Latin America Can Do Better in Its Relations with China
China’s expanded role in global trade in the first part of the twenty-first century profoundly shifted the way that the world does business. The Asian giant’s reach has had broad implications for both industrialized and developing countries, accelerating globalization and changing the terms of trade for economies large and small.
In the last twenty years, Latin American countries have become key players in this new era of Chinese commercial engagement. The commodity boom, while contributing much to the region’s economic and social progress, sent a plethora of raw and basic materials to Asia, largely to feed China’s economic demand. At the same time, Latin America’s export of high-value-added and complex goods diminished. Its industries—and the training and jobs that accompany them—suffered. Is China the reason for the region’s industrial slowdown?
This year is an inflection point for economic relations between China and Latin America. The timed adjustment of World Trade Organization (WTO) rules in December introduces into the debate the issue of market economy status for China. Each WTO member will face the question of whether to grant China market economy status.
The Atlantic Council believes that it is vital that the region understands what that would mean for economic growth, employment, and prosperity.
This report aims to give Latin American policymakers and private sector leaders a greater understanding of where the region stands vis-à-vis China. The facts are indisputable: the region’s share of industrial exports over time, along with the diversity of those exports, has declined. The share of domestic consumption met by imported goods has risen.
To assess the impact that China has had on these developments in Latin America, the authors of this report have constructed a model that projects the role that Chinese practices have played in producing such results. The model dissects China’s use of industry subsidies to increase its exporters’ market share. It seems increasingly clear that this practice, which hurts industrial leaders throughout the Western Hemisphere and Europe, has retarded Latin American industrial development.
The authors of this report examine the role that China has played in the region’s three key economies: Argentina, Brazil, and Mexico. While trade with China has affected all three countries, there are nuances among them: namely Brazil and Argentina have experienced significantly different changes to their export bases and industrial sectors, while Mexico exports fewer commodities to China.
China has clearly played a role in the economic transformations in Latin America over the last two decades, and it will continue to do so in both trade and investment. This report specifically does not address issues related to investment in the region, but here, too many local producers have pointed out the difficulty of competing with non-market companies that bid with turnkey projects. China’s foreign direct investment, however, will be left for another paper.
The path forward for Latin American manufacturing and industry will require domestic policies that combat trade imbalances without being overly protectionist. To make industrial sectors newly competitive, governments need to expand multilateral trade coordination, consolidate institutions that can attract foreign direct investment in industry, and increase social goods like education and infrastructure that can make high-value-added exports competitive in the world market.
This paper is the second one on Sino-Latin American relations from the Adrienne Arsht Latin America Center. Ours is an effort to inform public and private sector leaders in Latin America, the United States, and Europe about the complexities of China’s growing interest in Latin America. There is much opportunity in expanding relations between Latin America and the rising Asian power. But Latin America can and must do a better job insuring that this relationship brings the region closer to sustainable and equitable socioeconomic growth.
Adrienne Arsht Latin America Center
Senior Research Assistant
Adrienne Arsht Latin America Center