The United States’ move toward protectionism under President Donald Trump and the Mercosur’s seemingly never- ending trade-deal negotiations with the European Union have forced President Mauricio Macri to modify his pro-Western foreign policy discourse, creating a new attitude of openness toward China, now Argentina’s second trading partner behind Brazil.
But such openness to Chinese manufacturers, without restrictions, and limitations on Argentina’s commodities exports, have increased the trade deficit with China.
It reached US$2.6 billion in the first quarter of the year – the largest reported between Argentina and any country or trading bloc in that period.
“There’s a large deficit and we have to make every effort to remedy it,” Ernesto Fernández Taboada, the executive director of the Argentina- China Chamber of Commerce, told the Times. “Imports have increased as Argentina made its trade policies more flexible. Exports could follow the same trend. There are opportunities in all areas of the Chinese market.”
Exports to China grew 23.3 percent in the first three months of the year following a 1.6-percent slump in 2017; while imports grew 42 percent following a 17.5-percent increase in the same period, accounting for almost 20 percent of total goods shipped to Argentina.
Increased trade comes after a period of stagnation between the two countries. Trade flatlined in 2013, culminating last year in the US replacing China as Argentina’s main customer.
IMBALANCE
The imbalance in trade figures has been a long-term problem in the relationship between both countries, made more evident because of former president Cristina Fernández de Kirchner's close geopolitical ties with China.
Last year, Argentina reported a US$7-billion deficit with china, its largest with any country or trade bloc.
“Fernández de Kirchner recognised the deficit during the last years of her administration, and hinted she would take action to address it,” Ariel Slipak, an economist specialising in China and a Moreno University professor, told the Times.
“But now, with an open market and no import barriers, the deficit will only increase. Local firms cannot compete with highly-productive Chinese products,” he added.
While Argentine exports to China are mainly commodities like soybean and soybean oil, Chinese imports to Argentina include low-, medium- and high-tech manufactured products such as mobile phones, computers and air-conditioning units.
Over the last decade, Chinese products grew from five percent of Argentina’s imports to 20 percent. Argentine exports to China have not kept up, hovering between eight and 10 percent of total exports.
“About 70 percent of what we export are soy-related products, sold by large agricultural companies. But there is big potential to sell other goods, some even with added-value like wine or jams. That would help to reduce the trade deficit,” Marcelo Elizondo, the head of the DNI consultancy firm, told the Times.
The Macri administration, seeking to take advantage of that potential, has intensified negotiations with China in key areas. Beijing recently authorised the shipment of all kinds of Argentine beef and sheep after lengthy negotiations.
The deal could lead to sales totalling US$1 billion, with China already taking in 60 percent of Argentina’s total global beef exports.
Red wine exports are also on the rise, Fernández Taboada explained; as are sweets, milk powder, women’s clothing, wood, fruits, prawns, fish, biotechnology products and software. He highlighted that small- and medium-sized Argentine companies should explore the Chinese market with greater interest, since the Asian superpower is “eager to buy imported goods.”
But such opportunities seem limited in Argentina’s current economic context, experts say, with exports mainly confined to those of large transnational companies.
“There were a decent number of small- and medium-sized companies that used to export to China. But not anymore, now it is only large firms which sell commodities. That’s the only area in which we can be competitive,” Gustavo Girado, director of the postgraduate course on Chinese Studies at Lanus University, told the Times.
INVESTMENT BOOM
Over the past decade, Argentina’s relationship with China has grown substantially. In the last few years specifically, the countries have signed more than 20 treaties and Argentina now enjoys what is called a “comprehensive strategic alliance,” a diplomatic status with Beijing that few countries have access to.
Such a close relationship has also led to a rush of Chinese investment in the country. A total of US$20 billion in loans have been granted to finance a number of projects.
But, while China has guaranteed funding for key energy and transportation works projects, such as dams and nuclear power plants, Argentina has authorised contracts for works projects without a prior tender process. This has opened the door to Chinese labour, prompting initial concern among unions, especially the Argentine Industrial Union (UIA).
“China wants primary products, (and) to open up the market for its products, energy and infrastructure investments, all objectives it is so far accomplishing. It is buying cheap commodities, selling more of its industrial goods and investing in infrastructure and energy projects,” Slipak said.
The relationship between both countries is longstanding but the current Macri administration was not so enthusiastic about having a close relationship with Beijing when Macri first took office in late 2015.
The current administration had questioned the previous Fernández de Kirchner government’s ties with Beijing, citing the types of contracts it signed and an apparent lack of transparency. It also hinted at possible corruption.
However, Macri was forced to backtrack given his government’s intense need for, and so-far unfulfilled promises, of foreign investment.
Some analysts have said the contracts signed with Beijing were watertight and that the financial penalties for pulling out of such a deal would have hurt state coffers substantially.
“The relationship with China has shifted since Macri took office, highlighting a lack of [consistent] foreign policy on the part of his administration. He had a pre-conceived ideological stance on China that he was forced to change due to a lack of other investments,” Girado said.
SHIFT
As part of that shift, Macri visited China last year and signed a number of deals, mainly focused on energy and transportation. For example, Beijing is set to fund works projects for the San Martin freight train line and build two new nuclear energy plants, one of which is set to begin construction next year in partnership with Argentine companies.
At the same time, Macri has given the green light to a dam project in Santa Cruz province, which was formalised during the Kirchner administration but was heavily questioned by environmental groups due to its potential impact on biodiversity and the famous glaciers in the region. The project was subject to changes with an aim to reduce its impact, including the reduction of the number of turbines to be included in the dams.
China has also raised its hands in tender processes for renewable energy projects offered under the Macri administration’s RenovAR energy programme. A large portion of the projects allocated during RenovAR tenders were assigned to Chinese firms. China’s Envision Energy has been one of the main winners.
Looking at future prospects, China has high hopes for its One Belt-One Road Initiative, an economic and diplomatic programme that could transform global trade through improved connectivity. Among its objective is to develop bioceanic trade corridors in Latin America to lower the transportation costs of primary products to Asia.
FOREIGN POLICY
Macri’s need to maintain close ties with China runs parallel with his desire to reorientate Argentina’s foreign policy toward a more pro-Western position.
Macri has proven himself capable of establishing friendly ties with US President Donald Trump and European leaders such as France’s Emmanuel Macron and Germany’s Angela Merkel.
“Macri wants to be seen as being closer to the US and Europe, which share similar ideas of economic development and are considered to be the antithesis of the [Fernández de] Kirchner administration, as opposed to being tied to countries allegedly closed off to the world and which only collaborate with China, Russia and Venezuela,” Slipak said.
Macri’s hopes of re-establishing closer ties with the US and Europe have suffered the consequences of unfortunate political timing. Trump is increasing protectionist measures for the US economy, with a more restrictive stance toward international imports. Meanwhile, the EU has shown similar concerns in ongoing trade negotiations with the Mercosur bloc, which is still to be formalised after a proposed deadline of last December passed.
“China has the same interests in Argentina under Macri as it did under the Kirchner administrations. What has changed is our relationship with the rest of the world,” said Elizondo. “We now have much closer ties with Western countries and do not allow China the prominence it once it enjoyed. At least rhetorically.”
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