The Economist: Latin America could become an alternative to China

Latin American economies are stunned by the pandemic. No other region suffered a bigger GDP drop in 2020 or a higher death rate. Even before the coronavirus hit, the largest Latin economies lagged behind the success stories of emerging countries in Asia and Europe.

They were stifled by poor governance, over-reliance on raw materials, and protectionism. On the slope of trade barriers, the region ranks second after sub-Saharan Africa. From 1995 to 2015, its participation in global supply chains increased only 0.1%; in the rest of the global supply chain, trade increased by 19%.

But the Americas now have a chance to progress. The whim of Chinese regulators, the tangled state of world trade, and the trend toward reshoring (relocation) and the nearshoring (outsourcing services) are prompting US companies to re-evaluate where they should build factories and invest their cash. With the right policies, Latin American countries could be attractive locations for new plants to supply the United States and each other. This is the best opportunity in decades to pursue a policy of regional economic integration.

Whether that actually happens will depend in part on President Joe Biden. Latin American governments are already being courted to participate in the association Build Back Better World by Biden, an infrastructure investment program that aims to counter the China Belt and Road Initiative. Yet for all his good intentions, the Biden plan lacks ambition.

In addition to promoting infrastructure construction, Biden should urge his neighbors to lower trade barriers, harmonize the provisions of the hundreds of trade agreements already traversing the region, and clarify onerous customs procedures. This could help persuade investors to take the plunge.

No one should underestimate how difficult it will be to overcome the skepticism of the markets in Latin America. Big economies like Brazil and Argentina have long been protectionist, pampering domestic companies behind high trade barriers. The results of previous trade deals have sometimes been disappointing.

Policy errors continue. Left-wing leaders, like Andrés Manuel López Obrador of Mexico, want less private capital in the economy, not more. Peru recently elected a far-left leader, Pedro Castillo, who has been seeking to assuage market apprehension about his economic policies, with little success.

Partly as a result, Latin America has failed to transform economically as East Asia has done over the past generation. Since the North American Free Trade Agreement came into force in 1994, real income per person in Mexico, measured by purchasing power, has lagged further behind than in the United States.

However, signs of openness can be found. Uruguay is seeking new trade agreements with China and, as part of a regional grouping, South Korea. In Ecuador, Guillermo Lasso, the president and former banker, is bravely fighting populism. Countries that have been open to trade, such as Chile and Costa Rica, have outperformed their inward-looking Latin American peers.

Even Mexico has some hope. In recent years, its exporters competed directly with China’s exporters in industries that China came to dominate. Now the Mexicans have adapted. While the country’s overall growth has been disappointing, its makers have moved from low-value textiles to the automotive, aerospace and semiconductor industries that will benefit from being close to the United States and away from China.

Biden could help by combining access to much-needed investments through Build Back Better with a push for trade liberalization. In September, members of the Biden administration visited Colombia, Ecuador and Panama to gauge interest in the initiative, which could also boost Latin America’s defenses against climate change.

The alternative to integration is daunting. Further economic stagnation in Latin America would leave governments struggling to cope with the rising costs of climate change. The lack of jobs and growth would irritate its increasingly frustrated citizens, many of whom have taken to the streets in recent years.

Similarly, a further inward jolt in Latin America would not serve America’s commercial and security interests. At the very least, it would be a missed opportunity to expand markets for companies in the country. Biden has the opportunity to help create a more prosperous region. You should take advantage of it.