China and the Future of Latin American Industrialization

Florianópolis, Brazil. Photo by Gabriel Rodrigues via Unsplash.

The rise of China has created an unprecedented demand for Latin American and Caribbean (LAC) exports, which has helped boost the region’s growth for almost a decade. Ultimately, though, such export growth may not be sustainable. Perhaps even worse, Chinese manufactured goods are more competitive than those from Latin America in both home and world markets. These twin trends may jeopardize prospects for long-term growth in the region.

In a new policy brief, Kevin P. Gallagher examines how China’s rise has stimulated Latin American exports significantly, while simultaneously China has leapt over Latin America to become the most competitive exporter of manufactured goods in the world.

Main findings: 
  • Nearly all of the exports from LAC are under “threat” from China and 94 percent of LAC’s  market share is increasing at a slower rate than China or decreasing while China’s market share is increasing. 
    • Manufacturing exports, such as textiles, automobiles or metalworks, represented 40 percent of all regional exports in 2006, collectively worth more than $260 billion.
  • In 2009, 92 percent of Latin American manufacturing exports fell under threat from China, representing 39 percent of the region’s total exports. 
    • Mexico is the most vulnerable, with 97 percent of its manufacturing exports, which represents 71 percent of the national export base, under “threat” from China in 2009. 
  • While China soars ahead, Latin America seems to be returning to a primary commodity-led export path. 
  • At a deeper level, China’s focus on building domestic productive capacities has been far more effective than Latin America’s “Washington Consensus” approach, which stresses the rapid liberalization of trade and investment, and the general reduction of the state in economic affairs.

Rather than blaming China, Latin America can build on some of its own recent success, and learn from China in order to maximize the gains from its new economic relationship with China. Based on findings in the book Gallagher and Porzecanski co-authored, The Dragon in the Room: China and the Future of Latin American Industrialization, Gallagher argues the additional revenue generated by exports to China and elsewhere can provide new sources of funds for stabilization and growth programs, environmental programs to mitigate the negative effects of commodity-driven growth and in programs to boost industrial competitiveness. Gallagher contends LAC countries can learn from China’s industrial competitiveness, as China’s path to integration with world markets has been gradual and strategic, whereas most LAC countries have rapidly relinquished the role of the state in economic affairs. 

Read the Policy Brief