Trading places

China is on course to displace the US as LatAm’s main trading partner.

China’s trade with and subsequent influence on Latin America has grown substantially over the past decade. China’s hunger for commodities has made it the largest trading partner of Chile, Peru, Brazil and Panama but trade is also growing across the rest of the continent. Overall, from 2000 to 2020 Chinese trade with Latin America and the Caribbean increased 26-fold and, by 2035, China’s trade with the region is expected to exceed USD 700 billion.

As China’s trade with Latin America has grown, the US is being pushed into the passenger seat, a Mexican economist commented, “The US is responsible for its declining influence in Latin America through the policies of successive administrations it has lost strategic interest in its southern neighbours. These gaps are filled automatically and more so as commodities and other manufacturing lines grow in Asia and seek partners around the world. The phenomenon is not new, but it has accelerated in the last decade. In the global trade war between the US and China, the ‘spheres of influence’ in Latin America are shifting and Washington should be concerned.”

“In the global trade war between the US and China, the ‘spheres of influence’ in Latin America are shifting and Washington should be concerned.”

Economist, Mexico

A Professor of economics at the University of Panama expects China to continue its advance in Latin America, “Many Latin America countries are moving to the political left which pushes them away from the US and towards China. If you pair this with the rise of Chinese consumption it is not hard to imagine that China could become the main trading partner for most Latin American countries over the next decade.”

Beijing has used Free Trade Agreements (“FTA”) as its preferred mechanism of economic, political and social collaboration in Latin America: Chile, Peru and Costa Rica have all signed up and Nicaragua and Colombia have recently joined the queue.

China-Chile trade under its bilateral FTA surpassed a record high of USD 57.72 billion in 2021. China is now Chile’s main export market, accounting for 38.2% of its exports, followed by the US, with 16.5%. Some observers in Chile have been critical about strengthening ties with Beijing with a growing concern around the lack of diversity in the country’s exports and Chinese involvement in critical infrastructure such as the electricity distribution system.

“It is not hard to imagine that China could become the main trading partner for most Latin American countries over the next decade.”

Professor of economics, University of Panama

Peru’s FTA with China exceeded USD 37 billion in 2021 with copper, fishmeal and blueberries leading the trade. However, in early July, Peru’s ambassador to China warned that the bilateral FTA was becoming obsolete. He said that e-commerce, competition policy, intellectual property, rules of origin and customs procedures needed to be re-defined.

In Costa Rica, the deputy minister of multilateral affairs said that, ten years after its signature, the FTA had not met its economic expectations emphasising that the trade balance was favourable to China by 91.16%.

Despite some signs of discontent in these countries, Nicaragua, under pressure from increasing US sanctions, is negotiating an FTA with China. In a meeting on the sidelines of the UN General Assembly, the foreign affairs ministers of Nicaragua Denis Moncada and Wang Yi expressed hopes of reaching an agreement on a comprehensive FTA. Both countries have already started negotiations focusing on specific bilateral trade cooperation.

The Mexican economist said, “It should be remembered that Managua broke with ‘dollar diplomacy’ in its relationship with Taiwan and now has relations with Beijing. But an FTA is not expected on the short term – it is no secret that China is watching the Nicaraguan crisis closely and it does not want to be seen as supporting the Ortega dictatorship. Furthermore, from a strategic perspective, a regional FTA with Central America is in China’s interest, not a bilateral one.”

Chinese trade and investment in the Latin American and Caribbean region is growing at 30% annual rates. While 22 countries in the region are already part of the Beijing-led infrastructure development strategy Belt Road Initiative, Beijing seems keen to continue signing FTA’s with key partners in the region.

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