The trade war initiated by US President Donald Trump against China has unexpected consequences for the world economy. Latin America is no exception and also suffers from this dispute between the two largest economies in the world.
The International Monetary Fund (IMF) warns that the trade dispute could slow global growth to 3.3% compared to the previously expected 3.6% and continue to reduce the rate by 2020. Learn the repercussions of the conflict can have on Latin America.
Devaluation of Latin American currencies
It is well known that in times of economic uncertainty, people are increasing their purchases of US dollars to protect themselves from the devaluations of developing countries’ currencies. This weakens Latin American currencies and forces economic authorities to raise interest rates, which undermines the economic growth of these countries.
Fall of raw material prices
Investor confidence in global economic growth seems to be paralyzed by the US-China trade war, which has already affected commodity prices such as copper and oil. In general, world commodity prices have experienced the worst week of the year, investment bank Goldman Sachs said.
The US decision to block the supply of vital US technology to five Chinese companies amid escalating tensions was the main cause of this fall, the year’s highest. This, of course, affects the Latin American economies, whose main export products are precisely the raw materials.
Is Mexico the only winner of the conflict?
Due to the increase in tariffs on Chinese products by Washington, many companies operating in China have decided to withdraw their factories from this country, often opting for Mexico, a neighbor of the United States.
Among companies now betting in Mexico are Fuling Global Inc., a Chinese manufacturer of plastic utensils, which manufactures paper cups and straws for US restaurants. When Donald Trump started the trade war, the company decided to open a factory in Mexico. In addition, another company, GoPro, announced its decision to move from China to Mexico most of its production of cameras for sale in the United States.
In total, Mexican exports to the US increased 10% to almost $350 billion by 2018, the fastest growth in seven years.
As for Brazil, the Minister of Agriculture, Tereza Cristina, said that the increase in import tariffs applied by the United States to Chinese products can benefit Brazilian exports. China and the US are forced to seek new partners and suppliers of the products affected by tariffs. In this sense, Brazilian producers could benefit from this demand from the commercial war, penetrating even further into the markets of their largest partners and establishing new trade links.