External Affairs

Trump Triggers Greater Latin American Interest in India

Caught between the bullying Donald Trump, an indifferent Europe and the suspect Chinese, Latin America is looking more seriously at India, attracted by its huge and growing market, and its vibrant and diverse democracy.

Flags of some Latin American countries. Credit: Wikimedia Commons

Flags of some Latin American countries. Credit: Wikimedia Commons

‘So far from God…but so close to Trump,’ is the cry of the Mexicans these days to their patron saint, Virgin of Guadalupe, affronted by US President Donald Trump‘s racist comments and accusation of Mexican immigrants being “criminals,” “rapists” and “drug dealers”. They also feel insulted by Trump’s demand that Mexico pay for the wall his administration plans to build on the US-Mexico border. Not since the US-Mexico war in the 19th century and the annexation of Mexican territories have the Mexicans been as outraged with the US. Trump has called NAFTA the “worst trade deal in human history” and has suggested imposing tariffs on imports from Mexico, which depends on the US for 81% of exports and close to 50% of its imports; in 2016, Mexico’s exports to the US were $294 billion and imports $231 billion. Traumatised by Trump, Mexico has started pursuing a diversification in its trade partnerships, focussing on large markets like India.

Like Mexico, Central American countries also fear increased deportations of large numbers of their citizens from the US and consequently a loss of remittances. Cuba, which saw a normalisation of ties with the US, is back to the wall again with the Trump administration’s planned reversal of some Obama era policies. Colombia, Chile, Peru, Dominican Republic and the five Central American countries that have signed free trade agreements with the US are apprehensive, expecting the worst from Trump. The Latin Americans cannot believe that the US, which preached and forced Latin American governments to open up their markets and liberalise imports under the ‘Washington Consensus,’ is doing exactly the opposite by resorting to protectionism.

During the annual CELAC (Community of Latin American and Caribbean States) summit in January this year, the region’s leaders were unanimous in their condemnation of the border wall and expressed solidarity with Mexico. Ernesto Samper, the outgoing secretary general of UNASUR (South American Community), had said, “US President Donald Trump’s migration policy and trade protectionism are threats to South America and the region must take a stand against them instead of appeasing him”. Mario Vargas Llosa, the celebrated Peruvian writer and Nobel Prize winner, has called Trump an “uncouth, populistic and nationalistic demagogue dangerous for Latin America”. The Latin Americans, who have suffered in the past under dictatorships, are shocked that the caudillo (a typical Latino authoritarian strong man) has reappeared in North America in the form of Trump, reviving their bad old memories of the ‘arrogant Yankee’.

trump yanqui

Courtesy: Washington Post

While Trump is alienating the Latin Americans, the Chinese have steadily expanded their presence in the region. China has overtaken the US to become the largest export destination for Brazil, Chile and Peru, among others. It has replaced the EU as the second largest trade partner of the region. The Chinese target is $500 billion of trade and $250 billion investment by 2025. China has given a credit of $21 billion to Latin America in 2016 alone, with a cumulative credit at an impressive $141 billion since 2005. They have captured the imagination of Latin Americans with the announcement of mega infrastructure projects such as the Bi-Oceanic Railway between the ports of Santos in Brazil and Callao in Peru and the Nicaragua Canal project. But the Latin Americans have become conscious of the risks and perils of over-dependence on China, which has used its leverage to bully some countries in the region. In any case, the Latin Americans, given their recent history with dictatorships, are uncomfortable with the Chinese communist dictatorship and its non-transparent policies and intentions. Not surprisingly, US think tanks and NGOs are stoking the fires of distrust of China by maligning Chinese projects and exaggerating the damage to the region’s industry and environment by the flooding of cheap Chinese products and extractive ventures.

The Latin Americans are equally disillusioned with Europe, with its rising nationalism, anti-immigrant agenda and trade barriers.

Caught between the bullying Trump, an indifferent Europe and the suspect Chinese, the Latin Americans have started looking more seriously at India, attracted by its huge and growing market as well as its vibrant and diverse democracy. They have taken note that India has already overtaken China in growth rate and the Indian population is set to exceed that of the Chinese in the coming years. They do not feel threatened by Indian exports or investment. Indian IT and pharma companies are perceived as having contributed positively to the region. India has already become the second largest market (after the US) for crude oil, Latin America’s largest export. Since the US is reducing imports of crude oil (thanks to the shale discoveries), India will become an even more important market for Latin American crude exports. In 2014, India was the third largest destination for Latin American exports. The region had exported more to India than to Germany, France, UK, Italy, Spain and Japan.

Trump’s withdrawal from Trans Pacific Partnership (TPP) is good for India. The TPP had extra protection for patents (pushed by multinational corporations), which would have caused problems for India’s pharmaceutical exports to Mexico, Colombia and Chile, the Latin American members of the TPP. If the TPP had become successful, it would have inspired more such second generation trade agreements, adversely impacting some Indian exports.

The Latin American economy has recovered from the recession of the last two years and has resumed growth in 2017. Except for Venezuela, the macroeconomic fundamentals of the region are generally stronger and growth prospects better. The region offers a large market of 614 million people with a combined GDP of $5.2 trillion and per capita income of $8500. The region’s imports are close to a trillion dollars.

Distance is no longer a deterrent. Fresh fruits from Chile, Peru and Argentina are available in Indian markets. India exports more to the distant Guatemala than to nearby Cambodia. India’s exports to Brazil in 2014-15 were more than its exports to Japan, Korea, Malaysia, Indonesia, Thailand, France, Italy and Spain. India’s exports to Mexico exceeded its exports to Russia, Canada and Australia.

Latin America is the largest destination for India’s car and motorcycle exports. Indian pharmaceutical exports to the region are around a billion dollars. Over twenty Indian IT and BPO companies have established operations in the region, employing more than 25,000 local staff. Latin America, with a 15-20% share of India’s crude oil imports, has come to stay as an important contributor to India’s energy security, helping India’s strategic policy of diversification and reduction of over-dependence on West Asia. Besides the large reserves of oil, the region is well-endowed with minerals and agricultural potential, which are useful for ‘Make in India’ and food security. India-Latin America trade, which was $30 billion in 2015-16, has the potential to reach $100 billion in the near future.

This is, therefore, the right time and an unmissable opportunity for India to intensify its win-win economic partnership with Latin America. One of the immediate measures to take is to increase credit to the region to facilitate trade and investment. The cumulative Indian credit to the region is much below $100 million, while Chinese credit stands at $141 billion. Negotiations for widening and deepening the preferential trade agreement with Mercosur (which has been going on indifferently for the last ten years) needs to be concluded without further delay. Trade agreements could be signed with Mexico (the largest destination of Indian exports in the region for the last two years) as well as with Colombia and Peru, the other major markets. Prime Minister Narendra Modi should undertake annual visits to the region, like the Chinese president does. India’s commerce and external affairs ministers need to engage their Latin American counterparts with a new message of serious partnership. The annual India-Latin America and Caribbean Conclave needs to be organised at a larger scale with more funds and high-level participation. Opportunities for Indian exporters and businesses in the region need to be disseminated regularly with the latest information on the economies and markets through trade and industry bodies and export promotion councils.

R. Viswanathan, an expert on Latin America, was ambassador to Argentina and Venezuela. He writes regularly on Latin American affairs.