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Pacific Alliance leaders Pena Nieto, Santos, Pinera and Humala. (Photo: Colombian President's Office)
Monday, June 3, 2013
Perspectives

WHAP:  The Emerging Trade Corridor


Europe is left behind as a new growth corridor takes off, linking the Western Hemisphere with Asia and the Pacific.

BY BEATRICE E. RANGEL

Two news stories reminded us recently that this is the 21st century. The Chinese Premier, Li Keqiang warning that EU investigations into Chinese-made solar panels and telecommunications equipment would hurt the interests of European consumers and the picture of the Latin American Pacific Rim heads of State celebrating the results of their very first meeting which intends to deepen their trade links in preparation for a block negotiation with China and other Asian nations.

Both stories herald the rapid ascent of a new and unforetold growth corridor: the WHAP (Western Hemisphere; Asia and the Pacific). Both point to the heart of this decade’s dilemmas: the riches to rags European journey and the continuing creation of middle classes in Latin America. 

Indeed, Europe’s current predicament has several components, notably among them the inverted demographic pyramid and protectionism. The first accounts for the financial conundrum by which there are not enough workers to support the all-encompassing and rich pensions awarded to senior citizens who are the majority of the population. The second has rendered the European production machine deaf and blind to consumers’ demands and price competition. Henceforth except for the Scandinavian nations, Germany; France and the UK, which have developed goods and/or services efficiently and uniquely, the rest of the European nations are unable to compete with Asian nations, in particular with China and even with Latin American nations. As a result, Europe seems lo slowly march towards perennial recession while the US proposal to embark on a free trade agreement lays dormant since new year.  This would, of course, be a life saver for the Old Continent, but entrenched corporativism and its interests seem to have won the tug-of-war with the US.

The second dilemma is one of economic policy selection and long term sustainability. Latin nations which look to the Pacific while lacking the tourism-attractive Caribbean beaches, they hold one of the most important assets in today’s world: geo economic commercial real estate. To be sure these nations share with the US free trade agreements but most importantly have embraced macroeconomic virtue for a reasonable time. As a consequence; they are about to become the beneficiaries of industrial redeployment with Asia and increased, deeper and richer trade. As Asian nations turn the export oriented growth page and begin to build internal demand their cost structural is bound to rise and with it the competitiveness in many manufacturing tasks in Latin America. Thus labor enhancing manufacturing is bound to grow in Latin America while exchanges with Asia will also show this trend. But in order for Latin nations to reach a balance between exports and internal demand growth they need to embark in the reform journey. Less regulation; better levels of taxation income; better infrastructure;  more credit to small and medium sized enterprises need to be readily available. But looking at these two dilemmas it seems as if destiny has drawn a better set of cards for Latin America than it has to Europe.

Beatrice Rangel is CEO of AMLA Consulting Group, a business development advisory firm in Miami. She wrote this column for Latinvex.

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