It wasn’t until the past 20 years that trade between Asia and Latin America began to make headway. Now, however, there is a steady stream of global commercial activity between the two regions, with more expected to follow. FinTech and global trade expert Jason Simon provides insight into where the two regions will go from here and what this means for the future of international trade.
Trade and investment levels between Asia and Latin America are accelerating at a rapid pace. Both regions are looking for economic growth, with Latin America an obvious target market for the competitively priced goods coming out of Asia. Along with the latter’s ability to supply services and technologies at affordable prices, the economic expansion coming out of Asia also requires major input from Latin America. Explains Simon, “Asia can supply a lot of goods and technology at affordable prices; however, it needs raw materials and agricultural goods to do it. Latin America has a huge supply of both, which creates a logical symbiotic relationship between the two regions.”
Where once there were trade and language barriers, there are now major academic and cultural exchanges between Asia and Latin America. This is being fueled by an increase in development of multilanguage institutions and a dedicated commitment to tourism, as well as favorable media coverage to promote the regions. This has helped build a strong interlinking partnership between the two, one that is now surpassing trade relationships that rely less on goods and services out of China or the US. As a result, Asia is now the second-largest recipient of exported goods out of Latin America.
As the trade relationship grows, there is also a need to see further investments. Adds Simon, “Asia is importing a number of commodities from Latin America, including oil, soybeans and certain ores. Latin America increases its export to Asia by around 18%, except for last year’s drop due to COVID-19, and the infrastructure requires more investments to keep up with the growth. The establishment of trade agreements, such as MERCOSUR and the Pacific Alliance, give Latin American companies more security in creating new export channels, which is producing more investments in the region.”
Many of the companies that are now exporting to Asia were already well-established in their home countries, but the absence of substantial amounts of disposable income forced consumer prices to remain low compared to other, more developed countries. Therefore, these entities still needed to find financial support in order to expand their operations internationally, increasing the backing they were given on a global scale. For example, Bimbo, a multinational baked goods firm that was already established in Latin America, expanded into China after securing funding that allowed it to build a production plant in Beijing.
Moving forward, there are a number of opportunities that will be available in Latin America, including in the renewable and sustainable energy segments. The region exports a significant amount of petroleum and natural resources currently, but now has to diversify as the paradigm surrounding the environment shifts. For Latin America to stay relevant in the energy segment, it will need to adapt to the new demand, while focusing specifically on targets that would appeal to the Asian market.
Conversely, Asia has a leading position in technology. Local markets in that region have already become saturated and Asia has to expand its international trade channels in order to regain strength, with Latin America being the obvious choice. “Latin America is not as industrialized as Asia,” asserts Simon. “It can receive a lot of benefits from importing technology from Asia, while also learning from the region’s trade models. Asia has already established itself economically through its trade channels, and Latin America would be served well by mimicking those same frameworks to bolster its own economic growth.”