Latin America and the Caribbean’s Response to the Growth of China and India: Overview of Research Findings and Policy Implications; Angel or Devil? China’s Trade Impact on Latin American Emerging Markets
Latin America and the Caribbean's Response to the Growth of China and India: Overview of Research Findings and Policy Implications
Drawing on a large set of technical background papers, World Bank economists report that the rise of China and India is bestowing substantive net benefits on Latin America, through higher commodity prices, cheaper industrial inputs, and growing capital inflows. Moreover, if Latin American governments adopt appropriate offensive investment and trade strategies -- including negotiating bilateral free-trade agreements -- Latin American exporters should be able to successfully penetrate the burgeoning Asian commercial markets and better integrate themselves into Asian-linked global production networks. Joint Chinese-Brazilian production of remote sensor satellites suggests an exciting potential for trans-Pacific cooperation in technological innovation. Of course, there are losers, notably Mexican manufacturers (in electronics, apparel, and furniture) competing toe to toe with Chinese firms in the U.S. market, and Indian business services may be smarter and cheaper than the Latin American offer. Asian imports have also contributed, although in a relatively minor way, to the contraction of manufacturing employment in some Latin American countries.
Economists from the Organization for Economic Cooperation and Development (OECD) generally concur with their World Bank counterparts: as seen through the Latin American lens, China is closer to heaven than hell. Even if China's export surge and export surplus are "short-term" problems, in the long term Chinese imports will catch up, easing pressure on other developing economies. Nevertheless, the OECD study warns, Chinese manufacturing wages are a mere quarter of the Latin American average, and the Chinese labor market is endlessly abundant. To compete, Latin America (especially Mexico and Central America) should take advantage of its geographic proximity to the world's largest import market, for the relative costs of trade can be more important than relative tariff rates. For example, an important complement to the Central American Free Trade Agreement (CAFTA) would be the construction of the long-awaited Panama-Puebla highway. Happily, capital-rich China and Japan may themselves supply financing for such large infrastructure projects. Another upside to the rise of East Asia is the positive "cognitive effect": Latin Americans recognize the success of "pragmatic," export-driven economies.