Latin American Trade Drops Ten Percent Amid Global Economic Slowdown

RIO DE JANEIRO, BRAZIL – Latin America does not want itself as a trading partner, and the global slowdown is not helping. Trade within the region will drop ten percent in 2019 following a two-year upturn, according to ECLAC (United Nations Economic Commission for Latin America and the Caribbean) projections published Tuesday in its Prospects for International Trade annual report.

The reduction places regional trade at its lowest level in a decade and shows the faulty connections between the bloc’s countries.

Paradoxically, the ties with the next-door neighbor are weaker than with the one that lives two streets further on. ECLAC projections show that trade within Latin America declines further than trade between the subcontinent and the rest of the world, which is expected to drop by only 0.1 percent. In other words, the region is trading less with itself than with other countries.

With this decrease, only 15.5 percent of the subcontinent’s trade will be conducted with countries in its region, a very low rate in comparison with other parts of the world (Europe records 60 percent regional trade).

ECLAC Executive Secretary, Alicia Bárcena, points out the need to overcome this backlog. “We were at 21 percent when Mercosur was founded [1991]; we should at least reach that percentage, and we would still fall below Europe and Asia,” she said.

Beyond their borders, Latin American countries are also exchanging less with the rest of the world. ECLAC projects that by 2019 the value of exports will decrease by two percent and imports by three percent. The greater the dependence on basic products, the greater the drop.

The price of 26 of the region’s top 30 exports has decreased, including palm sugar (33 percent), coal (22 percent) and oil (ten percent). Venezuela, a former oil power that is plunged into a deep economic crisis, is once again hitting the bottom of the well. In 2019, the country will import 60 percent and sell 50 percent less than in 2018 to the rest of the world, according to ECLAC projections.

On the other end, Mexico is one of the countries that can withstand the pull. Its exports will grow by almost three percent in 2019. The trade war between the two great powers has benefited the country, as a result of the US replacing Chinese imports with Mexican products.

“Mexico does not need the rest of the region because it is incorporated into global production chains,” said Ignacio Martínez, an economist at the National Autonomous University of Mexico (UNAM).

But the Mexican case is one of the few exceptions. The stagnation of global and domestic demand explains part of the decline in regional trade. Sales to the European Union have plummeted by almost eight percent and growth in exports to China has slowed. Concurrently, the region’s demand for its own products has also declined, due to the sluggish economic growth that ECLAC is projecting at 0.2 percent for 2019.

Against this backdrop, revenue depends on better roads and ports and greater integration, according to the body. Alicia Bárcena argues that the region should “rethink its reinsertion into international trade,” extending beyond basic products. Less oil and more smartphones, that is the goal. “Latin America has a history of extracting raw materials and sending them abroad: a pattern that we haven’t been able to solve yet,” she says.

In addition, ECLAC estimates that investing six percent of annual GDP in infrastructure and services is required to tackle the problem, far more than the current 1.8 percent. Today, only 23 percent of the roads in Latin America are paved. “There is no logistical route from South America to the center and north of the continent, and the airport routes are mainly to Asia,” says Ignacio Martínez, of UNAM. For instance, the rail network is a combination of tracks with seven different widths. An iron jigsaw puzzle that provides a glimpse of the challenges for trade in the region in the midst of global deceleration.

Source: El País