Forget tariff wars: The EU and Mercosur build one of the world's biggest free-trade zones

CAÑUELAS, Argentina (AP) — Talks on a landmark free trade deal between the European Union and four South American countries started so long ago that the euro wasn’t even in circulation, China hadn’t yet joined the World Trade Organization and Venezuela was still America’s top oil provider.

But against a starkly different geopolitical background and tough odds — including backlash from powerful protectionist lobbies — the EU and the South American alliance known as Mercosur are expected to formally sign their quarter-century-in-the-making trade pact this Saturday at a ceremony in Paraguay.

This is the first major trade agreement for Mercosur, which includes the region's two biggest economies, Brazil and Argentina, along with Paraguay and Uruguay. Bolivia, the newest member, was not involved in negotiations but can join the agreement in the coming years.

The trans-Atlantic trade deal — lifting tariffs on products ranging from Argentine steaks and Brazilian copper to German cars and Italian wine — still has to be ratified by the European Parliament.

The significance of creating one of the world's largest free-trade zones — home to more than 700 million people and accounting for a quarter of global gross domestic product — while President Donald Trump yanks the United States out of the international economy is not lost on the signatories.

European Commission President Ursula von der Leyen hailed the deal last week as a powerful endorsement of multilateralism "in the face of an increasingly hostile and transactional world." Brazilian President Luiz Inácio Lula da Silva, 80, called it a rare “victory for dialogue, negotiation and the bet on cooperation.”

That victory comes at the expense of the U.S. and China, experts say, as Trump aggressively asserts American authority in the resource-rich region and Beijing uses its massive trade and loans to build influence.

“It’s a signal that South American economies are seeking to hedge away from this great power competition between the U.S. and China,” said Lee Schlenker, a research associate with the Global South program at the Quincy Institute for Responsible Statecraft, a Washington think tank.

“It shows that South America can continue to flex its muscles in the international sphere, to diversify its trade partners and exert a certain level of autonomy it’s often denied.”

The accord grants South American nations, renowned for their fertile land and skilled farmers, increased access at a preferential tax rate to Europe’s vast market for agricultural goods.

Here in Argentina, exporters reckon they’ll save tens of millions of dollars a year thanks to the deal’s immediate elimination of a 20% tariff on the EU’s long-standing quota scheme for high-quality meat imports.

It’s a breakthrough for Argentina, a nation dominated for decades by left-leaning populist governments that kept the economy closed to the outside world and prioritized the domestic market to the extent of imposing taxes on farm exports to keep food prices down.

“We're in the midst of a paradigm shift here," said Carlos Colombo, the president of Cañuelas Cattle Market in Buenos Aires province where over 12,000 cattle are sold daily, many destined for Europe and China. “Argentina has reopened itself to the world."

Argentine President Javier Milei may be Trump’s strongest ideological ally in Latin America — sharing his disdain for the United Nations and the Paris climate accord — but no one can call the radical libertarian a protectionist.

At first he derided the notoriously slow-moving Mercosur as irrelevant and threatened to ditch it. But he changed his tune since realizing the bloc’s potential to sweep away tariffs and slash customs red tape.

“He sees this agreement as a way to revitalize and re-signify Mercosur,” said Marcelo Elizondo, an Argentine economic analyst specializing in international trade.

The free-trade fever has also infected Brazil's long-closed economy. Apex, a Brazilian government investment agency, estimates that EU-bound agricultural exports like instant coffee, poultry and orange juice will rake in $7 billion in coming years.

Squeezed by environmental regulations and fearing a flood of cheap food products from across the Atlantic, farmers have blocked highways and descended on the streets of European capitals in an explosion of outrage against the agreement.

The EU has scrambled to soothe their concerns over decades of negotiations, adding environmental and animal welfare safeguards to the accord and imposing strict quotas for South American exports of meat and sugar to ensure homegrown produce stays competitive.

Even so, the angry farmers ultimately persuaded France, Poland and a few other states to oppose the deal in last week's internal EU vote, depriving the accord's supporters of what they hoped would be a show of unity. Italy and other agricultural powerhouses only came around after the EU offered farmers generous subsidies to the tune of $52 billion.

“It's a sizable bribe,” said Jacob Funk Kirkegaard, nonresident senior fellow at the Peterson Institute for International Economics. “EU leaders decided that the deal is so important at this moment, it's worth it.”

Some have dubbed the deal “cows for cars," reflecting the perception that Europe's auto industry will also win big.

Clobbered by growing competition with China and sky-high U.S. tariffs, vaunted German auto giants like Volkswagen and BMW are glad for the boost, as are producers in Europe's pharmaceutical, construction and machinery sectors gaining access to hundreds of millions more consumers.

Experts say that the elimination of 35% tariffs on auto parts and cars gives European industrial exporters a rare chance to claw back their South American market share from cheaper Chinese rivals.

“Failing to sign the EU-Mercosur free trade agreement risked pushing Latin American economies closer to Beijing’s orbit,” said Agathe Demarais, a senior policy fellow with the European Council on Foreign Relations.

But many are still are holding their breath, having watched negotiations lumber along for years only to trip up at the last minute.

“There are still several steps that have to be taken ... and Europe continues to be very careful," Colombo said, straining to be heard over the hollers of cowboys prodding hundreds of bellowing cattle into trucks.

“Let's not forget, this is historic. We've never reached an agreement like this before."

Associated Press writer Mauricio Savarese in Sao Paulo contributed to this report.

Farmers drive their tractors past the Arc de Triomphe as they protest the Mercosur trade deal, Tuesday, Jan. 13, 2026 in Paris. (AP Photo/Emma Da Silva)

People protest against the EU-Mercosur trade deal in Athlone, Ireland, Saturday Jan. 10, 2026. (Cillian Sherlock/PA via AP)

A banner with writing in Italian "Mercusur, the tomb of made in Italy" hangs from a truck during a farmers protest against the Mercosur deal, a free trade deal between the European Union and five South American nations, in Milan, Italy, Friday, Jan. 9, 2026. (Claudio Furlan/LaPresse via AP)

Sunflowers stand in a field in Lobos, Argentina, Tuesday, Jan. 13, 2026. (AP Photo/Natacha Pisarenko)

A worker moves cattle at the Agricultural and Livestock Market in Canuelas, Argentina, Tuesday, Jan. 13, 2026. (AP Photo/Natacha Pisarenko)

DUBAI, United Arab Emirates (AP) — Iran on Wednesday dismissed an American plan to pause the war in the Middle East and launched more attacks on Israel and Gulf Arab countries, including an assault that sparked a huge fire at Kuwait International Airport.

Iran's defiance came as Israel launched airstrikes on Tehran and as the United States deployed paratroopers and more Marines to the region.

Iranian state television’s English-language broadcaster quoted an anonymous official as saying Iran rejected America’s ceasefire proposal and has its own demands for an end to the fighting. “Iran will end the war when it decides to do so and when its own conditions are met,” the hardliner-controlled Press TV quoted the official as saying.

Earlier, two officials from Pakistan, which transmitted the U.S. plan to Iran, described the 15-point proposal broadly, saying it addressed sanctions relief, a rollback of Iran’s nuclear program, limits on missiles and reopening the Strait of Hormuz, through which a fifth of the world’s oil is shipped.

An Egyptian official involved in the mediation efforts said the proposal also includes restrictions on Iran’s support for armed groups. The officials spoke on condition of anonymity to discuss details not yet released.

White House press secretary Karoline Leavitt insisted the U.S. and Iran are in ongoing talks even as Iranian officials deny it. “Talks continue. They are productive, as the president said on Monday, and they continue to be,” Leavitt said at a White House briefing on Wednesday.

Leavitt warned that if talks with Iran don't pan out President Donald Trump “will ensure they are hit harder than they have ever been hit before.”

Some of the points in the U.S. ceasefire proposal were nonstarters in negotiations before the war: Iran has insisted it won’t discuss its ballistic missile program or its support of regional militias, which it views as key to its security. And its ability to control passage through the Strait of Hormuz represents one of its biggest strategic advantages.

Iran’s attacks on regional energy infrastructure along with its restrictions on the strait have sent oil prices skyrocketing, putting pressure on the U.S. to find a way to end the chokehold and calm markets.

At least 1,000 troops from the 82nd Airborne Division will be sent to the Mideast in the coming days, three people with knowledge of the plans told The Associated Press. They spoke on condition of anonymity to discuss sensitive military plans.

The paratroopers are trained to jump into hostile or contested areas to secure key territory and airfields.

The Pentagon is also in the process of sending about 5,000 more Marines, trained in amphibious assaults, and thousands of sailors to the region.

Most Americans believe the U.S. military action against Iran has gone too far, and many are worried about affording gasoline, according to a new AP-NORC poll.

The survey indicates that while Trump’s approval rating is holding steady, the conflict could be swiftly turning into a major political liability for his Republican administration.

Mediators are pushing for possible in-person talks between the Iranians and the Americans, perhaps as soon as Friday in Pakistan, the Egyptian and Pakistani officials said.

Trump has said the U.S. is “in negotiations right now” and that the participants included special envoy Steve Witkoff, his son-in-law Jared Kushner, Secretary of State Marco Rubio and Vice President JD Vance. He has not disclosed who from Iran they are in contact with, but said "the other side, I can tell you, they’d like to make a deal.”

Press TV cited an Iranian five-point plan for a ceasefire coming from the official who rejected the US proposal. That plan included a halt to killings of its officials, means to make sure no other war is waged against it, reparations for the war, the end of hostilities and Iran’s “exercise of sovereignty over the Strait of Hormuz.”

Those measures, particularly reparations and its continued chokehold over the Strait of Hormuz, likely will be unacceptable to the White House.

While Iran and Oman both have territory in the strait, its narrow shipping channels are viewed as international waters through which all ships can travel.

Any talks between the U.S. and Iran would face monumental challenges. It’s not clear who in Iran’s government has the authority to negotiate — or would be willing to, as Israel has vowed to continue killing the country’s leaders.

Iran remains highly suspicious of the United States, which twice under the Trump administration has attacked during high-level diplomatic talks, including with the Feb. 28 strikes that started the current war.

The Israeli military said Wednesday afternoon it had completed several waves of airstrikes in Tehran. The army also said that as part of its strikes a day earlier it targeted an Iranian submarine development center in Isfahan.

Missile alert sirens sounded multiple times in Israel as Iran and the Lebanon-based militant group Hezbollah launched attacks. Iran-backed Hezbollah has fired rockets into northern Israel around the clock since the war began, disrupting the lives of hundreds of thousands of people.

Iran also kept up the pressure on its Gulf Arab neighbors. Saudi Arabia’s Defense Ministry said it had destroyed at least eight drones in its oil-rich Eastern Province, and missile alert sirens sounded in Bahrain. Kuwait said it shot down multiple drones but that one hit a fuel tank at Kuwait International Airport.

Iran’s death toll has passed 1,500, its Health Ministry has said. Israel says 20 people have died in the war, including two soldiers in Lebanon. At least 13 U.S. military members have been killed, along with more than a dozen civilians in the occupied West Bank and Gulf Arab states.

Authorities say nearly 1,100 people have died in Lebanon, where Israel has targeted Hezbollah. In Iraq, where Iranian-supported militant groups have also entered the conflict, 80 members of the security forces have been killed, a top security adviser, Khalid al-Yaqoubi, said.

The news of potential negotiations drove down the price of oil. Brent crude oil, the international standard, has neared $120 a barrel during the conflict but was trading around $100 Wednesday. It is still up around 35% from the start of the war.

Economists and leaders have warned of far-reaching effects if energy prices remain high — from rising prices on food and other basics to higher rates for mortgages and auto loans.

Iran has allowed a small number of ships through the Strait of Hormuz, but has said no ships from the U.S., Israel or countries seen as linked to them can pass.

Madhani reported from Washington, Corder from The Hague, Netherlands and Ahmed from Islamabad. Associated Press writers Samy Magdy in Cairo, David Rising in Bangkok, Natalie Melzer in Tel Aviv, Israel, Qassim Abdul-Zahra in Baghdad, and E. Eduardo Castillo in Beijing contributed to this report.

Dog salon workers take cover with the dogs in a bomb shelter as air raid sirens warn of incoming Iranian missile strikes in Ramat Gan, Israel, Wednesday, March 25, 2026. (AP Photo/Oded Balilty)

Smoke rises from Kuwait international airport after a drone strike on fuel storage in Kuwait City, Kuwait, Friday, Wednesday, March 25, 2026. (AP Photo)

Smoke rises from Kuwait international airport after a drone strike on fuel storage in Kuwait City, Kuwait, Friday, Wednesday, March 25, 2026. (AP Photo)

Firefighters look on as volunteers and first responders inspect the rubble and search for victims at a residential building hit in an overnight strike during the U.S.-Israeli military campaign in Tabriz, East Azerbaijan Province, northwestern Iran, Tuesday, March 24, 2026. (AP Photo/Matin Hashemi)

First responders inspect a destroyed car at the site of a residential building hit in an overnight strike during the U.S.-Israeli military campaign in Tabriz, East Azerbaijan Province, northwestern Iran, Tuesday, March 24, 2026. (AP Photo/Matin Hashemi)