South America for the Chinese

The case for a natural resource curse is based on the argument that in the absence of challenges, there is no progress. Is South America cursed by its natural resources? Does China’s rapid penetration of the region renew the region’s comparative advantage in natural resources? Does South America’s trade specialisation stand in the way of regional integration? This paper tries to answer these questions in five steps: It begins with an analysis of trade flows to demonstrate China’s growing importance in South America. It verifies that China’s emergence as an important partner to the region reinforces the long-established calling of its countries as natural resources and commodities exporters. It argues that this vocation matters, because there is a link between the behaviour of the price of commodities and the region’s economic performance. It claims that to deal with this relationship, the best policy is the use of a counter cyclical fiscal policy. Finally, the paper examines whether Brazil could serve as a counter weight to China’s influence in the region. By examining the experience of Mercosur, it concludes that this seems improbable, in part because all countries of the region share the same comparative advantages in producing commodities and agricultural goods.