Javier Milei has warned Brussels not to 'restrict' the newly signed EU-Mercosur trade deal with safeguards. This has sparked tensions between Argentina and Brazil, and revived speculation about Mercosur's future. But Nicolás E. Salvoni explains why withdrawal from the bloc remains unlikely. Here, he uses trade data to show why smaller economies – and Argentina's auto industry – would bear the sharpest costs, while Brazil's would be lower
On 5 August, Brazil downgraded its diplomatic representation in Buenos Aires after another verbal escalation between Argentina's President Javier Milei and Brazilian President Luiz Inácio Lula da Silva. The episode does not herald Mercosur’s dissolution. It does, however, expose a stubborn paradox: the bloc is easy to stall from within and costly to leave. If a founding member withdrew – the counterfactual treated here as a Mercosur ‘break-up’ – the bill would be divided very unevenly.
Paraguay would be most exposed through its exports; Uruguay through its imports and several industrial chains. Argentina would face a particularly difficult adjustment in its motor industry. Brazil would take the smallest aggregate hit, but risk a valuable industrial market and a political asset built over decades.
The Treaty of Asunción allows a state to withdraw from Mercosur. However, rights and obligations linked to the trade liberalisation programme remain in force for two years. Leaving therefore begins a transition whose outcome would depend on further negotiations.
Mercosur decisions also require consensus. A dissatisfied government can block a new commitment while retaining its place in the bloc. It faces few decisions it has not accepted; withdrawal offers little institutional advantage.
A dissatisfied government can block a new commitment while retaining its place in Mercosur. Withdrawal from the bloc offers little institutional advantage
Trade would continue after withdrawal, but redirecting it or negotiating new arrangements would take time and carry costs.
Data from UN Comtrade show each founding member’s share of goods trade with the other three. The table gives weighted averages for 2022–2024, the latest complete three-year period shared by all four series.
| Country | Exports to the bloc | Imports from the bloc |
| Paraguay | 61.5% | 32.6% |
| Uruguay | 25.9% | 34.8% |
| Argentina | 20.0% | 27.5% |
| Brazil | 6.5% | 6.9% |
Source: author’s calculations from UN Comtrade. Weighted average, 2022–2024. Data cover goods, not services or tourism; they measure exposure, not welfare losses or a specific withdrawal. Bolivia is excluded because it deposited its ratification instrument in 2024 and is still incorporating Mercosur rules.
Paraguay is the most dependent in relative terms: almost two-thirds of its goods exports go to the bloc. Soybeans and other oilseeds, energy and cereals account for much of those sales. Some energy trade rests on bilateral agreements, but redirecting such a volume would still be demanding.
Uruguay records the highest regional share of imports. Between 2022 and 2024, Mercosur took 94% of its vehicle and parts exports, 91% of plastics and 92% of milling products. Beef and soybeans have more diversified destinations. Several manufacturing activities do not.
Argentina’s problem lies in investments that are difficult to relocate. Vehicles and parts made up 36% of its exports to Mercosur, which received 71% of its worldwide exports from that sector. Brazil alone took 81% of Argentina’s exports within the bloc in 2024. Losing preferences would force firms to renegotiate a production chain built across the border.
Brazil appears less vulnerable. Only 6.5% of its exports and 6.9% of its imports involved the other members. Even so, Brazil’s goods trade with them reached $40.2bn in 2024. Products in HS chapters 28–96, a broad proxy for manufactures, made up almost 80% of its exports to the bloc in 2022–2024. Mercosur also received nearly 43% of Brazil’s worldwide vehicle and parts exports. Its aggregate weight is low; its industrial value is considerably greater.
Leaving Mercosur would be less damaging for Brazil than for the block’s other members. Only 6.5% of its exports and 6.9% of its imports involved other Mercosur partners
That makes Mercosur’s place in Brazilian industrial policy striking. The 2024–2026 Nova Indústria Brasil action plan has six missions, yet mentions Mercosur only once, as a venue for regulatory convergence. Its third mission proposes integrating production and trade with ‘neighbouring countries’. The bloc does not structure the programme.
One mention does not prove disinterest. It does suggest selective priority when read alongside FOCEM, Mercosur’s structural convergence fund. Brazil supplied 70% of its original annual contributions. Since 2007, the fund has transferred more than $1.06bn to 57 initiatives. Yet the industrial plan does not turn that experience into a regional initiative matching the scale of Brazil’s domestic ambitions.
A political cost remains. During the South Altantic War (Falklands/Malvinas), Brazil had room to exploit Argentina’s vulnerability and chose not to do so. In a recent article, I call this ‘regional self-restraint’: a relatively stronger actor refrains from turning a neighbour’s temporary weakness into immediate bilateral pressure. The episode did not cause Mercosur. It shows that cooperation with Argentina was also understood as a Brazilian investment in regional stability.
During the South Altlantic War, Brazil chose not to exploit Argentina's vulnerability, instead prioritising regional stability
The comparison has an obvious limit. Brazil is not exploiting the current crisis to extract concessions. Even so, these signals point to a less central place for Mercosur in Brazil’s current regional project. A rupture would still cost Brazil influence, predictability and an industrial market that would be difficult to replace on the same terms.
Continuity remains the most likely outcome. Brazil would have greater room to adjust; the smaller partners and Argentine industry would be more exposed. Yet the country facing the smallest proportional bill could lose the region’s hardest asset to rebuild. Markets can be redirected, given time and money. Political influence accumulated over decades has no such ready substitute.
