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Trade Issues with China
Trade Issues with China
China’s economy is the 3rd largest economy in the world. Many factors will contribute for China to be the largest and most safe economy in the future. Some of these are: huge market potential, comparative advantaged cheaper labour, rich labour sources, stable government and society and sound corporate governance. All of these factors will encourage the investment of foreign capital into the country.
Building cars in Uruguay, donating a soccer stadium in Costa Rica and lending 10 billion dollars to the biggest oil company in Brazil has made China one of the most important trade partner of Latin America. Since the US started the war with Afghanistan and Iraq, billions of dollars have been used to fulfill military aid. In the meanwhile Latin America becomes poorer every year. “China is rising while the U.S. is declining in Latin America,” Riordan Roett, a professor of international relations at Johns Hopkins University argued that China is all over Latin America making investments and trying to fill the economic hole the United States left in the continent. Beyond trade, China has become the World Bank as a major lender to Latin America. As said before, Petrobras, Brazil’s biggest oil company, is borrowing 10 billion dollars, Ecuador is borrowing 1 billion dollars to finance investments in oil companies, and another 1.7 billion to build the countries’ largest hydropower dam. China’s economic intervention in Latin America is more accepted by the people because it is less ideologically based than the United States economic interventions.
China’s main interest in Latin America is the access to raw materials such as: oil principally, iron ore, soybeans and copper.
China has become a very important trade partner to Brazil.
In fact it constitutes the second most important trade partner
to Brazil after the United States. The trade of soy benefits a
big part of the poor sector of the population. “
If soy is king in
this state — which produces one-quarter of the country's crop
— farmer Erai Maggi is the kingmaker. The 48-year-old soy
tycoon started out with one tractor and 250 acres. Today his
combined farms total half a million acres.” (McCarthy, Julie.
(2008). Growing trade ties China to Latin America.
One of the many poor families in Brazil had 250 acres of soy not so
many years ago, with the growing demand for soy, this family now has
half a million acres. This helps this family overcome poverty and have a
meal at their table every day.
Copper is necessary to modernized China. It can be used to
back-up a currency, in the next wave of both electric and hybrid
cars, copper is big in art, also used in today’s currency (coins).
China dominates 38% of the copper market.
The Chinese mining company, Minmetals, has signed an
agreement with Codelco, a Chilean copper mining company,
to open a new mine that will supply China with copper for the
next 20 years.
Iron is the worlds most common used metal, steel is made mainly
from iron-ore China is the world’s biggest producer of steel, and
since steel is made from iron-ore, it makes them the largest buyer
of iron-ore as well. Iron-ore is used for construction, automobiles,
and other forms of transportations, such as trains and trucks. It is
also used in medicine, metallurgic products, paints etc. Vale, the
Brazilian mining company, second largest in the world, is the world’s
biggest iron-ore producer, and China is the largest consumer.
Energy concerns play an important role in the relationship
between China and Latin America in the past few years.
China lent 10 billion dollars to the biggest Brazilian oil
company, Petrobas, in 2004. Given the poor relations of
Chavez government and the US, China has signed severa
l energy related agreements with Venezuela. The agreements
commit the China National Petroleum Corporation to spend
over 400 million dollars in developing Venezuelan oil and gas
reserves. It is not hard to analyze the interest Chinas has over
oil in Latin America since oil has become the main interest
for all countries in the world.
Brazil, Chile, Argentina and Mexico are the strongest economies in Latin America.
While Europe and the U.S. are struggling with the recession, Brazil’s economy shows little vulnerability. Brazil is also outspending most of it neighbours on social programs, and the overall public spending is four times higher than what Mexico spends in average. Brazil has great diversity, it has a huge potential to expand a booming in the agricultural and industrial sector into virgin fields and undiscovered natural resources. Recent oil discoveries put Brazil into one of the global oil powers in the next decade. With a stronger currency and inflation in control, Brazilian economy grew 5.4 percent last year. Petrobas, Brazil’s national oil company shocked a world last November when it announced that its Tupi deepwater field offshore of Rio de Janeiro could hold five billion barrels of oil.
Many economists argue that Chile is the first country in Latin America that is going to be part of the developed first world nations. Chile’s economy did not suffer as much as the U.S economy did. Its GDP is still at 3 percent this year and the per capita GDP is $14, 688. One of the differences between Chile and the many countries in Latin America is that the government’s role in the economy is limited to regulations, although the state continues to operate one of the biggest copper mines in the world CODELSCO and other franchise.
Rich natural resources, a highly literate population, an agricultural and industrial based economy is what makes Argentina one of the most developed countries in Latin America. Early in the twentieth century it was one of the richest countries in the world and the richest in the Southern Hemisphere. Argentina is ranked number three producer of honey, soybeans and sunflower seeds, fifth in the production of maize and 11th in the production of wheat. Manufacturing is the nation’s largest single sector in the economy with 21.5% of the GDP in 2007. The service sector is the biggest contributor to total GDP, representing 58% of the GDP. The average growth rate is 4 % and the income per capita is 2.9%.
Mexico’s economy is the 11th largest economy in the world. The stability of its macroeconomics has reduced inflation, interest rates, per capital income, decrease enormous gaps between the urban and rural population, and between the rich and poor. The Mexican economy contains rapidly developing industrial and service sectors. The service sector is the largest component of GDP at 70.5%, followed by the industrial sector at 25.7%.
Tourism is one of the main industries in Mexico. It represents the fourth largest source of foreign exchange for the country. Mexico is the 8th most visited country every year.
Benefits Of Such a Close Relationship With China
China’s role in global economics has seen major growth in recent years. With an estimated 1.3 billion people and the second or third largest economy in the world it’s no wonder we’re beginning to see their economic and diplomatic involvement in other regions around the world. China’s GDP has grown by an average of 9 per cent a year over the last 20 years and shows no signs of slowing (Philips). China’s economy now represents 4 per cent of the world’s economy, a sharp the 1 per cent it represented in 1978. This growth can be largely attributed to reforms introduced in the 1970’s that focused on integrating the Chinese economy into the world economy through a boost in trade and investment (Jubany). In all likelihood, if these trends continue, China will take the United States’ place as the world’s leading economic power (Philips).
However, this is only one side of the picture. Despite all of its growth, China is still one of the poorest countries in the world. The central federal government estimates that the per capita GDP is around $6000 and that it could take 45 years for China to become a middle-income country (Jubany). The main contributor to this glaring disparity between its economic growth as a country and its relative poorness in per capita terms cited is Chinas lack of natural resources relative to population size. This leaves China in a precarious position; on the one hand, China shows great potential as a world economic power, yet it needs an almost infinite flow of raw materials to fuel this industry growth and to feed its enormous population. China has turned to Latin America to alleviate a substantial portion of this burden. The combination of the desire of Latin American countries to grow economically and prosper and the richness of natural resources made the region a likely place for China to turn for a solution to their energy and raw material needs. There is no question of whether both China and Latin America have seen substantial benefits of this newly formed relationship, the question is, whether this growing economic power should be seen as, too, a threat, to their environment, their people, and their economy, in time.
China’s role in global economics has seen major growth in recent years. With an estimated 1.3 billion people and the second or third largest economy in the world it’s no wonder we’re beginning to see their economic and diplomatic involvement in other regions around the world. China’s GDP has grown by an average of 9 per cent a year over the last 20 years and shows no signs of slowing (1). China’s economy now represents 4 per cent of the world’s economy, a sharp contrast with the 1 per cent it represented in 1978. This growth can be largely attributed to reforms introduced in the 1970’s that focused on integrating the Chinese economy into the world economy through a boost in trade and investment (2). In all likelihood, if these trends continue, China will take the United States’ place as the world’s leading economic power (1).
However, this is only one side of the picture. Despite all of its growth, China is still one of the poorest countries in the world. The central federal government estimates that the per capita GDP is around $6000 and that it could take 45 years for China to become a middle-income country (2). The main contributor to this glaring disparity between its economic growth as a country and its relative poorness in per capita terms cited is China’s lack of natural resources and arable land relative to population size. This leaves China in a precarious position; on the one hand, China shows great potential as a world economic power, yet it needs an almost infinite flow of raw materials to fuel this industry growth and to feed its enormous population. China has turned to Latin America to alleviate a substantial portion of this burden. The combination of the desire of Latin American countries to grow economically and prosper and the richness of natural resources made the region a likely place for China to turn for a solution to their energy and raw material needs. There is no question of whether both China and Latin America have seen substantial benefits of this newly formed relationship, the question is, whether this growing economic power will be seen as also a threat, to their environment, their people, and their economy, in time.
Whether China represents more of a threat to Latin America than a blessing has been widely debated. For this reason, to get a better grasp of the situation, it will help to look at some of the benefits Latin America has enjoyed as a result of this relationship, and then later, we will look at some of the downsides. The first and most obvious benefit is the money that China has brought in to the area and invested. In November 2004, the Chinese President visited several countries in the region and reached agreements in Argentina, Brazil, Chile, and Cuba on such diverse areas as energy cooperation and infrastructure financing, as well, he made deals in the telecommunication, education and tourism sectors. During the same visit, President Hu pledged China would invest up to $100 billion over the next decade in Latin America (2). It’s clear that the economic benefits of this relationship for Latin America are vast. They stand to gain in areas of trade diversification, increased foreign direct investment, low cost imports, and growth in other sectors (3). Latin America also stands to gain in diplomatic terms. This partnership with a growing major economic power gives the region a higher international profile. The so-called “south-south” dynamic that characterizes the partnership is a welcomed alternative to the largely strained relationship shared with the United States for centuries (3). The “south-south” refers both to their common geographic location in the southern hemisphere and to their shared membership in the “global south” of developing nations. The idea is that is being put forward is that China, despite being the larger economic power, does not wish to be the more powerful party in the partnership but rather is looking to be an equal partner in an equally beneficial relationship.
One common fear is that China represents a threat to Latin America, as an exporting country. However there is extensive evidence suggesting that there are significant differences in the two regions’ exports and business models. Some claim that for this reason, the economic models of China and Latin America are more complimentary than competitive. Thus, they should be able to co-exist more or less harmoniously (3).
So, it’s clear that there are significant gains Latin America stands to make both economically and diplomatically from a close relationship with China, however,concerns about the possible threat that China represents to the region have been many. This next section is dedicated to looking at some of the possible drawbacks for Latin America to the partnership with China.
The most widespread concern cited regarding this burgeoning relationship between the two regions is the competition that China represents in the global market to Latin America. This is true especially of Latin American countries with strong manufacturing sectors. The Latin American country most adversely affected by the competitiveness of China’s manufacturing sector has been Mexico. Mexico, with a manufacturing sector that supplies North America as well as the EU with a significant portion of their textiles is being gradually squeezed out by China. Lower wages are cited as the biggest contributing cause of this trend. The wages for most Latin American countries have been steadily increasing along with other working conditions while China’s remain relatively low (3). The disparity between the wages of the regions means that China can manufacture goods at a fraction of the cost of their Latin American counterparts and this competition is seriously hurting the economies of some Latin American countries. Assuming it takes 20 minutes for workers to cut, sew and finish a dress shirt for U.S. markets, it costs China only $1.12, while it costs Nicaragua $1.50, and Mexico a whopping $2.20. With this kind of discrepancy in the cost to produce one item of clothing, it becomes clear the difficulty Latin American manufacturing countries face when trying to compete with China on the global level (1).
So there seem to be two sides to this picture: one where China is a “trade angel” that has come to save Latin America, and another where China is a real threat to the Latin America’s economic interests and their autonomy as a region. Most likely, the benefits that the partnership with China brings the region far outweigh the threats the relationship represents (4). Together with the scarcity of arable land and natural resources and a rapidly growing GDP, China needs a trade partner to fulfil its almost endless hunger for raw materials; Latin America is the solution. The economic benefits that China offers to Latin America cannot be overlooked (4). Although it’s impossible to say how this partnership will be viewed in time, the benefits now seem to outweigh the harms, so it seems that Latin America will look forward to a long and prosperous relationship with China, albeit with cautious optimism.
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