Latin America trade ties with China and U.S.: Who is the best partner?

During his participation in the VIII Summit of the Americas in Lima, US Secretary of Commerce Wilbur Ross said that Latin America should look to the United States and not to China because the US is better for them. To support his claim he said that Latin America has a trade surplus with the US while it has a trade deficit with China. He also said that Latin America exports manufactured goods to the US but only raw materials to China. What he said is not true. It's a half-truth (or even a lie).

Dignitaries, Prime Ministers and Heads of State attend the plenary session of the Americas Summit in Lima, Peru, Saturday, April 14, 2018.[Photo: AP/Juan Pablo Azabache]

Ross said that Latin America had a trade surplus of 117 billion dollars with the US and a deficit of 67 billion dollars with China. He did not say for which year the figure is from. But these figures hide a different reality. Although Latin America as a region had a trade surplus with the US of nearly 126 billion dollars in 2017 and had a trade deficit with China of over 63 billion dollars that same year (see Table attached), the figures are distorted by the large trade surplus that Mexico has with the US and the large trade deficit that Mexico has with China.

As seen in that table, which also shows the trade balance of China and the US with most of the countries in the region, Mexico had a trade surplus with the US of over 132 billion dollars in 2017 and with China had a trade deficit of over 67 billion dollars. But many Latin American countries had a trade deficit with the US. For example Argentina, Chile, Colombia, Guatemala, Honduras, Panama, Peru, Uruguay, Paraguay, and others had trade deficits. Several countries had trade surplus with China, such as Brazil (20 billion dollars), Chile, Peru, and Venezuela. Mexico distorts the figures, and if this country is excluded from the figures of the region, then the trade balance of China and the US with the region is quite different. Then, the region had a large trade deficit with the US and a small one with China in 2017. The trade deficit of Latin America with the US (excluding Mexico) was over 9.4 billion dollars, while the figure with China was almost 2.5 billion dollars (figures for 2017 or the last available year, see Table below)

A table shows trade surplus (or deficit) of Latin America and countries in the region with China and the U.S. (measured in million dollars). [table provided by Carlos Aquino]

The claim that Latin America sells mostly manufactured goods to the US and raw materials to China is a half-truth at best. Once again, if Mexico is excluded (this country mostly sells manufactured goods to the US) it will be found that the region sells to China and the United States mainly raw materials. Neither China nor the US are to be blame for the fact that Latin America sells them mostly raw materials, because the region unfortunately has not developed a competitive industry. If you still want to find a culprit, this would be the US and not China, because the region has only increased trade with China in the last decade, while with the US it has been trading for a long time.

Instead, the region has benefited from trade with China because that country buys more and more products from the region. Thanks to China, the prices of raw materials have risen and this has undoubtedly benefited the region. In addition China is investing a lot of money in the region, mostly in the extraction of natural resources but lately also invests in infrastructure, agriculture, finance and other sectors.

In any case nobody can tell the region to trade with one country and not with another. The region must trade with all countries, especially more with the countries that grow the fastest, as is the case of China. Rather, the US has lately become protectionist, having withdrawn from the TPP agreement where it was together with Chile, Mexico and Peru, and is renegotiating the NAFTA agreement where it is with Canada and Mexico. In contrast, China has stated that it is in favor of an environment where free trade and investment are the norm and has expressed its willingness to continue opening its country to the world.

(Carlos Aquino is Professor of Economics at San Marcos National University (UNMSM) and a specialist in Asian Economics. María Osterloh holds an MBA from the Normal University of Beijing and is a researcher in IEPA)