A Belt and Road for the Americas?
Project Syndicate | 23 November 2017
A Belt and Road for the Americas?
by Luis Alberto Moreno
Luis Alberto Moreno is President of the Inter-American Development Bank, and a member of the World Economic Forum’s Foundation Board.
In a time of global uncertainty, a vision of “made in the Americas” prosperity provides a unifying agenda for the continent. If implemented, the US could reassert its historical leadership among a group of countries that share its fundamental values, as well as an interest in inclusive economic growth and rising living standards.
As Canada, Mexico, and the United States focus on the next round of negotiations on modernizing the North American Free Trade Agreement – a highly uncertain endeavor – governments in the rest of the Americas are grappling with a more fundamental question about trade. Who will be their dominant trade partner in the future: the US, Europe, or China?
For more than a century, the resounding answer to that question has been, “the US.” The country’s proximity, soft power, and sheer economic might made it the natural center of commercial attention for Latin America. And Latin America is the first or second most important trading partner for 37 of the 50 US states.
In 2016, US companies exported a total of $515 billion worth of goods and services to Latin America and the Caribbean – nearly three times as much as they exported to China. Moreover, whereas the US has a large and recurring trade deficit with China, the country typically posts a surplus with its southern neighbors, which traditionally favor the high-value goods and sophisticated services that US companies provide.
Yet this picture is changing fast. Over the last two decades, Chinese companies have been quietly gaining market share in Latin America and the Caribbean. The share of US imports in Latin America dropped from 50% in 2000 to 33% in 2016, while China’s share jumped from 3% to 18%. In many Latin American homes, Chinese-made laptops, smartphones, televisions, and automobiles have replaced legendary US brands.
Of course, this shift is partly a result of the secular factors that have driven China’s rapid growth and global expansion. But it also reflects China’s long-term strategy to cement its position in one of the world’s most attractive emerging markets.
By 2030, Latin America and the Caribbean will have a combined population of around 720 million people. According to conservative forecasts, its GDP will amount to around $9 trillion, with just six economies – Brazil, Mexico, Argentina, Colombia, Chile, and Peru –accounting for 86% of that total.
Moreover, countries in Latin America and the Caribbean are moving toward becoming an integrated bloc. Thanks to a host of agreements, fully 80% of trade among Latin American and Caribbean countries is already tariff-free. Various trade-facilitation measures, from paperless customs procedures to the harmonization of rules of origin, are steadily dismantling remaining barriers. The two largest regional blocs – Mercosur and the Pacific Alliance, both of which include the region’s six largest economies – are taking seriously the possibility of convergence.
This trend toward greater regional integration will offer a unique opportunity to tap an entire highly lucrative market from a few beachheads. Chinese companies that are now making acquisitions and building factories in Brazil, for example, will be able to distribute their products on preferential terms in neighboring countries, while harnessing regional value chains for parts and raw materials.
Like China, the European Union recognizes Latin America’s vast potential as a trading partner. To be sure, the EU’s share of total Latin American imports has been declining, and now stands at 13.5%. But it is working hard to reverse this trend, including by completing agreements that cover nearly all of the region’s economies. And negotiations on a free-trade agreement with the Mercosur countries are in the final stages. This will put Europe ahead of both China and the US in terms of market access.
But China continues to work hard on many fronts to cement an advantageous position in Latin America, including by pouring large volumes of direct investment into the region. By some estimates, it has plowed more than $106 billion into Latin America in recent years, including $60 billion in Brazil alone. Chinese investment has so far gone primarily to agriculture, energy, and mining projects. But a growing share is now being channeled to manufacturing in sectors that generate higher-wage jobs and transfer much-needed skills to host economies.
In addition, China has become a major underwriter of the new infrastructure that Latin America urgently needs. It is framing these investments within the narrative of its Belt and Road Initiative, a global vision for connectivity, cooperation, and prosperity that resonates powerfully with Latin American leaders.
As China and the EU seize opportunities in Latin America and the Caribbean, the US continues to cede market share. Yet this is its neighborhood, and it could easily propose a similar integration initiative here. And the US certainly has strong incentive to pursue a strategy of active re-engagement with Latin America: the Inter-American Development Bank calculates that if the US were to reclaim the share of Latin American imports that it had in 2000, it could be exporting around $788 billion each year to the region. That is enough to support around one million additional US jobs.
Such a strategy could harness the goodwill and enterprise of the 57 million US citizens who have roots south of the Rio Grande, including the 3.3 million US Hispanic-owned firms, many of which are eager to expand overseas. It might even help to steer the bitter debates over migration and trafficking of drugs and firearms in a more productive direction.
In a time of global uncertainty, a vision of “made in the Americas” prosperity provides a unifying agenda for the continent. If implemented, the US could reassert its historical leadership among a group of countries that share its fundamental values, as well as an interest in inclusive economic growth and rising living standards.
