Early last year, while he was still President of the US, Donald Trump implemented what was called “Phase One” of a trade deal between the US and China. It was designed to alleviate some of the tension that had been building as the two countries fought the so-called trade war over the years and would reduce some tariffs on certain Chinese goods. However, the result was an increase in trade between China and Latin America. Jason Simon, a global trade analyst and FinTech expert, provides insight into how Phase One transformed those trade relationships.
Phase One included a reduction in tariffs on some goods imported into the US, cutting them from 15% to 7.5%. At the same time, China had agreed to increase its importation of certain US agricultural products, agreeing to receive up to $200 billion worth by the end of 2022. While the deal looked good on paper, in practice, many analysts believe it can’t be sustained.
With a certain lack of confidence in Phase One’s success, an opportunity arose for Latin America to increase the attention it gave to its export market. Explains Simon, “When the US-China trade war was peaking, countries like Brazil and Argentina took advantage of the situation to increase their exports of soybeans to China. As they have developed those relationships, and with uncertainty increasing over the sustainability of Phase One, both countries have been improving their export capabilities to increase their grip.”
However, while there have been some positive benefits to Latin America, there could also be long-term fallout. Although Latin America was not anticipating this battle between the world’s biggest economies to keep going for a really long time, the moving elements of the US- China trade relationship do have optional impacts that Latin American business sectors should adjust and defeat in the long haul. For example, if China keeps on experiencing the burden of both product-explicit and wide-based taxes, it will adversely influence districts with regular asset abundance. Countries that depend on oil or mineral fares, such as many in Latin America, are likely to suffer. Second, the contention will likely harm each part of the economy in Latin America.
There could be an additional impact, as well. Explains Simon, “It is more stressing that events that influence the worldwide economy have the ability to change political factors, and even bring down governments. The US has openly stated that it is worried about China’s impact on Latin America. It will be a delicate situation if the reciprocal pressures between the US and China proceed, and the Latin American relations between these two countries transform into a ‘pick between east or west’ dynamic.”
With the new Phase One economic agreement endorsed between the US and China, it’s difficult to say whether any relaxation of the trade war will profit the region or not. Latin American business sectors—like Brazil, which is likewise going through a significant economic change—may experience the ill effects of a transitory trade log jam. “Brazil outperformed the US as the biggest soybean producer on the planet in 2019 on account of Chinese buys,” adds Simon. “However, its gathered inventory of soybeans may hurt neighborhood farmers, with China promising to import more US agricultural items instead. If the US and China can alleviate trade tensions, or determine amenable protocols, Latin America can better forecast its economic growth and recovery.”
Since taking office, President Biden has indicated that he doesn’t anticipate rolling back any of the policies related to US-China trade that were implemented by Trump. This means that the trade war is likely to continue for some time to come, with potential fallout encompassing not only the US and China, but Latin America, as well.