Trade Competition from China

By Rosales, Osvaldo; Salazar, Lina | Americas Quarterly, Winter 2012 | Go to article overview

Trade Competition from China

Rosales, Osvaldo, Salazar, Lina, Americas Quarterly

Chinese exports are cutting into domestic and international market share for many Latin American manufactured goods. By Osvaldo Rosales

The emergence of China as a major player in the global trade of goods and services has undoubtedly delivered benefits for Latin America-primarily by enhancing the value of its exports of natural resources and related products. But China's growth as a commercial power has also created a major competitor in the markets of Latin America's trading partners, especially in the United States, the European Union and the domestic markets of Latin American countries. In many of those countries, national manufacturing industries are already starting to suffer because of Chinese imports.

While there are several studies that confirm the positive impact exerted by Chinese demand on export prices and the regional export basket, there is little recent empirical evidence, especially at the industry and product level, to show the effect of competition in third markets and within countries.

My colleagues and I at the UN Economic Commission for Latin America and the Caribbean analyzed U.S., EU and Latin American imports from four selected countries (Argentina, Brazil, Colombia, and Mexico)-all of which have developed different trade relations directly and indirectly with China-and China, to understand how their products in third markets are affected by Chinese exports. In addition, by looking at domestic production, import trends in intermediate inputs, consumption patterns, and the proportion of demand for products of Chinese origin, we determined the domestic industries most affected by imports from China.


To analyze competition in third markets, we selected industries exporting to the U.S., the EU and Latin America (approximated by South America and Mexico), and traced the evolution of market share between 2005 and 2010 (or the most recent year in the four countries mentioned above). This was compared to the evolution of China's participation in the same markets during the same period. Subsequently, we selected those industries where China's overall market increased in comparison to the four selected countries. In this way, we could determine which industries were most affected by Chinese competition in third markets.

Our study showed that the sectors that experienced the greatest impact in all four countries-all of it negative- were industrial machinery and equipment, office machinery, electrical equipment and metal products [see figure 1].

The four countries have seen their market share decline in both high- and low-tech products in the U.S. and Latin America. In 2009-2010, China overtook the selected countries in total imports in both markets [See figure 4].

In the U.S. market, Chinese competition has affected a large group of domestically produced goods, especially electronics and electrical machinery, radio and television transmitters, telephone equipment, radio receivers, recording and reproduction equipment, insulated wires and cables, motors, electrical generators and transformers, and chemicals. Overall, in 2010 the affected market share for the four selected countries represented 25 percent of their total exports to the U.S., with Mexico alone accounting for 93 percent of the total loss [see figure 2].

In the four Latin American markets, the share of exports subject to increased competition from China reached 12 percent of their total intraregional industry exports, with products especially affected in the export industries of Brazil, Mexico and Argentina, which combine for a total share of 94 percent of the total [See figure 2].

As for the EU market, the share of affected exports from the selected Latin American countries was just 4 percent, leading to the conclusion that there has been no significant change in the past five years. Since 1998 China had already surpassed the market share of Latin America and the Caribbean in the EU market, and there was little room for more growth.

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