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Latin America Must Diversify Trade With China
Andres Oppenheimer

HOME > WORLD > LATIN AMERICA

 

When Chinese President Hu Jintao visits Latin America this week, there will be a lot of official speeches celebrating the explosive growth of China's trade with the region. But there are reasons to worry about the future of the China-Latin America love affair.

While China's massive purchases of Latin American goods have been a godsend to the region -- bilateral trade soared from $10 billion in 2000 to $100 billion in 2008, and has helped the region survive the world economic crisis -- growing numbers of economists say China-Latin America trade flows are likely to grow at a slower pace in coming years.

I was particularly struck by new projections from the United Nations' Economic Commission for Latin America and the Caribbean, released on the eve of Hu's scheduled trip to Brazil, Chile and Venezuela starting Wednesday.

The U.N. projections show that while China-Latin America trade grew at annual rates of 30 percent last decade, it is likely to grow at half that pace -- around 15 percent -- between now and 2020.

ISSUES AHEAD

Among the clouds on the horizon:

-- First, Latin America's exports to China are too dependent on a small number of raw materials. Whether it's Argentina or Brazil's soybeans, Chile's and Peru's copper or Venezuela's oil, many Latin American countries depend on just one product for the bulk of their exports to China.

What will happen if a drought, foreign competition or a trade dispute disrupt these single-product exports? China's recent decision to suspend imports of Argentina's soybean oil -- worth about $200 million a year -- was a reminder of how vulnerable Latin American countries will be unless they diversify their exports. For Brazil and Chile, among others, China is their No. 1 export market.

Osvaldo Rosales, ECLAC's head of international trade, told me that, "We are trading with the biggest engine of the world economy of the 21st century [China] with exports from the 19th century. That's helpful in the short run, but in the medium term creates a dependency on a few basic goods that generate fewer jobs than manufacturing or service exports."

-- Second, despite most governments' public claims to the contrary, China's recent free-trade agreement with the 10-member Association of Southeast Asian Nations, ASEAN, is bound to hurt Latin American exports. The China-ASEAN deal went into effect Jan. 1, and may be expanded to include India over the next few years.

Latin American countries compete with ASEAN countries in exports of fruits and vegetables, minerals such as iron, and most manufacturing goods. Now, the China-ASEAN free-trade deal will allow ASEAN nations such as Vietnam, Philippines, Malaysia and Indonesia to export their goods to China duty free. "That will hurt Latin America and the Caribbean," Rosales said.

-- Third, Latin America's strong currencies will make it harder for countries in the region to compete in Asia. Several countries in the region, especially Brazil, have seen their currencies appreciate by more than 20 percent over the past 12 months, which makes their products more expensive to sell overseas.

BROAD TRADE DEAL

Rosales argues that Latin America badly needs a broad economic agreement with China to generate Chinese investments and help sell manufacturing goods to China. Right now, each Latin American country is pursuing its own bilateral trade agreement with China, and lacks the negotiating power to extract larger concessions, he said.

"We need a regional strategic association agreement with China, so that we can diversify our exports and face the growing competition from ASEAN countries," Rosales said. "Unless we team up and do it together, it won't happen."

My opinion: The idea of a Latin America-China economic agreement is great, although the big question is whether Brazil, South America's giant, will go along. Brazil, by far China's biggest trade partner in the region and the only one to which Hu will have visited in all of his three official trips to Latin America, may feel that it doesn't need company in its dealings with China.

What Latin America needs mostly is to diversify its export mix, adding value to its raw materials and innovating to produce new export goods. Otherwise the region's recent surge in exports to China will be just another boom-and-bust story, and the region will have wasted one of its biggest commercial opportunities ever.

 

 

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(c) 2010, The Miami Herald DISTRIBUTED BY TRIBUNE MEDIA SERVICES

 

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