Brexit Britain’s Latin American Ambitions: Dream or Illusion?

Gavin O’Toole, the author of Politics Latin America and other five books about the region, gives his opinion on what to expect for Brexit impacts on Latin America.

If the nature of Britain’s relationship with the European Union after its tortuous withdrawal from the bloc remains blurred, the rosy vision of a new era of trade deals painted by “Brexit” zealots is crystal clear.

There is enthusiasm for the prospect of bilateral agreements between a confident “Global Britain” – as its government has rebranded the country – and Latin America.

But with just seven weeks before the UK is due to leave the EU on 29 March with the terms of its departure still unresolved – and growing fears that the absence of a deal with Brussels could cause real economic pain – that enthusiasm is looking premature.

Britain’s prime minister Theresa May is preparing for another bruising parliamentary session on 14 February aimed at forging the consensus behind her Brexit proposals that has so far proved elusive.      

Since last year her ministers have been talking up the prospect of new Latin American ties.

Former Foreign Secretary Boris Johnson toured South America declaring that post-Brexit trading links will deliver “realms of gold”, and a new British trade tsar for Latin America was appointed.

In July, an Investment Minister revealed that the government had doubled credits for firms exporting to the region, and in October parliament’s Foreign Affairs Committee launched an inquiry into policy towards South America.

Finally, in November, Theresa May visited Buenos Aires, where she stressed her determination to engage with anyone willing to talk.

This enthusiasm is not entirely unrealistic: the UK and Latin America have much in common, and critics of the EU say both are “natural allies” against protectionist obstacles thrown up by Brussels.

Trade in goods and services between the UK and Latin America totals £22.1 billion (US$17bn) and is growing. Brazil, in particular, offers huge opportunities as the UK largest Latin American partner – mutal trade was worth £5.54bn in 2017.

An official illusion?

But is official enthusiasm for new trading links an illusion?

While there is no doubt that in both Britain and Latin America there are receptive voices for closer ties – buoyed by an affinity for free trade and frustration within Mercosur at EU obstacles to a formal deal – optimism is no substitute for realism.

First and foremost, despite the hyperbole, British trade with Latin America is in fact limited.

The UK accounts for just 1.2% of Latin America’s exports and 0.9% of its imports, and its trade is dwarfed both by the United States and China but also by other European countries.

Indeed, the EU itself is Mercosur’s biggest trading partner and the the third largest bilateral trading partner with the Andean countries.

Second, after two years of talks with the EU, the terms of Britain’s departure in March – and hence the basis of its future relationship with Europe – remain as clear as mud.

The prospect of an economically damaging “no deal” Brexit is still on the table, and the opposition Labour Party wants to break the parliamentary deadlock by keeping the UK in the EU customs union – blocking Britain from pursuing its own trade deals.

Third, fears that Brexit will deliver a short-term hit to the economy that will be bad both for Britain and its potential Latin American partners are now coming to pass.

The Bank of England recently warned that the economy is on course for its weakest year since 2008 and that under a “no deal” Brexit Britain faces a recession worse than that following the global financial crisis 10 years ago – shaving 8% off GDP.

A sharp depreciation of sterling could freeze British investment in Latin America and stir up the global financial volatility that is always bad for the region’s economies.

Brexit is also triggering uncertainty in Europe – in 2016 EU exports to the UK were worth £318bn, compared to £243bn from the rest of the world – which will have ripple effects for European trade with Latin America.

Moreover, in the longer term do not expect Brussels to sit by while the UK becomes more competitive at its expense – a compelling argument suggests that the EU will strategically seek to dismantle Britain’s leading industries sector by sector.

Foreign policy

However, the biggest unknown for Latin America could be UK foreign policy towards the region, which has been cyclical – and often distracted.

Last year’s official visits to South America, for example, merely fulfilled UK government ambitions to boost ties sketched out eight years earlier.

If history is anything to go by, UK policy is likely to remain erratic.

The “Global Britain” brand is mostly aimed at Asian countries and old anglophone allies such as Australia and New Zealand, and leading academics point out that British diplomacy is being restructured to rebuild bilateral relations not with Latin America, but with Europe.

Far from gaining influence in Latin America, the post-Brexit UK could lose it.

Diplomats privately admit that London has long embraced the “US backyard” thesis that stifles full-throated competition with American interests in the region.

At the same time, little Britain could be eclipsed in the scramble for influence by giants: China and Russia.

The loss of influence in the EU itself will both weaken the UK’s efforts to curb US and Chinese protectionism – to Latin America’s detriment – while benefiting Spain.

Moreover, while under Mauricio Macri the UK’s main bone of contention with the region – the future of the Malvinas/Falkland Islands – has been de-escalated, this may not last.

Britain will lose the European diplomatic backing that it secured for its ugly conflict with Argentina in 1982.

Indeed, in 2017 Alicia Castro, a former Argentine ambassador to the UK, said Britain’s growing isolation as it exits the EU offers Buenos Aires a chance to raise the stakes.

So while there is optimism that Brexit offers the potential for the UK to strengthen ties with Latin America, don’t bet on it.

Short-term survival, global unpredictability – and deep divisions within the UK itself – mean that everything depends on the outcome of Britain’s own navel gazing over coming weeks.

Gavin O’Toole is an author and journalist who lives in London, UK. He specialises in Latin America, economics and public finance, and has published several books including Politics Latin AmericaEnvironmental Politics in Latin America and the CaribbeanThe Reinvention of Mexico, and Che in Verse.