Latin America in the Aftermath of the Perfect Storm

Global tectonic plate shifts have affected Latin America’s relations with China and the U.S.

We approach the impacts and durable consequences of Europe’s war (in Ukraine), overlapping with the effects of other components of the “perfect storm” (pandemic, severe weather phenomenon, hunger, global inflation) on Latin America. Although commodity-dependent countries in the region have exhibited some positive surprises in terms of GDP growth, more broadly inequality has risen and the living conditions of the poor have deteriorated. The mediocre growth performance of the last decade looks to be the underlying trend in case a reshuffle of the growth pattern is not pursued.

First, we deal with the global tectonic plate shifts that have conditioned the region’s economic performance since the 1990s. Second, we outline the range of effects stemming from the “perfect storm”. The third section approaches how economic relations between China and Latin America have evolved after the tectonic plate shifts. Finally, we frame the U.S.-China rivalry concerning the region in terms of the U.S. reactions to the Chinese extroversion to Latin America.

1. Implications of Global Tectonic Plate Shifts on Latin America

Latin America’s economic evolution since the 1990s has been conditioned by three “tectonic plate shifts” underlying the global economy. Such tectonic shifts directly impacted three basic prices at the global level, with direct implications for the region’s economic trajectory (Canuto, 2021a).

The first one is the shock associated with a downfall in land prices, reflecting the sudden incorporation of workers whose labor services were previously not integrated into the global market economy. That evolved into a supply shock emanating from an increase in the number of manufacturing workers engaged in international trade. We refer to the demolition of the Berlin Wall and the dissolution of the Soviet Union, as well as to China’s opening of free trade zones that happened even before joining the World Trade Organization in 2001.

Two complementary changes also weighed in favor of such labor supply movement. Countries implemented reforms toward trade opening, lowering tariff and non-tariff trade barriers. Furthermore, a cluster of technological breakthroughs in ICT and transportation (containerization) had made possible the geographical fragmentation of manufacturing processes and the relocation of parts of value chains according to convenience – including the use of cheaper labor. The phenomenon of integration of Asia into global or regional value chains that had been seen in the previous decades was taken to a larger scope.

The combination of higher ease-to-industrialize and cheap labor in Asia (and Eastern Europe) brought a direct challenge to manufacturing in Latin America. The region’s previous “import-substitution industrialization (ISI)” strategy had already initiated a phase of the review, as it had started to face limits even in the cases of relative success – like Brazil, Mexico, and Argentina. To differing degrees, countries in the region partially reversed trade policies pursued in the previous decades.

However, except for Mexico which opted for integration into North America’s value chains through NAFTA, countries in the region were now facing a higher ladder to be able to transmit to any “export-led industrialization (ELI)” strategy. Difficulties to implement structural reforms that would allow the region to phase out the legacy of ISI policies and compete with low Asian wage-productivity help to understand “precocious deindustrialization” in many countries in the region.

A second tectonic shift corresponded to a change in the financial landscape, due to declining interest rates in advanced economies and the availability of global finance at lower costs. Even considering risk premiums associated with emerging markets relative to the sources of finance in advanced economies, capital flows to the former acquired a huge significance, with cycles of boom and bust.

The debt crisis in Latin America and South Korea in the 1980s had followed a strong cycle of international banks’ credit in the previous decade, particularly recycling surpluses of oil producers after the oil price shocks – in what became known as “petrodollars” through the “Eurodollar system”. However, the banks’ retrenchment after the debt crisis was followed in the 1990s by the entry into the scene of non-banking financial intermediation, fed by declining earnings rates in advanced economies. Subsequent episodes of busts in Asia (1997), Russia (1998), Argentina, and others did not close the financial window of flows to emerging markets.

The third tectonic plate shift and basic price change were more a consequence of the two previous ones. Because of the high growth-cum-industrialization in Asia, with globalization thriving using its cheap labor, prices of natural resources and commodities went through a super-cycle.

A demand shock was associated with an increase in global demand for primary goods, one not matched by a commensurate supply capacity response. It reflected the relatively high commodity intensity of imports of the larger rising South countries, particularly China. The result was a rise in commodity prices—an unusually vigorous upswing phase of a commodity super-cycle. For commodity exporters, including in Latin America, this shock was associated with terms-of-trade gains.

A super-cycle of commodity prices started in the mid-90s, reaching a peak by the time of the global financial crisis, and getting to the bottom with oil price declines by 2015. In Latin America, except for Mexico and its integration into U.S. value chains, the super-cycle of commodities was gravitationally strong enough to become the basis of economic growth.

One important feature of the upswing phase of the commodity-based economic cycle was its catering down to the bottom of the income pyramid, with poverty reduction and rising middle classes as outcomes. To the different intensities in the region, social policies were implemented in that direction.

The combination of income gains associated with natural resource-intensive tradable goods and non-tradable services, in addition to capital inflows and exchange-rate appreciation, exercised an additional price and competitiveness pressure on tradable manufacturing production.

As the super-cycle faded out in the 2010s, bringing down GDP growth and affecting fiscal conditions, countries in the region faced higher levels of potential social unrest and political instability. This was the case even in countries – like Chile, Colombia, and Peru – that had adopted fiscal frameworks or policies aiming at mitigating the consequences of cyclical fluctuations of commodity prices. Brazil attempted to extend the cycle by resorting to public debt-financed lending by the National Economic and Social Development Bank (BNDES) but that led mainly to a fiscal crisis without commensurate private investment results.

It must be noted that, despite the overall higher macroeconomic performance in the 1990s and 2000s relative to the 1980s, there was little convergence of GDP per capita levels in Latin America with those in the United States. In the meantime, emerging Asia and emerging Europe underwent rapid convergence (Bakker et al, 2020).

Political contestation of incumbent governments became a normal feature in the region. With some exceptions – Ecuador and Brazil, at least until the 2022 election outcome – a new “pink tide” of more left-wing governments has spread in the region. Starting with Mexico in 2018 and Argentina in 2019, followed by Bolivia in 2020, along with Peru, Honduras, and Chile in 2021, and Colombia in 2022.

One important dimension of Latin America’s economic evolution in recent decades has been the continuity of shallow physical and trade integration. Although slightly superior to Sub-Saharan Africa, the degree of physical (infrastructure) and trade integration pales relative to the case in the dynamic Asian economies (Canuto and Sharma, 2011).

Efforts like the South American Regional Infrastructure Integration (IIRSA) led by the Inter-American Development Bank in the last decade ended up not receiving appropriate backing from countries in the region. While Peru implemented some projects therein supported, the fact is that efforts were dispersed after the creation of the Union of South American Nations (UNASUR) in 2008.

Even the Southern Common Market (MERCOSUR) – initially established by Argentina, Brazil, Paraguay, and Uruguay, and subsequently joined by Venezuela and Bolivia – remained limited as a regional integration process. Despite being signed as a “common market”, still nowadays resemble more to be a “free trade zone”, full of country exceptions and without a common trade policy. Mercosur has signed trade deals with several countries, but significant deals, including with the European Union and the United States, remain to be completed and ratified. One may say that the political will to deepen regional integration has not been strong and broad enough to pull the agenda forward.

2. Pandemic, War, Climate Change, and Global Inflation as Multiple Economic Shocks to Latin America

The pandemic hit hard the region and the economic recovery was slower than in other regions of the world. Besides a legacy of higher public debt, the pandemic has left scars on the labor market and the human capital accumulation of future workers.

The COVID-19 crisis has receded in Latin America but left a significant toll. Reported deaths related to the pandemic are currently low and have converged to global levels—albeit from much higher levels than previously thought. Average excess mortality across the pandemic was among the highest in the world: double the global average and second only to Central Europe and Central Asia (World Bank, 2022). Low vaccination rates in some countries leave them vulnerable to new variants.

In most countries, GDP and employment have moved back to their pre-pandemic 2019 levels. On the other hand, as the World Bank’s report puts it, expected growth rates may be named as “resiliently mediocre”. Banking systems are sound, and debt burdens overall seem not to have entered any unsustainable path, differently from many developing countries elsewhere. However, economic growth is not forecasted to go above the low levels of the 2010s that we discussed in the previous section.

The post-pandemic economic recovery has led to a large unwinding of the rise in income poverty in 2020-21. But neither the permanent output losses from the pandemic will be recovered, nor the longer-term scars of the pandemic in terms of education, health, and future inequality have been wiped out (Canuto, 2021b).

The Russian invasion and the war in Ukraine further had an economic impact on the region, particularly through the commodity price shock and consequent domestic inflation rate hikes. While commodity exporters (importers) faced positive (negative) effects on their GDPs, via terms of trade, they all had to face higher levels of inflation, with food and energy prices affecting particularly the lower half of the income pyramid, given the weight of such items in their consumption basket.

Growth rates in the region have been systematically upgraded since January—in contrast to the downgrades of the rest of the world because of the war in Ukraine. GDPs of net importers of food and fuel, such as the Caribbean and Central American countries, have been negatively affected. Rising prices of these goods have also affected households across the region. On the other hand, the overall rise in commodity prices has been a blessing to regional exporters such as Argentina, Brazil, Chile, Colombia, Ecuador, and Peru.

The favorable tailwinds coming from commodity prices are expected to change course (IMF, 2022). In the case of oil prices, futures markets are pointing to a fall in coming years, after still rising by 41% in 2022. Russia’s invasion of Ukraine lifted base metal prices, but these are expected to end 2022 at levels of 5.5 percent lower on average and to decrease by a further 12.0 percent in 2023. The IMF report forecasts precious metal prices to decline more moderately, by 0.9 percent in 2022 and an additional 0.6 percent in 2023.

Food commodity prices, which also climbed after Russia invaded Ukraine, have descended to prewar levels in mid-2022, finishing a two-year rally. Not before adding 5 percentage points to food price inflation for the average country in 2021, an estimated 6 percentage points in 2022, and 2 percentage points in 2023 (IMF, 2022).

Higher frequency and coverage of adverse weather events, probably already reflecting climate change, have also constituted a source of price shocks on food and energy. In the last few years, more frequent floods and droughts have affected the supply of food and energy in China, India, Europe, the U.S., Africa, and Latin America itself. Climate change, a plague (pandemic), war, and hunger risks have constituted a “perfect storm”.

For commodities as a group, 2022 has been a very volatile year. After ascending dramatically in the first half, because of the shocks heretofore mentioned, prices declined in the third quarter, as a reflection of China’s growth deceleration – (Canuto, 2022a) – and the U.S. dollar appreciation. The supply shock stemming from the war in Ukraine has been followed by a downward demand shock.

The asymmetric effects of higher commodity prices on the population of the region, harming especially the purchasing power of the bottom of the pyramid, have been – to different degrees – matched by social policies of transfers and other types of support. The absence of fiscal space readily available to use has been a constraint (World Bank, 2022).

Even as Latin American countries continue to deal with the effects of those three previous shocks, a fourth one has come with the tightening of global financial conditions. High global inflation – following those previous shocks – has been met with tighter monetary policies by central banks in advanced economies (Canuto, 2022b; 2022c).

Growth momentum surprised positively in most of the region, favored by the return of service sectors and employment to pre-pandemic levels, as well as external conditions that stayed favorable until recently – including still high commodity prices, still strong external demand, and remittances, besides the tourism comeback. These have been the explanatory factors behind upward revisions to growth forecasts this year.

But the tightening of global financial conditions is pushing contrariwise. The availability and costs of domestic finance have become less friendly as major central banks have been raising interest rates to tame inflation. Capital inflows to emerging markets have slowed and external borrowing costs have increased. Domestic interest rates in emerging markets have risen as their central banks hiked rates to curb inflation as well, but also because of the lower risk appetite by investors.

The region is overall more resilient to a monetary-financial shock like this one in the course than in previous times (Canuto, 2021c). Banking systems are healthy and public balance sheets are not in general as fragile as in other moments in the past. The cushion in terms of foreign exchange reserves also makes a difference in several cases.

Corporate debt outside the banking system is nevertheless a spot deserving attention. Higher domestic interest rates will also stiffen public debt conditions (Acosta-Ormaechea et al, 2022).

After the upward surprises of GDP growth in 2022, the performance expected for next year is weaker. While the IMF (2022) and the World Bank (2022), respectively, expected GDP growth rates to reach 3.5 percent and 3 percent in 2022, their forecasts have descended to 1.7 percent and 2.9 percent in 2023. A successful post-perfect-storm recovery in Latin America should not be limited to a simple return to its pre-pandemic “mediocre” levels of output growth— already unimpressive and prone to shocks— but to represent an inflection point toward more resilient, inclusive, and productive growth patterns (Canuto and Zhang, 2021).

3. Reflections of Tectonic Plate Shifts on Latin America’s Economic Relations with China

The tectonic plate shifts approached in the first item had a counterpart in terms of profound changes in the economic relations between China and Latin America over the past 20 years. In 2001, Latin America’s exports to China corresponded to 1.6% of the total, while in 2020 they had reached 26%. This contrasts with the region’s exports to the U.S., which went from representing 56% of the total in 2001 to 13% in 2020.

Such radical change was largely due to China’s accelerated manufacturing-based growth during this period and its rising demand for raw materials, especially from South American countries such as Peru, Chile, Brazil, Argentina, and Uruguay. Something similar happened in the case of the region’s imports of manufactured goods. China’s total trade with Latin America grew over the past 20 years at a 19% compound annual rate (IIF, 2021).

The weight of Latin America in total China’s imports and exports also rose. Its share of China’s total imports augmented from 2.4% two decades ago to 8.1% in 2020. This became higher than the U.S. and close to Japan’s share. China’s exports to Latin America, in turn, became larger than those to Japan, although remaining smaller than its exports to the U.S. or the European Union (IIF, 2021).

With a significant discrepancy within Latin America (Zhang and Prazeres, 2021). China has become the top trading partner for most countries in South America, surpassing the U.S. in all but Colombia, Ecuador, and Paraguay. Mexico, in turn, has strengthened its trade dependence with the U.S. While the tectonic shifts led to flows of exports of commodities to – and manufacturing imports from – China in South America, the same shifts underlay Mexico’s integration to regional manufacturing value chains in North America.

China’s investment in Latin America has also undergone a significant evolution, following the former’s financial extroversion that accompanied its rising trade. Excluding Hong Kong (CHINA), Latin America is the largest destination of Chinese outbound direct investment (ODI), reaching almost 50% of China’s total ODI stock.

Since 96% of China’s ODI in Latin America went to two offshore financial centers (the Caymans and the British Virgin Islands), it is hard to pin down exactly its ultimate destination. China’s ODI in those offshores is overwhelmingly larger than those of other countries and, if they are excluded, China’s ODI in the region is smaller than that of the Netherlands, Canada, Germany, Italy, or Japan, and corresponds to only 5% of the U.S. ODI in Latin America (IIF, 2021).

The bulk of China’s total ODI in the region went to business services (23%), and wholesale & retail (14%), whereas less than 6% was in mining. To some extent, this highlights what could be seen as a “metamorphosis” in China’s financial flows to the region (Canuto, 2019). After becoming a major source of capital flows to Latin America and the Caribbean from 2005 to 2019, a more diverse range of investors surfaced, interested in more than simply channeling resources toward infrastructure, governments, and state companies.

The profile of Chinese investment in the region tracked the evolution of China’s economy as it moved toward a higher reliance on services and domestic consumption (Canuto, 2022a). Lending by the China Development Bank and China’s Exim bank was until recently directed mostly to infrastructure and the energy sector. Before sliding down in recent years, China’s development lending to Latin America and the Caribbean reached levels larger than lending from the World Bank, Inter-American Development Bank (IDB), and Development Bank of Latin America (CAF) combined.

Of the estimated US$140 billion that China lent to Latin America from 2005 to 2018, over 90 percent went to four countries – Venezuela, Brazil, Argentina, and Ecuador. More than 80 percent of China’s foreign direct investments, either as greenfield investments or through mergers and acquisitions, went to Brazil, Peru, and Argentina, with Mexico also rising as a destination for manufacturing investment in later years.

This shift in focus brought the emergence of new investors. Direct investment in the region went from almost nothing in 2005 to likely pass $110 billion by 2018. The initial focus was on the extractive industry (oil, gas, copper, iron ore), but moved to have more than half of the flows going to services. Chinese investors’ pursuit of opportunities in transport, finance, electricity generation, transmission, information, and communications technology, and alternative energy services catering to local markets grew at rapid speed.

China-backed commercial financial institutions and platforms have also established their footprint in the region, actively engaging in private-sector deal-making. Besides co-financing projects and setting up regional investment funds, four major Chinese commercial banks ramped up operations in the region, many in partnership with international banks. The scale and number of transactions may be smaller compared to the lending spree led by development banks but point to a qualitative change in the structure of financing options coming from China.

Increased participation of non-state investors has introduced new sources of dynamism and diversification to Chinese direct investment in Latin America. Brazil’s emerging tech industry, for instance, has successfully and continuously attracted high-profile Chinese investments. Additionally, Chinese participation in mergers and acquisitions into specific value-added sectors reflected new consumption habits in China, ranging from vineyards in Chile to meat-packing plants in Uruguay (Canuto, 2019).

Attention to risk when looking at potential returns has also come to the fore among Chinese investors, particularly after the experience with Venezuela. As domestic regulations and lending caps tighten in China given concerns about its increased financial fragility, a more stringent look at the country’s development lending has followed.

State-owned enterprises still lead among Chinese investors in the region, from mining, infrastructure, and oil and gas to hydroelectric plants. China’s policy response to the global financial crisis in the form of large-scale stimulus given to infrastructure and housing sectors generated excess domestic capacity in heavy industry and real estate, while financially boosting industries such as construction, retail, wholesale trade, hotels, and restaurants. This overcapacity then went to look for foreign markets.

China’s physical integration abroad via the “Belt and Road Initiative (BRI)” was a vehicle to put its overcapacity in construction and heavy industry to work elsewhere. 19 of the 33 Latin American countries have formally signed off their inclusion into the BRI, while Brazil and Mexico have not officially done so.

Episodes of contention with Latin American governments around environmental impacts and corruption associated with some previous lending deals highlighted the need for China’s investment finance to reckon with risks and the fallout from environmental and governance issues. Official guidelines on the environmental and social policies for Chinese companies investing abroad have been issued, signaling the matter has caught the attention of Chinese authorities.

While Chinese deals used to be limited to construction – winning concessions, building a project, then leaving – new equity investments in Latin America indicated longer-term interests and ownership in projects beyond its construction to include operation, maintenance, and more. This was especially true in port projects.

The speed and intensity of China’s growth-cum-structural-change seemed to a large extent to be being matched by the profile and volume of its capital flows to Latin America since 2005. However, the sizable Chinese financial and investment footprint in the region has given a break in recent years, with a slowdown in reported new flows. In 2020-2021, Chinese policy banks issued no new loans to LAC governments or state-owned enterprises (Myers and Ray, 2022).

Myers and Ray come to suggest that the total combined Chinese finance to LAC is unlikely to ever approximate the previous peaks of policy bank lending (2010 and 2015). To be seen though whether this has simply reflected a walkout from big natural resource-based finance to state entities in oil and mining, while eventually Chinese investments return to the positive ground on the services side. Since 2018, financial and investment relations have moved to Chinese companies, backed by Beijing, as investing partners and not only financiers of projects.

4. The U.S.-China Rivalry and China’s Economic Extroversion in Latin America

A major consequence of the war in Europe (Ukraine) has been the exacerbation of the rivalry among major global powers, inevitably encompassing trade and technology policies. The rivalry brings spillovers to Latin America.

Already before the “perfect storm”, the such rivalry had escalated with political anti-globalization backlashes in several advanced countries during the last decade. But the pandemic and the invasion of Ukraine mainstreamed geopolitics to government policies and consequently to private-sector corporate strategies.

The U.S.-China rivalry had already been exercised through U.S. President Trump’s “trade wars”. The pandemic also brought forms of soft-power disputes around vaccines, as well as the search for reassurance of countries’ access to “strategic goods” (medicaments and medical equipment, semiconductors, and others). Russia’s invasion of Ukraine and China’s apparent alignment took geopolitical tensions to upper levels.

As a justification for his style of trade wars, President Trump had alluded to a goal of revitalizing jobs in the U.S. manufacturing industry by protecting it from unfair trade practices of other countries, particularly China. However, according to a study by two Federal Reserve Bank staff, the effect was just the opposite, i.e., a reduction in U.S. manufacturing employment (Flaaen and Pierce, 2019). President Biden has not reversed Trump’s trade measures, but the focus of U.S. actions has predominantly shifted to the science-and-technology dimension, notably on China’s access to semiconductors and other high-tech areas.

The war in Ukraine and the pandemic dovetailed well with another reason alluded to as a justification for revisiting the globalization and global value chains that were developed as an outcome of the tectonic plate shifts. Supply chain disruptions during the pandemic gave ground to voices claiming that cost optimization attained with GVCs came in detriment to resilience to localized shocks that tend to affect the whole chains. The war in Ukraine, in turn, raised the profile of geopolitical risks as an additional factor to be reckoned with in the configuration of – and reliance on global value chains (Canuto, Ali and Arbouch, 2022).

Such arguments had already been raised before, but the pandemic and the war made them more frequent and louder. They have been accompanied by calls for re-shoring or near-shoring of global value chains, with “friend-shoring” to minimize geopolitical risks. The great development of logistics and transport across the world’s industrial clusters – as part of one of the tectonic plate shifts – allowed “just-in-time” manufacturing to become the main adopted production model. However, to maximize resilience against shocks, they should now move to a “just-in-case” mode, even if costly, but reflecting a trade-off between efficiency and resilience. National security reasons reinforced the call in some sectors.

So, where does Latin America stand in the middle of such rivalry? Simple calls for alignment of countries in the region will not be effective if not translated into actual advantages to do so, counterweighing the consequences in terms of losses with whoever is left out of the association.

As a reaction to the upswing of China’s financial and investment flows to Latin America approached in the previous item, the U.S. authorities opted for warning governments in the region about the risks of “debt traps”. Furthermore, China’s hands-off approach concerning environment and governance safeguards – under the guise of respect to local standards and the sovereignty of borrowers – was pointed out as facilitating local corruption and misuse of resources. A typical response from governments in the region was a question back: “what are the alternatives?” Rhetoric around the risks of engaging with China is ineffective.

As well remarked by Aragão (2021), historically the predominant U.S. approach to Latin America has been one of dealing with the region as an “inexhaustible source of problems”: the fight against drug trafficking, illegal immigration, and corruption is at the top of the list of its priorities.

In the last decade, U.S. trade agreements were reached with several countries in the region – not in the case of large countries in South America, including MERCOSUR. It is still to be seen if President Biden will come with any trade-boosting agenda to the region, while Trump only exercised threats on Mexico and a review of NAFTA that curtailed windows for the country.

On the finance and investment side, there are U.S.-based private capital flows but carrying them to bulk infrastructure and risky-asset finance is not straightforward and has not been substantial (El Aynaoui and Canuto, 2022). Even President Biden’s recent proposal of an alternative to BRI has been shy in terms of resources to be made available with official government support.

Will “nearshoring” and “friend-shoring” be used by the U.S. to boost its attractiveness as a partner in the rivalry? There are reasons to believe that such possibilities cannot be taken for granted. The homework in the region to make feasible seizing any opportunities is a tall order, and direct or indirect subsidies would still be necessary (Canuto, Lin, and Zhang, 2022). Not by chance, one may expect “deglobalization” to remain “relative” and circumscribed to very high-tech and national security-sensitive sectors (Canuto, Ali, and Arbouch, 2022).

Soft-power disputes around access to technology, on the other hand, will intensify. Through complex ways. In 2020, the communications company Huawei started to distribute 5G kits to Brazilian agribusiness companies, enhancing their connectivity capabilities and searching for their alignment against any U.S.-suggested prohibition of their participation in 5G auctions as a provider (Aragão, 2021).

Aragão (2021) also illustrates the issue with China’s donation of thermal cameras to the government of Nicaragua, through which a previously non-existent dependency on thermal cameras was raised. It is likely that, as time passes by, the Chinese cameras will not be exchanged for others in Nicaragua and a market reservation for China in detriment to competitors from the U.S. and Europe may have been created.

The main point here is that – absent Trump’s unilateral style of a trade war, which revealed itself to be pain self-inflictive – the heightened U.S.-China rivalry will have to be exercised mainly through the offer of trade and investment opportunities and finance to countries in the region.

Is a revival of the pro-active financial and investment stance taken by Brazil between the mid-2000s and mid-2010s abroad likely after the 2022 elections? Probably not, as that one was based on a combination of public debt emissions transferred to the country’s National Economic and Social Development Bank (BNDES), including coordination with domestic private companies. The fiscal crisis that erupted in 2015, together with the governance scandals and justice trials that also marked the end of the cycle, have made it politically, fiscally, and practically impossible to replicate.

5. Concluding Remarks

The war in Europe (Ukraine) and the other elements of the “perfect storm” (pandemic, severe weather phenomenon, hunger, global inflation) brought consequences to Latin America. GDP growth surprises in commodity-dependent countries in the region must be weighed against increases in inequality and worsening living conditions of the poor. Scars of the pandemic on health, education, and human capital remain. Except for commodities key to the transition to clean energy, the broad picture of their prices ahead is far from the one of a new super-cycle. The underlying trend seems to be the mediocre growth performance of the pre-pandemic decade.

The region will have to find new economic growth avenues. A wave of green infrastructure investments looks obvious, while it is to be seen how wide and comprehensive opportunities of “nearshoring” or “friend-shoring” will be created by the US-China rivalry and the “relative deglobalization”.

Apart from specific country cases, there are no clear-cut benefits from aligning automatically with any of the rival powers. Hopefully, the rivalry will be exercised through the offer of opportunities, rather than via attempts to exclude rivals from the region’s ground.


A previous version of this article appeared as a chapter of Ishmael, L. (ed.), Aftermath of War in Europe: The West VS. the Global South?, Policy Center for the New South, 2022.