An interesting economic report came my way recently. Last year, economists at the Inter-American Development Bank took a look at economies in Latin America and how they have fared since the 2008 financial crisis, and found that they broke down into two distinct groups.
The “Mexico cluster” (Mexico and Caribbean countries) was more integrated with industrialized economies such as Europe and the US.
The “Brazil cluster” (including many South American countries) exported primary commodities in large quantities to China.
You can guess what happened.
“Brazilian-type countries, being net commodity exporters, with low exposure to industrial countries in terms of exports of goods and services—and much to gain from larger investment demand in response to low world interest rates—are the clear winners. On the other hand, Mexican-type countries, mainly net commodity importers and highly exposed to trade in goods and services with industrial countries, are likely to face substantial challenges, in spite of the fact that they too stand to gain from lower world interest rates. Could we be witnessing the emergence of two regional blocs, represented by a Brazilian cluster and a Mexican cluster?”
It’s an interesting bit of the backdrop to the debates over the proposed oil pipeline to the West Coast and the Trans-Pacific Partnership trade agreement.
And the issue goes beyond commodities to manufacturing, too. A few months ago, an executive from a large North American manufacturing company, which produces, among many other products, elevators, remarked that manufacturers no longer move production to China for lower wages (wages are going up there and are cheaper elsewhere in Asia.) They go, he said, because that’s where their customers are. China is on track to build several New York-sized cities in the coming decades, erecting thousands of skyscrapers, he said. “Do you know how many elevators they’ll need?”
The pressure for a Canadian economic pivot to Asia seems to be building, regardless of what Obama ultimately decides on Keystone XL.