As the global COVID-19 pandemic engulfs the world, the grand strategy of revisionist powers will either falter or accelerate. At the dawn of the post-coronavirus world — whenever it might come — the Chinese Communist Party will push forward with its Belt and Road Initiative (BRI), which will threaten to further marginalize the role of South America in the global supply chain.
The Republic of Colombia and the People’s Republic of China officially established diplomatic relations in 1980 when Colombia ended the diplomatic relationship with Taiwan (Republic of China). This October, both nations are celebrating 40 years of an important bilateral relationship that has flourished and continues to grow, particularly in terms of trade.
In recent years, Chinese consumer goods have flooded the Colombian market, throwing domestic manufacturers into dire financial straits. These mass imports to South American markets were a result of governments and private sector firms spending decades developing a local industrial base that would allow the continent to diversify beyond commodity exports. South American nations like Colombia must now look into new economic policies that ensure sustainable industrial development domestically and advantageous trade growth if they expect to further increase their strategic relevance in the global economy.
Colombia-China Trade Relations
In 2017, aggregate imports into Colombia were dominated by refined petroleum, broadcasting equipment and cars. That same year, Colombia’s main import partners were the United States, representing 26% of all goods that entered the country, and China, accounting for 19% of all imports coming into Colombia. Meanwhile, Colombia’s chief export products in 2017 were crude petroleum, coal and coffee. Within the export sector, Colombia’s main customers are the US, Panama and China, representing, respectively, 28%, 6.6% and 5.2% of all the Colombian goods sold internationally.
At the end of 2017, Colombia’s annual trade balance was in the red by $5.18 billion, with a total of $39.1 billion in exports and $44.3 billion in imports. That year, Colombia exported approximately $11.1 billion worth of goods to the United States, $2.6 billion to Panama and over $2 billion to China. Simultaneously, in 2017, Colombia imported some $11.7 billion from the US and another $8.6 billion from China. A macroanalysis of this commercial scenario stands in stark contrast with the year 2000, when the US purchased 49% of Colombia’s exports, while China was the destination of less than 0.25% of all the goods the South American nation sold internationally. Similarly, in 2000, China was the origin of merely 2.9% of all goods imported into Colombia.
Nearly two decades later, Colombia’s trade changed significantly. In 2017, Colombia’s main export to China was crude petroleum, valued at $1.8 billion, which represented 79% of Colombia’s exports to China that year. Nevertheless, this represents a decrease from 2014, when crude petroleum totaled 90% of the value of Colombia’s exports to China, with a total of $5.2 billion. Likewise, in 2013, 84% of Colombia’s export income from China was from crude petroleum, totaling $4.3 billion. Amongst the key takeaways from this dataset is that, currently, one of China’s main interests in Colombia is the purchase of energy resources and fossil fuels like petroleum.
Even though it might seem as if China purchased much less petroleum in 2017 than it did in 2014 and 2013, another takeaway is that China’s trade balance with Colombia is dependent upon international petroleum prices. In reality, China imported between 32 million and 50 million barrels of crude petroleum annually from Colombia between 2013 and 2017. However, the average price per barrel in 2013 was $100 and approximately $95 in 2014. Meanwhile, by 2017, the price per oil barrel had decreased to an average of less than $60.
A Macroeconomic Dilemma
Since independence from European colonialism, South American nations like Colombia have struggled to develop a robust local economy. Historically, the region’s new republics relied heavily on the export of commodities to Europe and North America while importing most of their manufactured goods. To reverse their dependency on commodity exports, the region’s leading industrialists and policymakers spent most of the 20th century developing domestic manufacturing and regional industries.
This economic agenda was championed by South American economists preaching import substitution industrialization, also known as the ISI development model. These initiatives had different degrees of success throughout South America, with some economies developing larger and more significant industries than others. Overall, countries like Argentina, Brazil and Colombia achieved an unprecedented level of industrialization, even if large sectors of some national economies still relied on the export of agricultural and mineral commodities.
ISI’s success was limited because it sought to commercialize domestic value-added goods in regional markets that were not yet fully developed, lacking the purchasing power to sustain significant growth. Even though a country like Colombia still relies on imports to get most of its high-end manufactured goods, particularly in the digital age, some progress has indeed been achieved toward the development of local expertise and the establishment of industries that can compete both domestically and internationally.
The Middle Kingdom’s Farthest Periphery
Today, however, China’s aggressive policies toward the region and its intent to re-route the global value-added chain to Eurasia are undoing decades of progress, driving developing countries into deeper reliance on commodity exports, and pushing South America to a peripheral role within the global supply chain.
In 2019, President Ivan Duque’s administration began to implement a new strategy toward the second largest economy in the world. To this end, in July of last year, Duque made an official visit to China aiming to increase cooperation and trade between the two nations. The last official visit from a Colombian president occurred in 2012, during the tenure of President Juan Manuel Santos. The attempt at a more hands-on approach from Colombia is without a doubt an effort to increase value-added Chinese investments in the country and the region, as well as to reaffirm their commitment to diplomatic and economic relations.
Colombia will be wise to monitor how increased trade with China has led to a return toward the massive export of agricultural and mineral commodities, particularly in countries such as Brazil, Chile, Peru and Bolivia. If Colombia, and South America as a whole, wishes to grow nascent domestic manufacturing and not become a distant supplier of commodities for the BRI supply chain, it must put a check on Chinese-made consumer goods with significant value added, such as clothing, computers, appliances and cars currently flooding the national market.
With a Colombia-China free trade agreement on the horizon, the effects of Chinese ambitions on Colombia’s future could burden the country for generations, and policymakers would be wise to look beyond an ephemeral victory lap.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.