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April 18, 2016
Having exerted their force and influence in Asia and Africa, China is set to become Latin America’s second-largest trading partner within the next 2 years. Some experts believe that before 2020, the Chinese will have overtaken the United States in terms of trade in their own ‘back yard’. Time is running out for both the United States and European nations as China is quickly becoming the largest trading partner for many South American nations with more amenable trade deals. The costs to the United States are obvious as it is no exaggeration to say that trade with Latin America is vital to their survival as an economic superpower.
In no more than 5 years, America has gone from being the largest trading partner for 127 countries in 2006 to just 76 in 2011. This is in stark contrast to China which has grown from just 70 country trading partners to 124 over the same time periods. With the United States seemingly passing on the baton after a 60 year stint as the world’s largest trading partner, it also looks as if China will close the year as the world’s largest economy. The United States still has a big lead over China in Latin America but China has been closing the trade gap at a phenomenal rate. While trade between Mexico and the United States increased to U$D527 billion, in the rest of Latin America it fell by about U$D14 billion. With Mexico accounting for more than 60% of the United States’ trade with Latin America, Brazil’s economy is almost twice as large as Mexico’s and it comes as no surprise that 5 years ago, China became Brazil’s largest trading partner.
This turn in influence does not only have costs for the United States but also for Latin Americans using the Chinese goods and services. There is no doubting that the level of products sent to Latin America from China, will never meet the standards required in the United States or Europe and in many cases, Latin America is being charged as much or more for lower quality goods. China has been and continues to get away with this as it has a published game plan while the Americans seem ready to give up the fight. In the Chinese strategy for Latin America, published by the Chinese Vice Minister of Foreign Affairs, Li Jinzhang, one of the most important parts is the plan for strategic loans. This is the essential part of the plan as it is creating good will that Beijing is then using to form favourable agreements. From 2008 to2012, China lent over U$D80 billion to Latin American countries and since 2009, it has provided loans that have exceeded both the Inter-American Development Bank and the World Bank.
In 2010, 92% of Latin America’s manufacturing exports were in sectors where China was increasing its market share while the region was decreasing its share. With commodity prices sliding and terms of trade declining, the lack of ability of Latin America’s manufacturers to compete with the Chinese is producing a real cause for concern in the region’s long term growth. Governments in Latin America have rather quietly voiced their opinions on not wanting the region to become China’s next Africa. While in the past the region has feared the predominance of their North American neighbours, it is now the opposite with calls for the Americans not to retreat too much and to maintain a balance between the two competing superpowers.
There is no reason for the United States to retreat as maintaining its dominance in the region has a number of natural advantages. To begin with many Latin Americans would prefer to be associated with the United States instead of China and there is also the matter of linguistic similarities, a growing shared heritage and shorter trade routes. To put this into context, Colombia is closer to Los Angeles than Los Angeles is to New York. Unfortunately for many Latin Americans, it seems that the United States is only now waking up to the fact that China has very cleverly worked their way into the region and are quickly gaining ground on the United States. The United States needs to act swiftly, intelligently and aggressively if it is to stop or at least control the influence of the Chinese in their ‘back yard’. If the United States does not integrate their policies, finding out what its southern neighbours want and accommodating them so that both sides gain, it can expect to feel the fire from the mouth of the dragon on its front doorstep.
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