Bilateral Trade Between LAC and PRC

Closer trade ties between LAC and PRC may also lead to trade creation through increased bilateral trade and at least in principle this may compensate for losses in markets where these economies compete. Currently LAC is running a large and growing trade deficit with PRC with the latter accounting for just under 5% of total imports in 2003. From a surplus of $175 million in 1980, LAC as whole ran a deficit of $5.5 billion in 2002. Not every country is in deficit, of course: in 2002 of the LAC 18, five ran a surplus with PRC in 2002, including Argentina and Brazil. The largest deficit was for Mexico, with a figure larger than for LAC 18.

The deficits are all in non-resource based products: in 2002, primary products and RB manufactures show a surplus of $2.3 and $1.0 billion, respectively. However, these are offset by much larger deficits in manufactures: LT products ($3.0 billion), MT products (2.8 billion) and HT MT products ($3.0 billion). This illustrates clearly the structural shift in the pattern of competitiveness in LAC towards resource-based products and away from both simple low technology manufactures and more complex (medium and high technology) products. Table 9 [PDF 66KB | 1 page] shows the percentage breakdowns of the two regions' exports to each other by technological sub-categories. There has been a rapid structural transformation of LAC's trade pattern with PRC in the course of a relatively few years.

At the sub-category level, for exports by LAC to PRC there is a rise in the share of mineralbased RB, a sharp decline in that of MT process exports and the significant rise in the share of HT electronics products. PRC's exports to LAC are predominantly LT products, but their share appears to have peaked, and recent growth is largely, again, in HT electronics products. The growth of electronics exports by both regions suggests the start of a similar intra-industry specialisation as observed in EA; as noted below, it is largely confined to Mexico and may reflect the emergence of an integrated MNC-driven network across the regions.

If one looks within the LAC figures at the technology composition of bilateral trade between the LAC Big 3 (Argentina, Brazil, Mexico) and PRC different patterns emerge (see Appendix Table 8). Argentina is overwhelmingly an exporter of primary products, with its share of RB products declining significantly. It has no noticeable exports of HT products to PRC. Its imports from PRC are predominantly LT products, but with large and growing shares of MT and HT products. Argentina runs a trade surplus with PRC, $763 m. In 2002, most of it, expectedly, was in primary products, with a smaller surplus in agro-based RB products. It ran a deficit in mineral-based RB products.

Brazil also raises its exports of primary products but maintains a very large share for RB products. It has a small but growing share for HT products but a sharply falling one for MT products. PRC’s exports to Brazil span the five categories, with all the manufactured categories growing at the expense of primary products. The largest category by far is HT products. Brazil also runs a trade surplus with PRC, $823 m., mostly in primary products and RB manufactures (both mineral and agro-based products). Its largest deficit is in HT products, followed by MT engineering products. As a major exporter of other LT products (footwear), it is interesting to see a large and growing deficit in both LT categories (bearing out reports of a massive threat to its footwear exporters).

Mexico exports hardly any primary or resource-based products to PRC, a surprising contrast to the rest of LAC. Over time it makes a massive shift from MT to HT products. Chinese exports to Mexico also have HT as the largest category, but along with very large shares of MT and LT products. However, the values of Mexican HT exports to PRC are far smaller than Chinese HT exports to Mexico. In 2002, for instance, the figures are $320 million and $2.1 billion, respectively. Overall, Mexico runs a huge $5.7 billion trade deficit with PRC. It also runs a deficit with PRC in every single category of trade, possibly reflecting the import of components for assembly for the US market by MNCs from Japan and other countries.

In summary, a new pattern of specialization is emerging in LAC-PRC bilateral trade with the former region a net exporter of primary and resource-base products and a net importer of manufactures. Some countries in LAC are benefiting from growing imports of primary and RB products by PRC. However, as trade between PRC and LAC account for tiny shares of their total trade – we cannot assume that this direct trade can have significant effects on their overall patterns. LAC accounted for only 2.4% of Chinese exports and PRC for less than 2% of LAC's exports in 2002. The main competitive arena is thus the US (which took over 20% of PRC's exports in 2002 and nearly 60% of LAC’s), with EU some distance behind. It is here that the real effects of the Chinese threat are likely to be felt, although as yet we have found little direct evidence of this threat being very substantial.

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