The Dialogue writes: On July 20, 2021, the Inter-American Dialogue partnered with the Carnegie Endowment for International Peace to examine the arguments of the recent Carnegie working paper Reimagining Regional Governance in Latin America. The panelists discussed the existing challenges for fostering regional cooperation within Latin America as well as how regional cooperation can be reimagined to meet those challenges.
The Dialogue writes: Legislators in the United States have been raising attention around political turmoil in Latin America, helping widen some of the U.S. Congress’ foreign policy focus to include more issues affecting the region, Axios reported this month. For example, Reps. Albio Sires (D-N.J.) and Joaquin Castro (D-Tex.) recently called on the Biden administration to monitor political violence during protests in Colombia, while U.S. Representative María Elvira Salazar (R-Fla.) introduced a bill to review Nicaragua’s free trade status amid a government crackdown against opponents. To what extent has there been a significant broadening of interests involving Latin America by the U.S. Congress, and what is driving this momentum? What role are U.S. legislators playing in positioning Latin America as a foreign policy priority, and which issues have taken center-stage? Is congressional pressure influencing the Biden administration’s strategy toward the region?
JAVIER SOLANA, ENRIQUE V. IGLESIAS writes for Project-Syndicate: The mass protests that have recently erupted in countries as different as Colombia and Cuba attest to the severity of the crises facing Latin America. Although the region’s problems must be addressed above all by its leaders, increased international cooperation will be vital to reviving economic growth and political stability.
Santiago Levy and David Dollar write for Brookings: From widespread protests in Cuba to the assassination of Haitian President Jovenel Moïse, recent unrest across Latin America has brought new attention to political and economic issues in the region and created diplomatic challenges for the Biden administration. To discuss how the United States should engage with Latin America, David Dollar is joined by Santiago Levy, a nonresident senior fellow in the Global Economy and Development program at Brookings and senior advisor to the United Nations Development Program.
Most of Latin America is still far from the horrific conditions prevailing in Venezuela, where output has fallen by a staggering 75% since 2013. But, given the ongoing humanitarian catastrophe there, and the specter of political instability elsewhere, investors should not take a sustained economic recovery for granted.
When you think about restoring a deforested patch of land, you likely picture someone digging holes in the ground and planting seeds or saplings. Planting trees is important (if it’s done the right way), but in many cases, it’s better and cheaper to let trees grow on their own and forests restore themselves with little human assistance.
In fact, there is a wide spectrum of approaches to restoring forest landscapes. At the passive end, there is spontaneous regeneration, where trees and other native vegetation regrow naturally on the land. Think about what happens after a normal forest fire: after some time, little shoots pop up from the ash and grow into big, strong trees without any help from people.
The latest session of the Regional Action Group for Latin America looked at stakeholder capitalism and ESG in the region.
It included remarks by the President of Ecuador, Guillermo Lasso, on his new “Government of the Encounter’s” priorities. He highlighted how companies should be fully integrated across the social and sustainable development purposes of the country.
The work of the private sector and the World Economic Forum in defining standardized frameworks and principles for ESG (Environmental, Social and Governance) is already being used by businesses across the region.
Business and government leaders shared the challenges and opportunities in the road towards expanding and enabling ESGs adoption in Latin America.
China’s trade with Latin America and the Caribbean grew 26-fold between 2000 and 2020. LAC-China trade is expected to more than double by 2035, to more than $700 billion.
The US and other traditional markets tend to lose participation in LAC total exports over the next 15 years. It may be increasingly challenging for LAC to further develop its value chains and benefit from the regional market.
Scenario-planning and new policies could help stakeholders prepare for changing circumstances.
The rise of China as a trade powerhouse has had profound implications for global commerce over the last 20 years, with key economic sectors in Latin America and the Caribbean (LAC) among the biggest beneficiaries. Between 2000 and 2020, China-LAC trade grew 26-fold from $12 billion to $315 billion.
In the 2000s, Chinese demand drove a commodity supercycle in Latin America, helping dampen the regional spillovers of the 2008 global financial crisis. A decade later, trade with China remained resilient despite the pandemic, providing an important source of external growth for a pandemic-stricken LAC, which accounts for 30% of global COVID mortality and experienced a 7.4% GDP contraction in 2020. In a region with historically strong trade relations with the United States and Europe, China’s growing economic presence has implications for prosperity and geopolitics in LAC and beyond.
This impressive trajectory of China-LAC trade over the past 20 years also raises important questions for the next two decades: What can we expect from this trade relationship? What emerging trends might affect these trade flows and how might they play out regionally and globally? Building upon our recent trade scenarios report, here are three key insights for LAC stakeholders. These findings are also relevant for China’s and LAC’s other main trade partners, including the United States.*
What do we expect to see?
On the current trajectory, LAC-China trade is expected to exceed $700 billion by 2035, more than twice as much as in 2020. China will approach—and could even surpass—the US as LAC’s top trading partner. In 2000, Chinese participation accounted for less than 2% of LAC’s total trade. In 2035, it could reach 25%.
Aggregate numbers, however, conceal great discrepancies within a diverse region. For Mexico, traditionally dependent on trade with the US, our base case estimates that China’s participation could reach around 15% of the country’s Mexico’s trade flows. On the other hand, Brazil, Chile, and Peru could have more than 40% of their exports destined for China.
Overall, a healthy relationship with both of its two largest commercial partners would be in LAC’s best interests. While the United States may see reduced participation in LAC trade relative to China, hemispheric relations —especially those involving deep supply-chain integration— are an important driver of manufacturing exports, investment and value-added growth for the region.
How would China further gain ground in LAC trade?
Althoughtrade is bound to grow in both directions, the dynamism will more likely come from LAC imports from China— rather than LAC exports to China.
On the LAC import side, we foresee China becoming even more competitive in manufactured exports, because of the adoption of Fourth Industrial Revolution (4IR) technologies including 5G and artificial intelligence. Overall, productivity gains from innovation and other sources will likely outweigh the effects of a shrinking workforce, sustaining the competitiveness of Chinese exports.
On the LAC export side, an important sectoral shift could be underway. LAC’s agricultural exports to China are unlikely to continue at the bonanza pace of present times. To be sure, the region will remain competitive in agriculture. But markets other than China, such as Africa, would contribute to higher export earnings. This highlights the importance for LAC countries of exploring new destination markets, as well as diversifying their exports to China itself.
On balance, import growth is likely to outpace export growth, causing a higher trade deficit for LAC vis-à-vis China, albeit with considerable subregional differences. While a very small number of LAC countries are expected to retain their surpluses with China, the broader picture points to greater trade deficits for the region. In addition, complementary, non-trade policies will be vital to determining the extent and the secondary effects of these trade deficits in each country, from labour markets to foreign policy.
What to expect for intra-LAC trade in 2035?
As the pandemic disrupted global supply chains, calls from LAC for reshoring or nearshoring and for greater regional integration have again come to the fore. However, assuming a continuation of existing trends,the future does not look promising for intra-LAC trade.While in other parts of the world, particularly Asia, intraregional trade has expanded faster than global trade in recent years, the same dynamism has not been seen in LAC.
In the absence of a major new impetus for regional integration, significant reduction of intra-LAC trade costs or major productivity gains, LAC could remain unable to further develop its value chains and benefit from the regional market. In fact, our projections show that over the next 15 years, intra-LAC trade could account for less than 15% of the region’s total trade, down for a 20% peak before 2010.
Looking back from the future: What to do today?
Over the next twenty years, China will become an increasingly important determinant of LAC’s economic outlook. LAC’s trade tends to turn even more China-oriented – affecting other trade partners and intra-regional trade itself. We recommend:
Building scenarios is not about predicting the future, but it helps stakeholders prepare for different possibilities. Planning for changing circumstances is particularly urgent when there is likely to be turbulence ahead: For example, LAC countries and companies that might be affected by potential changes in the composition of LAC exports to China. The challenge of making export sectors more competitive in the Chinese market just became more apparent for LAC. The same is true regarding the need to develop new, alternative markets for traditional LAC exports, such as agriculture and, increasingly, materials.
Productivity and Competitiveness
LAC stakeholders—and policy-makers and businesses in particular —should be clear-eyed about the trade implications of low productivity affecting the manufacturing sector. Without tackling issues undermining industrial competitiveness in the region, LAC exports to the US, to the region itself and other traditional markets will continue to suffer. At the same time, stakeholders in the US would do well to take measures to reinvigorate hemispherical trade, if retaining US participation in LAC trade is considered an objective worth pursuing.
*We thank David Bohl and the University of Denver’s Pardee Center for International Futures for their support in this Agenda blog post and the report.