Trade Relationship Between China & the Latin American Region

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AGAINST: (Olivia Pitt 43666116)

Although the relationship and activities between the Latin American region and China has brought about numerous advantages to both entities, they do not come without equal complications. In the past decade, Latin America has taken great strides in lifting millions out of poverty. However, Latin America is a region with the most unequal income distribution in the world, where 189 million people still live on less than $2 a day, which amounts for about 34% of the population (Kelly, 2011). Instead of working towards better wealth distribution, a 2004 report by the Latin America/Caribbean and Asia/Pacific Economics and Business Association warned that Chinese expansion could actually have a detrimental impact on the vulnerability and exclusion of the poor from economic activity (Kelly, 2011). This report outlined that China’s growth into the region has been stimulated by its incessant need for agricultural and extractive resources. These include energy oil reserves, iron ore, copper and soy – mostly non-labour intensive products that are unlikely to have a positive impact on the poor (Kelly, 2011). Rather, the report finds that the impoverished could have been unfavourably affected as a result of the Chinese development. China's determination to take advantage of the spending power of Latin America's emerging middle classes through flooding local markets with cheap Chinese goods could also affect the growth of domestic manufacturing, often vital to growing local employment and income opportunities and to reducing poverty (Stuenkel, 2016).

The soy industry is a prime example. Although South America’s soybean industries have expanded their international access as a result of trade with China, rural communities have received few benefits. Amongst rising production, wages have decreased and unemployment escalated with the rapid increase of high-volume, monoculture farming (producing / growing a single crop, plant, or livestock in a farming system at a time.). Brazil is a fundamental paradigm: while Brazilian soy production quadrupled between 1995 and 2009, employment in the sector actually shrank. Soy production has also been linked to the deforestation of 528,000 sq. km of the Brazilian Amazon rainforest (Kelly, 2011). As well as this, researchers in Peru have found that Chinese companies running state or private enterprises have little meaningful or positive engagement with local communities or labour organisations (Kelly, 2011).

With the emphasis on value-added Chinese goods, China now purchases fewer commodities from Latin America but sells more to the region, causing Latin America’s trade deficit with China to increase (Stuenkel, 2016). As mentioned, nations such as Brazil face such risks of deindustrialization.

In addition to this, many new projects that China may finance (such as the Trans-Amazonian Railway from the Atlantic to the Pacific Ocean as mentioned previously in Q1) would help integrate the region, yet additionally enhance the Latin American region’s dependence on China. With this added reliance comes mass environmental damage, as well as rapid unemployment and possible recession.

Thus, China and Latin America’s growing engagement can be seen as a mixed blessing.

- What does a stronger Yuan mean for Latin American exporters trading with China? (Myeerah Zhang, 44268564)

While currency around the world is always fluctuating, serious implications can occur when the value exceeds too much. As the Yuan gets stronger, it hurts Latin American exporters trading with China. China’s purchasing power would increase, therefore, buying more goods from these countries at a better rate. They would be getting more products for their currency, but Latin America would be losing out. When the Yuan is stronger, they need to supply more resources because they have a higher value per dollar. Although with an appreciation of the Yuan, the demand for the raw materials in Brazil, Mexico, and Argentina rises. Thus, Latin American countries are producing more products and selling more resources. The whole economy of Latin America is dependent on the appreciation or depreciation of the Yuan.

Appendix

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Figure 1. China’s trade with Latin America, 1985-2005. Source: own elaboration from IMF, Direction of Trade Statistics. Note: data includes trade of China and Hong Kong with 19 Latin American economies.

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references

Olivia Pitt (43666116):

- The Economist US, (2004). Magic, or realism? China and Latin America (Trade between China and Latin America is burgeoning, though it may be a mixed blessing for the Latin side). The Economist USS. [online] 374(8407). Available at: http://www.economist.com/node/3521240 [Accessed 3 Apr. 2017].

- Kelly, A. (2011). Who Really Benefits from China's trade with Latin America?. The Guardian. [online] Available at: https://www.theguardian.com/global-development/poverty-matters/2011/feb/16/china-latin-america-trade-benefit [Accessed 3 Apr. 2017].

- Kotabe, M., Marshall, A., Ang, S., Griffiths, K., Voola, R., Roberts, R. and Helsen, K. (2014). International Marketing: Asia–Pacific Edition. 4th ed. China: Printplus Limited, pp.574-577.

- Stuenkel, O. (2016). How Trump benefits China in Latin America. Americas Quarterly. [online] Available at: http://www.americasquarterly.org/content/how-trump-benefits-china-latin-america [Accessed 3 Apr. 2017].

Myeerah Zhang (44268564):

- Ellis, R. (2009). China in Latin America. 1st ed. Boulder, Colo.: Lynne Rienner Publishers.

- Fernandez Jilberto, A. and Hogenboom, B. (2012). Latin America Facing China. Oxford: Berghahn Books.

- Jenkins, R., Peters, E. and Moreira, M. (2008). The Impact of China on Latin America and the Caribbean. [online] Sciencedirect.com. Available at: http://www.sciencedirect.com/science/article/pii/S0305750X07001994 [Accessed 4 Apr. 2017].