Latin America stands to gain an unexpected strategic advantage in the wake of escalating global trade tensions, with analysts suggesting the region could become a more attractive destination for international investors seeking alternatives to the disrupted US-China trade landscape.

Despite the widespread market volatility that followed last week's announcement of sweeping tariffs by US President Donald Trump, the MSCI Latin American stocks gauge is outperforming the S&P 500 by more than 20 percentage points in 2025, signalling a remarkable resilience, as reported by Reuters.

In an optimistic assessment of the historic trade realignment, Kathryn Exum, co-head of sovereign research at Gramercy, told the news agency that "Assuming that you end up with more regionalised blocks of trade, Latin America would be a winner in that regard.”

Nicolás Saldías, a senior Latin America analyst at The Economist Intelligence Unit (EIU), echoed this sentiment. "By reason, it is possible that we become a winner, in the sense that investors will view Latin America as a more competitive region than Asia," he told Bloomberg Linea, though pointing out that these advantages "will take years to take effect".

The Trump administration's aggressive trade policy has dramatically altered the global tariff landscape, giving a confidence boost to emerging markets worldwide.

“With China's economic recovery gathering strength, we expect emerging market stocks and bonds to fare better than their tariff-hit developed market peers over the coming months,” said Pictet Asset Management's April barometer.

The weighted average tariff rate for the United States is set to surge from 2.3% to nearly 26% globally, while China faces an even more significant jump to 63% from its previous 10%. Crucially for Latin America, most countries in the region maintain a relatively modest 10% baseline tariff rate.

The potential benefits come with significant caveats. Saldías warns of immediate economic challenges, particularly for export-dependent economies. "If the Chinese economy grows 1% less, this will significantly affect countries like Chile and Peru," he said, referencing International Monetary Fund estimates.

Brazil and Mexico, the region’s powerhouses, have already shown promising signs. Both countries have seen their stock markets rise this year, with currencies strengthening against the dollar. Economists suggest Brazil is particularly well-placed to navigate the current trade tensions, while Mexico has for now sidestepped the harshest measures thanks to its USMCA membership.

However, investors remain cautious. Speaking to Reuters, Samy Muaddi from T. Rowe Price highlighted potential risks, noting that "While Latin America was less directly impacted by US tariffs, any country running twin deficits in a period of tightening financial conditions could suffer from collateral damage."

Other analysts, meanwhile, suggest the shift might propel much-needed investment flows: "Perhaps it starts to increase flows. Whether it's FDI or portfolio flows will depend on the country at hand, and whether we're talking about short-term or over the medium term," Exum said.

The economic transformation coincides with a notable political shift, reflecting global rightward trends. Saldías anticipates potential right-wing coalitions coming to power in countries like Colombia and Chile. "The question is not whether there will be right-wing governments, but what type of right-wing governments," he observes, drawing a line between traditional moderate “centre-right” parties and populist far-right figures sympathetic to Trump, like Argentine President Javier Milei.

Yet despite the broadly optimistic outlook, significant hurdles remain. According to Reuters, the Latin American stock market's size is a considerable limitation, with the top 10 companies in the regional MSCI index having a combined market capitalisation of near $230bn – a fraction of Apple's $3 trillion valuation, by comparison.

As global financial patterns undergo fundamental restructuring, Latin America finds itself at a potential inflection point. While the path forward is fraught with uncertainties, the region appears better positioned than many anticipated to navigate the current economic turbulence.

The coming years and, ultimately, future developments in Washington will be critical in determining whether this potential translates into tangible economic gains for Latin American countries.