At the moment the economic picture in the US could be described as mildly encouraging. The US economy as officially measured by GDP began recovering from the great recession in 2010. The picture improved for Wall St. and the stock market, but not so much for ordinary Americans. More recently things like the employment market and the housing market which impact the personal circumstances of the masses have shown relative improvement. However, the US finds itself as being a sea of mild improvement in a global economy which seems to be generally deteriorating. The Japanese economy has been stagnant for growth for many years. Most of Europe is in not much better shape. The most disturbing news there is that Germany the economic powerhouse appears to be at a point of stagnation.
Sluggish economies in Japan and Europe aren't particularly new. What is new and is sending some major jolts to the global economy is a marked slowdown in China. That country has been on an economic roll for the past 15 years with double digit GDP rates. It has now slowed to 7.5%. While that may not sound so bad as compared to most of the rest of the world, the slowing is having major impacts on nations that are heavily dependent on their trade with China. Americans have typically focused on the impact that China has on the US economy in terms of such things as jobs and imports. It's rise to the center of global manufacturing has also had a similar impact in Europe. However, its relationship and impact on the developing nations of the global south have been very different. China has supplanted the US and Europe as the dominant economic forces in Latin America and Africa. Now China's slowing demand for commodities to support its manufacturing industries is causing a critical negative impact.
Few people are as intensely worried about the slowing Chinese economy as Latin Americans.
Not only does China buy nearly 40 percent of Chile’s copper, but its once-insatiable demand helped push copper prices from $1 to $4 a pound.
Meanwhile, Beijing plowed billions into Peruvian mines and fisheries and spent billions more buying soybeans from Argentina and Brazil. And it propped up the Venezuelan government to the tune of $50 billion in loans, to be paid in shipments of oil.
China’s voracious hunger for Latin America’s raw materials fueled the region’s most prosperous decade since the 1970s. It filled government coffers and helped halve the region’s poverty rate.
That era is over. For policy makers gathered here last week for the International Monetary Fund’s conference on challenges to Latin America’s prosperity, there seemed to be no more clear and present danger than China’s slowdown.
“The commodity boom allowed governments and companies to avoid hard choices,” Andrés Velasco, Chile’s finance minister from 2006 to 2010, told me. “For goodness’ sake even Argentina grew by 5 to 6 percent per year for almost a decade.”
Even though most Latin American countries ceased to be formal European colonies in the early part of the 19th C, they have always been in an essentially colonial relationship with the industrial nations of the global north. The center of economic power shifted from Europe in the 19th C to the US in the 20th C and rather dramatically to China in the 21st C. The basic economic relationship has remained the same. They have continued to be predominantly extractive economies.
Latin America had made some progress in their efforts to diversify their economies and develop domestic manufacturing industry. The relationship with China turned that back in the other direction. Their accelerated exports of raw materials and agricultural production to China was balanced by imports of manufactured goods that greatly undercut the price of domestically produced products. The rise in global demand greatly increased commodity prices which in turn created generally improved economic prosperity. However, it left the economies in pretty much the same dependent position that they had always been in.
It is difficult to tell whether China's slowdown is a temporary bump or a sign of long term change. The factors creating it are complex. Rising wages are making other Asian countries more attractive for low skill manufacturing production. However, China is making a steady rise in the technology food chain and is likely to become increasingly competitive with countries like the US and Germany in high tech industries. Unfortunately for Latin America their fortunes and future are likely to be mostly determined by people elsewhere on the globe.