Latin America was the United States’ fastest-growing partner among the major trading regions during the last decade, according to the Congressional Research Service. Two-way trade between the U.S. and Latin America increased 82 percent, compared with 72 percent with Asia, 51 percent with the European Union and 64 percent with the world as a whole.
To some extent, economic growth in Latin America is following the Asian model. “It’s an export-led growth, similar to Asia,” said Paul Bingham, economics practice leader at Wilbur Smith Associates.
The question of growth sustainability arises because the export-led economies of the region are based not on the merchandise trade, as are Asia’s economies, but rather on commodities.
While most nations in Latin America talk about increasing their manufacturing output and moving up the value chain, they are finding it difficult to compete with China for two reasons, said Walter Kemmsies, chief economist at Moffatt & Nichol Engineers.
First, China pegs its currency to the dollar while Brazil and some other nations in the region don’t attempt to hold down the value of their currencies. That makes manufactured exports from Latin America more costly in competition with China’s exports. Second, China’s port and inland transportation infrastructure are keeping up with its growth in trade, while Latin American port and inland infrastructure development haven’t kept pace with trade growth, he said.
Mexico is somewhat sheltered from these developments because it shares a healthy cross-border trade with the U.S. through the production-sharing plants known as maquiladoras. Kemmsies said production-sharing isn’t limited to the immediate border area, but is occurring as far south as Mexico City.
Much of Mexico’s trade with the U.S. moves by truck and rail, but there is some ocean vessel and barge service between the countries. Because of its proximity to the U.S. and its economic and social ties, Mexico will remain one of the top three U.S. trading partners.