CHINA'S LOSS COULD BE LATIN AMERICA'S GAIN.

Author:Price, John
Position::THE CONTRARIAN
 
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Latin America may have more to gain than lose in a U.S.-China trade dispute, so long as it does not spiral into a global recession, provoking trade war. China and the U.S. are both the world's largest customers of and suppliers to Latin America. Punitive tariffs levied by the U.S. against Chinese products and vice-versa will create supply gaps that Latin America can fill. A tax on Chinese and American exporters equates to a subsidy to Latin American exporters.

Latin American producers, particularly Mexican exporters, can displace Chinese competitors in the U.S. marketplace, particularly in steel, aircraft engines and parts, HVAC equipment, electrical equipment, medical consumables, and some vehicles. Chinese tariffs on U.S. imports open the door for South American producers of a variety of agri-food products, including soybeans and soy products, sorghum and wheat, fish and seafood, meats, horticulture, nuts, juices, and wine. The big winners will be Brazil, Argentina and Chile.

Medium-term opportunity--rerouting trade

If Chinese exporters determine that U.S. tariffs are staying, they will look to relocate some of their production to countries with stable free trade agreements with the United States. In Latin America, the most obvious candidate is Central America.

Chinese textile and clothing makers already employ thousands of Central Americans, but may soon set up shop to assemble other goods that today face 25% or higher U.S. tariffs when shipped from China. Chinese steel producers may choose to buy assets in Brazil and Argentina, both exempt from U.S. steel tariffs. An even longer list of products could be assembled in Mexico.

For both U.S. and Chinese multinationals, diminished access to one another's markets will drive both export sales efforts and investment monies into other markets. The decline of emerging market currencies, including those of Argentina, Brazil, Colombia, and Mexico, makes assets in those countries that much more attractive at present. Chinese natural resource buyers will double their efforts to buy assets in Latin America in energy, minerals and...

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