OPINIONS Latin America grimaces as trade war drags on


Latin America grimaces as trade war drags on


07:13, September 15, 2019


A Chinese worker packs bottles of soybean oil made from soybeans imported from the U.S. at a plant in Shandong Province, China. (Photo: VCG)

These are not the best of economic times for Latin America.

In a forecast issued in August, Moody's, the credit ratings service, lowered its 2019 growth forecast for the region to a meager 0.3 percent.

For Jorge Heine, professor of international relations at Boston University, the trade conflict between the United States and China could therefore not have come at a worse time for Latin America.

"The projections indicate that the current decade will probably be the worst-performing decade in Latin America, even worse than the 1980s, famously known as the lost decade," Heine, a former Chilean ambassador to China, told The Heat, CGTN's global discussion program.

"Argentina is in technical default, Brazil is stuck in neutral, Mexico is having problems and even the countries that were supposed to grow, like Chile and Peru, are growing at much lower rates than were expected. We need investments from wherever – the United States, China, Europe, we need more trade and it isn't happening. The situation is very critical."

Panelists on the program saw spikes in some Latin exports as a result of the dispute but they worried about the longer-lasting damage to the region that can ultimately be caused by the broader uncertainty unleashed by the U.S. decision to use tariffs as a tool of trade punishment.

'New perils and risks'

Otaviano Canuto, a senior fellow at The Brookings Institution, said the uncertainty was a major threat facing the global economy at this time, as it was affecting trade volumes and investment decisions.

He also cited other contentious issues in the relationship between the U.S. and China, such as technology that by itself could create "new perils and risks" to the Western hemisphere.

"I am not a believer in this idea that Latin America might exploit opportunities among the two fighters," Canuto said.

Heine noted that Brazil, for example, has benefited from higher exports of soybeans to China as a result of a falloff in U.S. supplies but his own nation is suffering from a sharp drop in copper prices as a result of the trade war's effects on China, the main consumer.

Copper accounts for almost half of the exports of Chile, the world's leading producer.

"The latest numbers tell us that Chilean exports for 2019 are quite a bit down from 2018. so even in the short-term, there are losers among Latin American countries because of this trade war," Heine said. "I am seriously concerned and I fully subscribe to the notion that this needs to be resolved soon."

China slams 'lies'

The dispute has dragged on for over a year but prospects for a deal have risen after China and the U.S. exchanged "goodwill" gestures ahead of a new round of trade talks scheduled for October in Washington.

Latin America has emerged as a source of Sino-American friction with China forced time and again to chastise the U.S. for claiming that the Chinese are practicing predatory lending and debt diplomacy in the region. China has deemed the claims slanderous and an attempt to sow discord.

According to the South China Morning Post, trade between China and Latin America surged from 12 billion U.S. dollars in 2000 to almost 306 billion dollars last year. China has also become a major investor with the value of its loans surpassing financing from the World Bank and Inter-American Development Bank, which lends to the region.

These developments have unsettled the Americans, but Jiang Shixue, the director of the Center for Latin America Studies at Shanghai University, told The Heat that the U.S. need not worry about Chinese penetration of its "backyard."

"First of all, China will not challenge the influence of the U.S. in Latin America," Jiang said. "Secondly, Chinese investment will help the region to grow more rapidly. Then, a prosperous Latin America will be beneficial for the U.S. (as) there would be less illegal migration, there would be less illegal drug trafficking. So I would suggest that the U.S. should not be concerned about the close relationship between China and Latin America."

There is hope among some that the region can take advantage of the trade war by benefiting from a possible shift in the global supply chain.

"To the extent that there is opportunity in this...  the obvious loser would be China," said Eric Farnsworth, vice president of the Council of the Americas, "because those supply chains are being shifted away from China to somewhere else. Now, normally that would be elsewhere in Southeast Asia but given some of the advantages of Latin America in terms of time zones, culture, language, etc. there are some opportunities there."

But Canuto scoffed at the scenario, saying no drastic change has happened as investors are playing a wait-and-see game.

"Even the number of U.S. companies and the volume of  investments of the U.S. in China has not decreased with the pace that people expected," he said. "There has been some shift in global value chains to other Asian countries but so far the major consequence (of the trade war) has been a slowdown everywhere."

That's why investors and governments everywhere are hoping that next month's high-level bilateral trade negotiations will bring the tit-for-tat tariff conflict closer to an end.

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