Trade Strengthens Ties between China and Latin America

Volume 13, Number 2
Second Quarter 2011

As China's economy has blossomed over the past decade, so too has its trade relationship with Latin America, write Stephen Kay and Gustavo Canavire-Bacarreza in the second-quarter issue of EconSouth.

Trade Strengthens Ties between China and Latin AmericaIn "Trade Strengthens Ties between China and Latin America," the authors, both from the Atlanta Fed's research department, examine the growing trade ties, which are marked by Latin America's booming commodities exports to China, Chinese investments in energy and mining projects in the region, and the competitive threat China poses to the region's manufacturing sector.

Since 2000, China's economy has averaged 10.3 percent real annual growth, making it the world's fourth-largest economy. Meanwhile, the country's trade with Latin America has increased from just over $12 billion in 2000 to nearly $118 billion in 2009. In particular, a core group of countries—including Brazil, Chile, and Peru—have benefited from rising exports to China.  At the same time, Latin American imports of Chinese goods have grown, especially among Brazil, Mexico, Chile, Venezuela, and Argentina.

Latin America may have a comparative advantage with regard to primary products, but there are other factors that also define the region's trade with China. In particular, China's barriers to trade and state directives make it difficult for Latin American countries to export more processed and value-added products to China. "This trade asymmetry is a concern in Latin America," the authors explain, for several reasons. "Primary products are finite, their value added is limited, and their potential impact on long-term development could also be limited if the revenues from these resources are not allocated wisely."

While Chinese demand for raw materials has fueled growth in a handful of countries, those that lack strong ties to China, most notably Mexico and many Central American and Caribbean countries, are finding themselves in direct competition with China for manufactured exports, write Kay and Canavire-Bacarreza. These countries generally have stronger trade ties with the slower-growing United States. As a result, their recovery from the global recession has been slower.

To learn more about the complex relationship between China and Latin America, read the full story online.