August 9th, 2019

Trade War Creates Precarious Position

On Monday, Chinese president Xi Jinping announced that Chinese companies would halt the purchase of agricultural goods from the United States, creating economic uncertainty that caused the DOW to plunge 767 points, or 2.9%. The move was the latest blow struck in a trade war with increasingly severe consequences.

As the trade war between the United States and China escalates at break-neck speed, Latin American countries will be forced to make difficult decisions about which side to take, with many nations feeling caught in the middle of an increasingly volatile dispute between the two economic powerhouses. As Margaret Myers, director of the Latin America and the World program at the Inter-American Dialogue, recently told The South China Morning Post, “the US is forcing countries in the region to choose between the US and China… It’s putting Latin American countries in a very challenging position while at the same time not offering a particularly attractive policy.”

The case of Panama is particularly significant. Evodio Kaltenecker, writing for LinkedIn, notes that, “China is becoming the most important commercial partner of a country that controls a key gateway in global trade.” In recent years, Panama has established strong economic ties to China, even going so far as to terminate diplomatic ties with Taiwan in an attempt to garner favor with Beijing, and implementing bilateral trade agreements in 2018. These agreements have created very favorable conditions for investment, and Panamanian exports to China have increased significantly in recent years, mainly in the agricultural sector. With China now abandoning agricultural imports from the U.S., Panamanian agribusinesses have the opportunity to make further inroads into the Chinese market.

However, the U.S. has a strong historical claim to a favorable trade position with Panama, owing to its creation of the Panama Canal. It is likely that the United States will take steps to dissuade Panama from deepening its relationship with China, although what form these will take remains to be seen.

Meanwhile in Colombia, businesses are poised to make the most of tensions between the United States and China. Frida Ghetis, writing for World Politics Review, states that “Colombia…has identified more than 700 products it exports to the U.S. that figure among the more than 5,000 Chinese-made goods now subjected to U.S. tariffs.” Given the significant progress that has already been made, Colombian exporters could use the trade war as an opportunity to muscle out Chinese competitors. Likewise, as in the case of Panama, China may look to nations such as Colombia to fill the gap in consumer demand left by the trade war.

Although certain industries may be able to benefit from the trade war, the overall slowdown in the growth of the global economy is certain to put downward pressure on commodity prices and trigger a retreat towards low-risk opportunities. However, with an aggressive, precise strategy, Latin American agribusinesses can certainly make the most of the clash between the world’s economic titans.

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