China And China Case Study

In 2005, Chile and China signed a free trade agreement, the first agreement of its type ever signed in Latin America. Since the agreement was signed, trade between China and Chile has grown exponentially. Chile is the leading country in Latin America that has maintained good relations with China, beginning in 1970 when Chile was the first South American country to recognize the Peoples Republic of China (Jenkins 2009). Over the years their relationship has continued to develop through the many rounds of discussions that have taken place since the FTA was first established. By examining the economic implications the China-Chile FTA has had on the Chilean economy, it is seen that while both countries trade markets are benefiting, the Chilean market is facing more negative impacts than the Chinese economy. Although both countries have solid reasoning to invest with one another, China has had much more to gain from entering into this trade relationship.

In the early 1990’s, as Chile transitioned into democracy, a campaign was begun to position Chile as the “Gateway into the Americas.” This campaign focused on “openness” or better stated “open regionalism” in order to promote market growth and advance its markets diversification (China Quarterly). As a result from its new market strategy, Chile shifted its focus from trade with superpowers such as the United States and European Union towards the Asian pacific region (Heine 2005). In 1993, Chile joined the APEC organization, making them the second Latin American country to do so (Alvarez 1998). Being a part of this agreement allowed Chile to further tap into Asian markets and gave Chile the opportunity to be exposed to many more trading partners. It also further projected their trade ...

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...of Latin America, both countries envisioned they would benefit greatly from this trade agreement. This conventional wisdom that the Chile-China free trade agreement would boost all sectors of investment and trade within both countries has partly been successful, while it has also proven to have slightly failed. Although there has been booming trade between both countries, Chile increasingly feels the pressure of Chinese market competition and furthermore both countries have lost out in the advancement of foreign direct investment. With Chile’s chief exports comprising natural resources, China has a more lasting market power simply from the fact that their primary export industry is not perishable. This conjures the question of to what extent will the Chile-China free trade agreement be impacted in the future if Chile’s does not invest in new export market materials.