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The growing role of China in Latin America and the Caribbean

The growing role of China in LATAM and the Caribbean

Nov 1, 2021 | About 6 minutes

China’s influence across the globe has been steadily growing in the past decades. And this influence can be particularly felt in Latin America and the Caribbean (LAC). Since 2000 China’s trade with LAC has grown 26-fold from $12 billion to $315 billion and forecasts for 2035 suggest that the trade links are likely to continue to grow in both directions and is expected to exceed $700 billion by 2035. While still surpassed by the US, there are realistic scenarios that could take China's trade relations close to the same levels as the US.

What are the key exports and imports to be aware of and which countries is China trading with the most? What other scenarios should LAC countries be considering and preparing for?

 Which countries does China trade with most?

The picture of trading with China in LAC is a mixed one with Mexico traditionally more heavily dependent on the US. However, China is its second-highest export partner with an 18% partner share in 2019. Exports to China from Brazil on the other hand were much more evenly distributed between China and the US. Brazil is one of the countries that also managed to have a trade surplus with China, whereas other nations such as Mexico, Panama and Columbia have had trade deficits with China for decades. If this trajectory continues countries such as Brazil, Chile and Peru could have more than 40% of exports heading towards China.

What are the main exports and imports traded with China?

The main assets exported to China are agricultural and commodities, and this is particularly the case with China’s biggest trading partner in LAC, Brazil. This dependency on agricultural exports however is also a cause of worry since African countries are increasingly competing in this space which could reduce China’s reliance on imports from LAC in the future. Imports from China to LAC are usually manufactured goods and trends suggest that the much-needed increase in digitisation and better use of digital in LAC is going to further increase the need to import technology from China.

What are the challenges LAC countries need to look out for?

One of the key challenges that are pointed out repeatedly are manufacturing inefficiencies, low productivity and a Pandemic driven nearshoring focus for many nations.

However, the best way to prepare is by analysing different scenarios and preparing for each. Four main scenarios are outlined in the Atlantic Council 2021 China-LAC Trade: Four Scenarios in 2035 report and are as follows:

  • Scenario 1: Trajectory continues as it has in the past two decades with China closely matching the role of the US to LAC
  • Scenario 2: China overtakes the US as the main trading partner
  • Scenario 3: A decline of agricultural exports and slowing of exporting of metals and commodities means China represents up to 45% of all exports
  • Scenario 4: High dependency of both partners mainly driven by growing imports and trade deficits of LAC countries.

Whichever way you look the influence and trade ties with China are strongly felt in LAC and are likely to grow which will spark much debate around national and trade policies in the future.