That the international trade in Latin America is still highly dependent on commodities, especially on the Chinese appetite for it, it’s no surprise. But what the COVID-19 crisis has shown is that cooperation at a regional level, focused on infrastructure, logistics, and the cross-border digital market, is crucial so that Latin America doesn’t’ suffer a “reprimarization” of its exports – that is, being even more dependent on international commodities demand in the next years.
Last Friday, the Economic Commission for Latin America and the Caribbean (ECLAC) of the United Nations (UN) disclosed its annual report on International Trade Outlook for the region. The document estimates that regional exports’ value fell -13% in 2020 while imports shrank by -20%. Import volumes will be down by around 16%, similar to the decline in 2009 during the global financial crisis.
The greatest fall in exports is expected to have happened at an intraregional level (-24%), followed by shipments to the United States and the European Union which are expected to contract by 14% and 13%, respectively. At the same time, exports to China are expected to grow by 2%, driven by agricultural, mineral, and metal shipments, mainly from South America.
The share of intraregional trade (exports and imports) has been declining since 2014. In 2019 it reached 14%, the same level as in the early 1990s, and it is projected to fall to 12% in 2020.
According to the report, the COVID-19 pandemic has intensified various tendencies that were already developing in global trade, including trade and technological tensions between the United States and China; growing economic nationalism and conflicts in trade relations; the weakening of multilateral cooperation; the digitalization of production and trade; and the trend towards regionalizing production through nearshoring (locating suppliers in countries that are closer to the target market) and reshoring (relocating strategic productive and technological processes to the country of origin).
Amid this scenario, only China is expected to have closed 2020 with a positive performance, with a 1% growth in exports and 3% in imports. Last year, according to ECLAC projections, the capital flow to China was likely to have reached $155 billion.
“Since intraregional exports and those to the United States are mainly composed of manufactures, and those to China are mainly commodities,” the net effect of this in the coming years will lead to a “reprimarization” of Latin America’s export basket,” says ECLAC’s new report.
To prevent this from intensifying in the next years, the Commission’s executive secretary, Alicia Bárcena, calls for deepening regional integration and aims to reduce gender inequalities in trade (six out of every ten women in the region work in sectors highly impacted by the pandemic).
During a press conference last Friday, she told LABS that some key dynamic sectors could be drivers of growth for Latin America because they could create employment, but at the same time, be the source of a recovery process associated with sustainability.
“There needs to be a lot of work to develop this kind of trade at cross-borders, more efficient trade facilitation, and better digital infrastructure. We harmonize many of the [trading] policies, norms, and rules,” said Bárcena.
Another key sector is sustainable energy, especially with the United States’ new president, Joe Biden, rejoining the Paris Agreement. “We have an opportunity of having more investments in renewable energies in our region,” stressed Bárcena to LABS, also mentioning other related economic segments and opportunities, such as electromobility, bio and circular economy.
If with Biden, the US-China relations improve, this can also help the region as a whole, especially Mexico and Central America, because it will reduce protectionism and potentially increase the access to technologies and goods from both countries.
The third sector highlighted by ECLAC’s executive secretary was medical manufacturing and supplying – Costa Rica and The Dominican Republic have already shown some protagonist in this matter, producing and exporting medical inputs.
A common agenda to bring immunization against COVID-19 to more people through greater cooperation in the purchase, production, and distribution of available vaccines, is also crucial. Bárcena mentioned the cooperation signed between Mexico and Argentina to produce inputs in this sense and left Brazil out.
ECLAC’s suggestions for trade recovery in the medium term:
- The creation of a common e-commerce market, with the coordination of investments in telecommunications (especially 5G) networks, the harmonization of patterns for data and consumer protection, and common rules for digital platforms tributes;
- Coordinate investments in resilient logistic infrastructures and affirmative measures of women participation in the trade chain;
- Agreements concerning the interoperability of single windows for foreign trade, digital certification, and contactless biosecurity and trade protocols.