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China’s Rising Economic Power in Latin America: Some Key Trade Moves in 2023

BusinessChina's Rising Economic Power in Latin America: Some Key Trade Moves in 2023

China has been actively pursuing stronger economic relations in Latin America, a region that has traditionally looked to the United States as its primary source of business. With its foreign trade network in mind and as ties with the US remain uncertain, China has made significant trade moves in Latin America in 2023. These developments aim to break down trade barriers, promote joint development, and increase the yuan’s international use.

Despite the US still being Latin America’s largest trade partner, China has risen to become the second-largest after two-way commerce reached a record high last year. According to the Global Development Policy Centre at Boston University, Latin American countries exported approximately US$184 billion worth of goods to China and imported US$265 billion in 2022.

On May 11, China and Ecuador made a significant stride in their economic relationship by signing a free trade agreement. The deal, which followed a year of negotiations, is expected to create a “convenient and transparent” business environment, unlocking the full potential of two-way trade between the two nations. China’s Ministry of Commerce expressed confidence that this agreement would enhance commercial engagement and influence.

Under the terms of the agreement, Ecuador is anticipated to export commodities such as oil, mining goods, and seafood to China. On the other hand, China will be sending manufactured products to Ecuador. This strategic trade arrangement highlights China’s proactive approach to utilizing free trade agreements to expand its market reach and establish stronger commercial ties globally.

Taiwan Cancels Trade Deal with El Salvador: Shifting Alliances, The longstanding trade agreement between Taiwan and El Salvador ended on May 15, eliciting shifts in diplomatic alliances and trade dynamics. Taiwan, which Beijing considers a renegade province, faced the consequences of El Salvador’s official recognition of mainland China in 2018. As a result, El Salvador severed its diplomatic ties with Taiwan, prompting the cancellation of the 15-year-old trade deal.

While Taiwan’s Premier, Chen Chien-Jen, downplayed the economic impact of terminating the trade agreement, stating that it would be “very limited,” the move signifies a significant shift in the trade landscape of Central America. El Salvador and China intend to commence bilateral free trade talks, signaling the country’s desire to establish its independent trade relationships. Furthermore, media reports indicate that Honduras, which also ended diplomatic relations with Taiwan, plans to negotiate its own free trade agreement with mainland China, further realigning trade alliances in the region.

During President Luiz Inacio Lula da Silva’s visit to Beijing in April, Brazil, Latin America’s largest economy, solidified its economic ties with China by signing 15 significant agreements. These comprehensive agreements encompassed a range of sectors, including joint satellite development, the digital economy, and trade facilitation. The collaboration between the two countries reflects their shared commitment to expanding bilateral trade and deepening economic cooperation.

The milestone reached in February when Brazil and China established a yuan-settlement deal is of particular significance. This landmark agreement allows both countries to settle trade transactions using the Chinese yuan, reducing their reliance on the US dollar. By diversifying their currency transactions, Brazil and China aim to enhance financial stability and mitigate risks associated with currency fluctuations.

In a bid to maintain its US dollar reserves and overcome economic challenges, Argentina, South America’s second-largest economy, has made a strategic move by adopting the Chinese yuan for import settlements. In April, Argentina started using the yuan to pay for imports worth US$1.04 billion from China. This commitment will continue, with monthly import settlements amounting to approximately US$790 million, beginning in May.

The decision to settle imports in yuan was announced by Argentina’s Economy Minister, Sergio Massa, following a productive meeting with Chinese Ambassador Zou Xiaoli. This strategic shift comes as Argentina grapples with the aftermath of a historic drought that severely impacted its exports, resulting in a staggering loss of US$15 billion. By utilizing the yuan for import payments, Argentina aims to safeguard its US dollar reserves while diversifying its trade relationships.

China’s growing presence in Latin America signifies its unwavering commitment to expanding economic relations beyond its traditional trade partners. China is diversifying its economic influence in the region by leveraging free trade agreements, forging stronger ties with countries like Brazil and Argentina, and promoting the use of the yuan for transactions. These strategic moves reflect China’s vision of deepening cooperation and fostering mutually beneficial partnerships with Latin American nations, paving the way for a new era of economic collaboration.

China has further extended its economic support to Nicaragua by allowing tariff-free imports of various goods. Effective May 1, the Customs Tariff Commission of China’s State Council announced that beef, seafood, cable, and clothing from Nicaragua could be imported into China without tariffs, as state media outlets in Beijing reported. This move aims to strengthen trade relations between the two countries and provide economic assistance to Nicaragua, which recently severed ties with Taiwan in 2021.

In return, China will export insecticides, herbicides, plastics, and raw materials for toys to Nicaragua, also without tariffs. Chinese and Nicaraguan media reports confirm the tariff-free status of these goods. The reduction in tariffs is part of an “early harvest” agreement that was reached in July, signaling the start of talks toward a comprehensive free trade deal between China and Nicaragua.

The significance of this economic partnership lies in the fact that China is now Nicaragua’s top economic partner. While the United States currently purchases half of all Nicaraguan exports and accounts for 27% of its imports, China’s increased economic engagement with the Central American country presents an alternative avenue for trade and economic growth.

By providing tariff-free imports and expanding economic cooperation, China aims to bolster its trade ties with Nicaragua and contribute to its economic development. This move supports Nicaragua’s efforts to diversify its trade relationships and strengthens China’s presence in the region, solidifying its role as a significant economic player in Central America.

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