Opinion: Uruguay can propel South America’s relations with China

As the country assumes the presidency of the Mercosur trade bloc, it must seize opportunities and renew dialogue with China, writes Ignacio Bartesaghi
<p>Uruguay’s President Luis Lacalle Pou and his Brazilian counterpart Luiz Inácio Lula da Silva at a Mercosur meeting in 2023. Uruguay has broke with Mercosur convention to pursue a bilateral trade deal with China, but the Lula government may present an obstacle to an agreement (Image: <a href="https://www.flickr.com/photos/palaciodoplanalto/53381825096/">Ricardo Stuckert</a> / <a href="https://www.flickr.com/people/palaciodoplanalto/">Palácio do Planalto</a>, <a href="https://creativecommons.org/licenses/by-nd/2.0/">CC BY ND</a>)</p>

Uruguay’s President Luis Lacalle Pou and his Brazilian counterpart Luiz Inácio Lula da Silva at a Mercosur meeting in 2023. Uruguay has broke with Mercosur convention to pursue a bilateral trade deal with China, but the Lula government may present an obstacle to an agreement (Image: Ricardo Stuckert / Palácio do Planalto, CC BY ND)

Since the transformations that took place in China in the 1970s, which led to the so-called “economic miracle” that saw millions of Chinese people lifted out of poverty, the country has deepened its economic and trade relations with all regions of the world. Mercosur, the South American trade bloc made up of Argentina, Brazil, Paraguay and Uruguay, is no exception: since its creation in 1991, it has followed such trends, but especially since the first decade of the 21st century after China’s entry into the World Trade Organization.

Beyond the structural changes and challenges currently facing China’s economy, added to by the impacts of the Covid-19 pandemic, the country is feeling effects from the ongoing trade war – a rather geopolitical one – launched by the United States. In any case, the International Monetary Fund projects growth of just over 4% for China’s economy in 2024, and the indicators for the first quarter in China are very encouraging.

China today accounts for 18% of global GDP and is the world’s leading exporter – accounting for no less than 14% of all exports – as well as bringing in 11% of global imports. The country accounts for similar percentages of global investment. It is a technological power that in less than two decades has become the main supplier of cutting-edge technology to dozens of countries worldwide, including the members of Mercosur.

China’s relations with Latin American countries have gone through several stages, growing stronger in the 1990s, but especially in the 2000s through the trade in raw materials, which was favourable to the economic growth of Latin America as a whole.

Over the years, and in line with the changes in the make-up of China’s productive output, the country began to send a significant number of products to Latin American markets, first in light industries such as textiles, but later exporting high-tech goods. Today China is the leading or second-largest trading partner of practically all the countries in the region.

In recent years, it has expanded its relationship with the region by signing free trade agreements with some Latin American countries, such as Chile and Peru, in 2005 and 2009 respectively, followed by Costa Rica in 2010, and finally Ecuador and Nicaragua in 2023. At the same time, the agenda expanded beyond trade, with increasing importance being given to investment and cooperation in various areas, such as politics, science and technology, international security and sustainable development, as well as increasing business partnerships.

As for Mercosur, China’s bilateral trade in goods with the bloc exceeded USD 210 billion in 2023, according to trade data. The balance is also largely favourable to the South American countries, with a collective surplus of more than USD 50 billion, mainly explained by the strong economic performance of Brazil. Between 2004 and 2023, trade in goods between China and Mercosur grew at a rate of 14% per year, compared to 9% for China with the world.

Although Mercosur members still account for a small portion of China’s total exports to and imports from the world (2.3% and 5.2% respectively in 2023), in recent years this percentage has grown steadily. South American countries account for a high percentage of China’s total purchases from the world for some goods – beef, soy, soybean oil, minerals, corn, sugar, leather, coffee and pulp, among others. The potential for trade in services, which is still incipient, should also be considered.

A chance for renewed dialogue

In their relations with China, Mercosur member countries have focused on bilateral strategies, naturally led by Brazil with its presence in the BRICS bloc, alongside the Asian country. Both Brazil and Argentina have long held a “comprehensive strategic partnership” with China, the highest category of external relations granted by China to individual countries, which Uruguay also achieved in 2023. The remaining full member of Mercosur, Paraguay, is one of the few countries in the world to have diplomatic relations with Taiwan, while Venezuela is suspended from the bloc, and Bolivia has not yet completed its internal processes to be considered a full member.

At the bloc level, the Mercosur-China Dialogue, launched in 1997 at the initiative of Uruguay, has held six meetings to date, with the most recent in 2018. This dialogue has not shown dynamism or consistency in its functioning, due to the differences in approach and interests among the bloc’s partners regarding how they relate to China. In this sense, from a political and cooperation point of view, Mercosur members only have the forum with China and the Community of Latin American and Caribbean States (CELAC), a space that they share with other Latin American countries beyond the bloc.

Once again Uruguay, in this case through the current administration of President Luis Lacalle Pou, is the bloc member that has been proposing the need to move forward with a Mercosur-China FTA. An attempt had been made during the government of former president Tabaré Vázquez (2015-2020), but in the end no consensus was reached among the partners in the integration process.

As a result, Uruguay defended its strategy of making Mercosur more flexible with the aim of signing its own bilateral FTA with China, for which it managed to carry out a feasibility study, concluded in 2022. Uruguay’s position, which was not without controversy, was partially supported by the Brazilian government of Jair Bolsonaro (2019-2022) but was strongly questioned at the time by Argentina and, to a lesser extent, Paraguay. The change of government in Brazil with the return of Luiz Inácio Lula da Silva in 2023 made this possibility even more difficult, given his traditionally protectionist leanings.

Uruguay will assume the six-month pro-tempore presidency of Mercosur in the second half of 2024, when it will once again seek to relaunch the dialogue between Mercosur and China, but in this case with the precise objective of prioritising the signing of a trade agreement with the Asian country.

Though Argentina’s new president Javier Milei has made clear his anti-China positions, in both his ideological and political visions, the change of government in the country does open up a new possibility for Mercosur to once again discuss its need to react to the economic and commercial power of China, either jointly or by enabling bilateral relations. At this point, not doing so would be a strategic mistake for Mercosur, and hugely irresponsible.