Latin America and its trade relationship with a punished China

 

The Trump administration's recent tariff policies on China could reduce Chinese GDP growth by between 1% and 2.5% in the coming years, depending on the duration and intensity of the trade war. This is due to China's dependence on exports, which represent a crucial part of its economy. However, China has shown resilience in the past, and measures such as increasing exports to other markets or domestic stimulus could partially mitigate the impact.

Increased exports to China tend to generate higher fiscal revenues for Latin American governments, especially in commodity-dependent countries. According to estimates, for every percentage point of Chinese GDP growth, emerging economies such as those in Latin America could gain up to 0.5 percentage points of growth. Thus, Chinese growth of 5 per cent in the first quarter could translate into an indirect boost of up to 2.5 per cent in the GDP of some Latin American countries, contributing to a projected regional growth of 2.5 per cent by 2025, according to agencies such as the World Bank.

If China maintains solid economic growth in the first quarter of 2025 (say, close to 5%), demand for Latin American commodities is likely to remain stable or even increase slightly. Countries such as Brazil (soybeans and iron ore), Chile (copper), Peru (copper) and Argentina (soybeans) could benefit from increased exports to China. For example, Chinese growth driven by domestic consumption and manufacturing could support the prices of commodities such as copper and steel, benefiting metal-exporting economies. However, if China's property sector remains weak, demand for iron ore may not pick up as much as in previous years, limiting the positive impact for Brazil.

China will seek to diversify its agri-food sources to reduce geopolitical risks, but Latin America will remain crucial for its production capacity and competitive prices. However, Trump's tariffs (up to 125% on Chinese goods) could make global supply chains more expensive, indirectly affecting Chinese consumption and import demand. If China responds with further domestic stimulus, as announced in 2024, food consumption could be maintained, benefiting exporters such as Brazil. On the other hand, countries such as Argentina, with less stable economies, could lose share if they do not guarantee constant volumes. Key factors to consider include the strength of the dollar, logistical costs (exacerbated by possible disruptions in trade routes) and Chinese domestic policies to increase local agricultural production, which could moderate import growth. Still, China's urbanization (expected to reach 1 billion urban dwellers by 2030) will continue to drive demand for protein and grains.

In minerals, China will maintain or intensify the accumulation of strategic reserves of copper and other minerals, driven by three factors: 1) preparation for trade restrictions due to Trump's tariffs, 2) demand for its technology industry (batteries, renewables), and 3) geopolitical tensions, such as control of the Strait of Malacca, which could limit access to raw materials. This could benefit Chile and Peru, which have stable trade agreements with China. However, if US tariffs divert Chinese exports to other markets, global copper prices could fall, affecting Latin American exporters' revenues. These key factors should be considered as Chinese investment in mining infrastructure in Latin America (such as the Las Bambas mine in Peru) could consolidate its control over supply, guaranteeing long-term supply as long as there is no hybrid sabotage by the United States. Moreover, the pace of Chinese economic growth (projected at around 4-5% by 2025) will determine the intensity of demand.

In any case, the reality is that Trump's tariffs, combined with Chinese retaliatory tariffs (84% tariffs on US goods), could make consumer goods more expensive in China, affecting purchasing power and thus demand for imported agri-food. Moreover, if China redirects its exports to alternative markets (such as Latin America or Europe, which in any case are not sufficient) to offset losses in the US, it could displace local production of manufactured goods, affecting economies such as Mexico, which competes with China in this sector.

In 2025, China will probably still want the same amounts of food, copper and oil from Latin America as it does now. But how much will depend on how well the Chinese economy is doing, how much it costs to get things from one place to another, and how trade relations between the two regions are. Brazil, Chile and Peru will continue to be the countries that benefit the most, while countries such as Argentina, Mexico and Venezuela could face challenges if they do not stabilize their supply.