Asia Looms over Latin America

An anecdote from business circles in Latin America tells of a textile manufacturer in El Salvador, who, reeling from Chinese competition, travels to China and visits the sprawling plant of one of his competitors. He knows that Chinese labor costs are only a third of his costs. And he knows, too, that the undervaluation of the Chinese currency gives the country’s exporters another cost advantage in world markets, some calculating it to be 10 percent. What amazes him the most, though, is his visit to the floor of the Chinese textile plant. It is huge, with many economies of scale. The equipment is new, the technology sophisticated. As the Salvadoran businessman takes it all in, he suddenly notices that none of the workers—all women—is wearing glasses. He asks, “How is it that none of your employees wear glasses?” “Oh no,” he is told, “as soon as the women develop problems with their eyes we get rid of them.”

El Salvador is not known as a “worker’s paradise,” far from it. It is a poor country, still seeking to recover from a devastating civil war and trying both to promote broad-based economic development and to strengthen an incipient democracy. Half the country’s exports are textiles, overwhelmingly produced in maquilas—assembly plants. These are not faring well in the face of stiff and unrelenting Chinese competition. Indeed, the country’s textile sector is said to be in crisis, and textiles are the backbone of El Salvador’s “industrial” sector. The fear is that El Salvador will be left with little more than its sagging agriculture and remittances from its sons and daughters who labor abroad—usually in the United States—and send money “home” to relatives.

El Salvador’s precarious textile industry is emblematic of a larger issue that is confounding thoughtful Latin Americans, in business, in politics, and in the academy. What does Asia’s ascendancy mean for Latin America? There is admiration and respect for China’s and India’s stunning growth rates and for their ability to compete with firms from North America and Europe. China, India, and other Asian countries such as Vietnam are sisters: they, too, have long been poor and trampled upon by wealthy countries. What causes unease, though, is the perception that China—and, in time, India, too—is pinching Latin America with two “claws.” First, China has the ability to produce consumer and even capital goods with a cost and quality that Latin America cannot match. Second, China has a voracious demand for basic commodities, for agricultural goods such as soybeans and for minerals such as oil and copper. There is fear that the net effect will be an unintended but very real “shove” of the region back into its traditional, colonial role of providing raw materials to power the industrial development of other parts of the world.

Industrialists throughout Latin America worry about their future. They are between a rock and ...