Latin America's Economic Divide
Video Transcript:
Video Transcript:
The trade blocs of Latin America are in a moment of transition. Governments that rely heavily on state intervention for economic control are beginning to align with Mercosur. On the other hand, right-wing governments favoring free-trade economic regimes have united under the Pacific Alliance. The trading regimes reflect the key fundamental disagreements about economic development and political relationships in Latin America.
The presidents of Brazil and Argentina met Nov. 29 to discuss their complex bilateral relationship and the expansion of Mercosur, a customs union that the two countries have historically dominated politically and economically. Venezuela joined the group in June, and the possibility of Ecuador and Bolivia joining as full members will be discussed at a Dec. 7 Mercosur summit in Brasilia.
The expansion of the customs union gives all countries involved beneficial access to each other's markets and opportunities for mutual investment, but it also poses some serious challenges. Mercosur requires its member countries to impose a common external tariff on goods from outside countries. For a country like Venezuela, which is heavily reliant on foreign imports, widespread tariffs may mean that it will have to switch providers for a number of goods, and in some cases, it may face a higher import bill. For a country that gets 40 percent of its imports from the United States, China and Colombia, this is not a trivial challenge. But without that common external tariff, the countries already in Mercosur are worried that new members could be used by countries such as China as a way to avoid the tariff regime altogether.
From a political perspective, bringing Venezuela, Bolivia and Ecuador under Mercosur institutionalizes the commonalities of the Latin American left. It also represents a significant strengthening of Brazil's influence in the region. Mercosur has historically served as a way for Brazil and Argentina to manage their inherently rivalrous geographic positions as major South American powers. With the expansion of Mercosur, the political logic behind the trade bloc changes. Instead of a tool to manage a bilateral relationship, Mercosur appears to be evolving into a multilateral negotiation tool, tying together countries whose economic policies align more closely with the left and center-left of the political spectrum.
In contrast, the union of Mexico, Colombia, Peru and Chile under the Pacific Alliance highlights a commitment to free trade policies by the majority of political elite in those countries. Designed to promote export-oriented, investment-friendly economies, these countries are betting on trade with Asia and high growth to address social challenges at home.
Though all of these countries signaled their commitment to their respective free trade and protectionist policies years ago, the Latin America-oriented agreements serve a functional and symbolic purpose. These commitments bind future governments into relationships by linking economic interests to political agendas. In the process, the deep divide in Latin America that has been emerging for years has begun to take a more solid form.
