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Davidson News

China’s Economic Downturn and U.S. Gaining Ground in Latin America

Doubts about China’s economic prospects arise from an increasing lack of trust in its government.

Warning signs show in China’s economic boom. (Photo: Google)

Over the last two decades, China’s economic growth has positioned it as a vital trade ally and investor in Latin America.

The rising of China’s economic dominance in Latin America might face a significant setback as its economic boom shows signs of waning. For the past twenty years, China’s economic rise has been a key trade partner and investor across Latin America, but this may change due to the uncertain recovery from its COVID-19-induced recession.

Contrary to initial expectations of a temporary dip, grim forecasts now cast doubt on China’s economic ability to regain its former 10% annual growth. Economist Adam S. Posen underscores these concerns in an essay titled “The End of China’s Economic Miracle,” highlighting factors like plummeting domestic consumption and private-sector investments, as well as a demographic crisis due to declining birth rates.

China’s economic resilience has been compromised by a lack of trust in its government, with President Xi Jinping’s power consolidation and increased state intervention causing average citizens and small businesses to hoard cash rather than spend or invest.

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This widespread fear, akin to the Mao era, creates lasting damage to public confidence.

Latin America, a beneficiary of China’s economic boom, faces an era of uncertainty as its record commodity exports and loans from China’s economic state may dwindle.

While China’s economic influence will persist, its exceptional growth in commodities and loans could wane.

The United States, capitalizing on this shift, has a chance to strengthen trade with the region, perhaps by expanding agreements like the North American Free Trade Agreement (NAFTA) to include pro-market nations and encouraging American manufacturing investment.

While China’s role in Latin America won’t vanish, its peak might be in the past.

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