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economic relationship between Asia and Latin America

Page history last edited by Brian D Butler 10 years, 1 month ago

see also:  Brazil import export

 

Table of Contents:


 

 

 

Connection

 

From China's perspective, in 2010 they saw a rebound due to economic stimulus, which resulted in "Domestic demand has fueled a sharp rise in LatAm imports"  as per Roubini Global Economics

 

 

many Latin American countries that have become heavily dependent on trade with China

 

countries such as Brazil, Argentina, Chile, Peru, and Venezuela, which in recent years have become major commodity exporters to China

 

Over the past decade, along with Chinese incredible growth, we have seen a major trend of Chinese demand for commodities, and countries in Latin America have been more than happy to feed that demand.  In the process of creating stronger economic ties with China, many of these Latin American countries have become very dependent upon the export of these commodities to China.  But, what will happen if China were to slip into a recession?  (all economic theory says that it must happen at some time)  Will a Chinese recession necessarily also mean a Latin American Recession?   In this section we will discuss all aspects of the economic relationship between Asia and Latin America

 

 

Not just Latin America:

Asian demand has supported Japan’s exports, U.S. and eurozone exports, as with Africa, etc...

 

 

 

 

 

 

Dangers

 

2010

  1. Crisis in Europe, leads to falling Euro... less imports from China, which will demand less from Latin America
  2. Protectionism on the rise, reduces global trade (same impact as above)
  3. US consumers increase savings, reduce consumption (same impact as above)
  4. Chinese fiscal stimulus completes removing artificial support to Chinese demand, which will impact Latin America's exports

 

 

2008

see our discussion on The next bubble to burst may be commodities in 2008 

 

 

Commodity led inflation + recession =  potential "stagflation"

 

Stagflation is any economists worst nightmare.  Low economic growth plus high inflation.  The economists would like to cut interest rates to spur economic growth, but can because they must raise interest rates to fight inflation.   There is a real possibility that inflation is rising in 2008, and that there is a recession coming.  Will this be the 1970's all over again?  some analysts are saying that it might, but many things are significantly different now, so the parallels are not fair.   But, remember...after the 1970s, the US economy recovered, but the Latin American economies fell into a spiral of recession and debt crisis.   When the US economy slowed, and credit dried up, commodity prices plummeted...it led to massive budget problems across Latin America.  So, the million dollar question to ask today is:  if the US were to fall into stagflation, will commodity prices fall?  If they were to fall, and if the US were to be in recession, what would happen in Latin America?

 

 

 

Counter view to threats:

 

  1. The US may go into recession, BUT, commodities are no longer directly dependent on the US economy (as they were in the 1970's).  So, the implication of this theory is good for Latin America, but really bad for the United States. 
    • Its good for Latin America because it means that (even though the US goes into recession), the commodity prices will not fall like a rock, and commodity exporting nations shouldnt hurt that much.  
    • Its bad for the US because (unlike the 1970's), a recession in the US wont drive down commodity prices, which wont help tame inflation, and set the stage for a rebound.  If commodities remain expensive, then a rebound in the US will be much more difficult (expecially if the US dollar remains weak, making imports such as oil that much more expensive).    On the other hand, a weak US dollar should help boost US exports (especially if foreign countries demand remains strong)....

 

 

 

 

 

 

Research needed:

 

correlation between a US recession and worldwide commodity prices

 

  • how dependent on US demand are commodity prices
  • If the US used to be the biggest buyer of commodities, but now its China, Europe, Japan, etc....
  • Direct analysis
    • how much commodities are imported directly into the US
    • how much commodities are consumed in the US
  • Indirect analysis
    • how much (as%) of China's production is exported to the US?
    • What % of commodity usage from China is associated with US trade?
    • worldwide - what % of worldwide production is linked to the US (% of GDP consumed worldwide)
  • With these statistics, we might begin to have a better understanding of the correlation between a US recession and worldwide commodity prices.

 

 

 

 

NEWS from the net....

 

China-India trade deal might hurt Latin America

 jan 17, 2008

Miami Herald

 

 

This week's agreement between China and India to dramatically boost their economic ties will have a major impact on Latin America, and it may not always be good news for the region.

 

This week, the leaders of the world's two fastest-growing major developing countries met in Beijing to end decades of bilateral tensions and upgrade economic ties.

 

Indian Prime Minister Manmohan Singh and China's Premier Wen Jiabao said they would increase the bilateral trade target for 2010 from $40 billion to $60 billion, and that the two countries will start talks for a preferential trade agreement.

 

While international summits often produce ambitious joint declarations that never materialize, most experts take the China-India commitments seriously. Since China and India signed a ''strategic partnership'' agreement in 2005, bilateral commerce has skyrocketed: their $20 billion trade target for 2008 was achieved in 2006.

 

''Records are tumbling when it comes to India-China trade,'' The Times of India newspaper said Wednesday in an editorial. ``China may soon become India's largest trading partner.''

 

SOME GOOD NEWS

 

The growing China-Indian trade ties, as well as a 3-year-old, free-trade agreement between China and the 10-member Association of South East Asian Nations is likely to change the map of world commerce. And it will impact many Latin American countries that have become heavily dependent on trade with China.

 

The good news is that growing trade between China and India will boost Asia's economic growth, which will require ever growing quantities of Latin American oil, copper, iron ore, soybeans, and other raw materials.

 

That will be a boon for countries such as Brazil, Argentina, Chile, Peru, and Venezuela, which in recent years have become major commodity exporters to China.

 

Over the past five years, China's massive purchases of Latin American raw materials have helped the region grow at an average annual rate of 5 percent. This has helped Latin America enjoy its best five-year economic growth cycle in the past 40 years, according to United Nations estimates.

 

In addition, a steadily growing Asian economy will mean a potentially bigger market for Latin American non-commodity exports, Asian diplomats say.

 

''India and China getting together and increasing their business is going to make them more prosperous, and that will open up more opportunities for Latin America,'' India's ambassador to Argentina, R. Viswanathan, told me in a telephone interview. ``What Latin America needs is growing markets, especially at a time when the U.S. economy is slowing down. This is a win-win situation for them.''

 

OTHER VIEW

 

But many economists warn that China and India are complementary economies -- China is bigger in manufacturing, India is bigger in information technology -- and that their preferential trade agreements will make it more difficult for Latin America to export manufactured goods to the two Asian giants.

 

''It will make it especially harder for Latin America to move toward more sophisticated exports to China,'' says Antoni Estevadeordal, a top economist with the Inter-American Development Bank in Washington D.C. ``India will become a formidable competitor in the Chinese market.''

 

R. Evan Ellis, an associate with the Booz, Allen & Hamilton consulting firm who is writing a book on China's relations with Latin America, says that Latin American countries' biggest opportunity in Asia will be creating partnerships with Indian technology and manufacturing firms.

 

''India is interested in investing in technology and manufacturing in Latin America with a view to the Latin American and U.S. markets,'' Ellis said, noting that many Indian companies have already set up operations in Latin America. ``Latin America's proximity to the U.S. market is a key ingredient for Indian firms.''

 

FINAL WORD

 

My opinion: I hope I'm wrong, but I fear that Asia's growing economic integration will increase many Latin American countries' dependence on raw material exports (which tend to produce fewer jobs and profits than industrial goods) and make it more difficult to sell manufactured goods to Asia.

 

Latin America's best hope will be, as Ellis said, teaming up with Indian technology and manufacturing companies to produce Indian goods in Latin America, and export them to the U.S. market.

 

India, more than China, may be Latin America's most desirable long-term Asian partner.

 

 

 

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