, cobalt, copper, silver, niobium, and manganese are essential components in renewable technologies, advanced electronics, and defence systems. The EU remains highly dependent on China within these supply chains. In 2024, 95% of EU rare earth imports came from just three countries: China, Malaysia, and Russia. Given the significant reserves of such materials in Brazil, Argentina, and Uruguay, the deal with Mercosur offers a credible pathway to diversification. It concretely advances the EU’s Critical Raw Materials Act which aims to reduce “strategic dependencies” by 2030 and aligns with the European Commission’s December 2025 Economic Security Agenda. The secondary effects of the deal are to displace and capture Chinese market share in a continent where Beijing has become the largest trading partner of the Mercosur countries.
(Re)building multipolarity and regulatory leadership
President Trump’s scepticism for multilateral cooperation and the rules-based international order is by now abundantly clear. Washington has actively pursued protectionist and unilateral policy in economic and security domains. US protectionist action was advanced by the tariffs imposed on rivals and allies during “Liberation Day”. Washington’s intervention in Venezuela, which facilitated the extraction of President Maduro, constituted a unilateral security measure.
Understanding EU strategic positioning vis-à-vis the United States requires distinguishing between the two instincts of the Trump administration: protectionism and unilateralism. The unilateralism is evident enough. The “Donroe Doctrine” – an adaptation of the Monroe Doctrine – seeks primacy in the Western Hemisphere through economic coercion, military pressure, and selective alliance-building. Yet the unravelling of US trading relationships through protectionist tariffs means that Washington also loses influence in the global economy. Former partners seek alternative markets and new trade partnerships form within what is becoming an increasingly multipolar global economy.
In this context, the EU-Mercosur deal opens strategic space for Europe in the digital order. With EU services exports to Mercosur already exceeding €29 billion in 2023, there is genuine potential to shape AI governance across South America – especially given the lower uptake of AI solutions within Mercosur economies. As American tech companies, to some degree, rival states as geopolitical actors, the EU can use services trade to actively export its regulatory frameworks. This is of global significance given that American Big Tech firms are wielding enormous economic, political, and cultural power and reshaping societies beyond US borders. While the security order will likely remain US-dominated (despite commentators heralding an era of “hemispheric imperialism” Washington remains keenly engaged in the Middle East), the deal enables the EU to both advance an multipolar economic order and achieve its strategic interests. As Monica Herz and Selina Ho recently argued, when global institutions falter and great powers retreat into unilateralism, it is regional trading regimes which can bridge the gap. For the EU, this importantly translates into concrete strategic outcomes: a pathway toward autonomy in critical minerals supply chains and regulatory leadership in the emerging and hugely significant sphere of artificial intelligence.