Latin America and its Main Trade Partners: The Shift from UK to US Predominance (1860 – 1930)
Marc Badia-Miró
Universitat Oberta de Catalunya (UOC), Spain.
Anna Carreras-Marín
Universitat de Barcelona (UB) , Spain
Sandra Kuntz Ficker
El Colegio de México, Mexico.
Abstract
Traditional historiography has conveyed the idea that until World War I, Latin America was under a clear British commercial predominance, whereas in the post-war period the domain would have changed to the U.S., since that time the main trade partner in the region. This observation is consistent with the more general and well known fact that World War I represented a benchmark in Western history, as the United States replaced Great Britain as the leader country in terms of economic development and economic power, and, as a result of that, as the main creditor in the Western world. However, a closer analysis of trade figures show that this might not have been the case for all Latin American countries, as the United States might have acquired predominance in the foreign trade of some countries within the region well before WWI. This means that there might have been other factors conditioning the geographic distribution of trade that have not been paid enough attention in the conventional literature.
In this paper we analyse Latin American imports coming from the United Kingdom (UK) and the United States (USA), focusing on their time evolution and trying to identify the most significant benchmarks of structural change. The purpose is to analyse the role of those commercial powers in Latin America’s foreign trade during the first globalization, and to date the timing of the shift from UK to USA predominance within the region. For that purpose, we use the official trade figures of both economic powers in their bilateral trade with each of the Latin American countries throughout the period.The new evidence shows that the role of the U.S. before the WWI was much more active and broader geographically than the one assigned by the historiography. Similarly, 1913 does not appear as such a sudden break, as long as Britain regained importance after the war.
Introduction
The role of Latin America in the world economy has been broadly treated by many authors, most of them having emphasized the connexions between trade openness of the region and economic development[1]. The timing of each growing period has been used by part of the literature to show successful stories of international market integration during the so-called first globalization. Such literature has drawn an image in which Latin Americagrew until the First World War, at the time that it was also tightening its connexion to international markets. According to this view, the war would have irrupted in that process generating an enormous break, which would have had two important consequences: on the one hand, a strong decline in total trade volumes; on the other, a shift from one dominant partner (the United Kingdom) to another (the United States).[2]
Even though such interpretations refer to the whole Latin American region, they rely on data from a few countries, mainly Mexico, Argentina, Brazil, Uruguay and Chile. Although these few countries have a big role in the region because they are very rich countries, they do not necessarily represent what was going on in the rest of the countries, the majority being smaller or much poorer. If we enlarge the country sample to include the rest of Latin America, the common wisdom about Latin American economic history changes a lot. That has been remarked by authors like Rubio (2006), Yáñez et al. (2006), Tafunell (2008) and Tafunell and Carreras (2008). These authors have shown an enormous diversity in trade patterns, energy consumption, cement consumption or importation of investment goods, among Latin American countries. As for Latin America’s connexion to the international economy, Coatsworth and Williamson (2002, 2004) have emphasized the extremely high protection levels of many countries starting in 1865. In the opposite side, Rubio (2006), comparing also the openness of Latin American economies related to the rest of the world but measuring it quite different as the weight of trade over GDP, has concluded that the region was pretty open as a whole,with Uruguay, Argentina and Cuba at the world top of open countries from the mid nineteenth century to the beginning of the twentieth century.[3]
Linked to that debate about Latin American openness and international trade connexions, the dominant idea is that of a region dependent on British trade importation before WWI, changing to USA dependence after the war. But the empirical evidence on the whole region does not support that idea so clearly. Mexico is a good example of the kind of things going on in many other Latin American countries, in where USA had replaced UK well before WWI. The case of Mexico is well known from Kuntz (2003), and we here broaden it to some other Latin American countries. Our data show how long beforeWWI there were two very different trade patterns in Latin America: there were some countries importing mainly from UK, and many others doing so from USA. In the case of the former, WWI had a bigger impact and it resulted in the replacement of the UK by USA during the war, Argentina and Brazil being the best known examples. As for the second group of countries (those that imported mainly from the US before WWI), the international conflict had a lesser impact and, understandably, no replacement took place as a consequence of the war, butrather a reinforcement of the US dominance upon their foreign trade. Mexico is the clearest example of this pattern, although, as we shall see, even in this case the US dominance upon its trade cannot be considered as a linear and steady phenomenon.
1.Latin American trade from its main trade partners: USA and UK (1860-1930)
In order to understand the role of USA and UK in Latin America’s foreign trade and trace the timing of their shifting predominance, we start by analyzing the quantitative evolution of the bilateral trade of those countries with each of their Latin American partners. It is clear that not having considered other European countries such as Germany or France hides part of the trade which is not small for some particular countries. However, although the trade from UK and USA with Latin America does not provide the whole foreign trade of the region, it did represent the main bulk throughout this period. But as long as we are not interested here in describing the trade patterns of each country as a whole but only in testing the USA replacement of UK after the WWI, our limited sample are sufficient. Besides, taking only these two main trade partners we can see more clearly what was going on with USA trade expansion over Latin America once its civil war was over, and economic politic intervention was explicitly a purpose for that country (according to the Monroe doctrine). In this sense, our purpose is to question the common idea that USA was not dominant in Latin America until after the WWI.
The Latin American countries included in our sample are: Cuba, Brazil, Bahamas, British West Indies and Guyana, Mexico, Chile, Haiti and Santo Domingo, Danish West Indies, Venezuela, Peru, Argentina, Colombia, Central America States, Dutch West Indies, Uruguay, French West Indies, British Honduras and Ecuador.Trade data come from UK and USA foreign trade statistics, and have been homogenized to express values in US dollars.[4]
Following Bulmer-Thomas trade data (2003), which came from some Latin American foreign trade statistics, and in which all trade partners are included, the whole region imported 24.5% from USA near 1913, 41.8% in 1918, and 38.6% in 1929.[5] But this aggregate data, which gives the idea of an enormous jump of the USA trade after WWI, fail to exhibit the very different paths followed by each Latin American country. These paths have been also shown by Bulmer-Thomas (2003), although his desegregation is sometimes made not by countries, but by groups of them. For instance, in the case of Mexico plus Central America, including Panama, USA provided 53.5% in 1913, 78.1% in 1918, and 65.7% in 1929. Similarly, Cuba plus Dominican RepublicandHaitiacquired from theUSA 55.2% of their imports in 1913, 76.8% in 1918 and 59.6% in 1929. A very different path is found in South America, where USAprovided 16.9% of imports in 1913, 25.9% in 1918 and 31.4% in 1929. Bulmer-Thomas’s total trade data show that in 1918 the USA's share of Latin American trade had increased by 17.3 percentage points. In 1929, the presence of theUSAwas smaller, but still showed an increase of 14.1% with respect to 1913. In that year, the most important increase in the USA’s presence was that of Venezuela, Uruguay and Chile; meanwhile the smaller increase took place in Cuba plus Dominican RepublicplusHaiti, and Argentina. Anyway, even thoughUSA's shares are very different in its levels, the general pattern is always the same: an important increase of USA’s trade in every Latin American country from WWI.
Whereas the data gathered by Bulmer-Thomas refer to total Latin American trade according to its own foreign trade statistics, this paper uses only trade data from the two main partners: USA and UK, coming from foreign trade statistics of these two big exporters. These data aggregated for the whole region shows a very similar story to that of Bulmer-Thomas, i.e. an important increase of USA from WWI (graph 1).But our data also show that although there is clearly a jump from WWI, before the war UK and USA were levelled neck and neck. During the war USA achieves maximum levels near 80%, reducing only modestly its importance relative to UKtoaround 70% in the 1920s. In aggregate terms, our data support Bulmer-Thomas (2003)’s idea of a trade shock after WWI, but they also reveal a not so remarked fact: before the war USA was as important as UK in Latin American import trade.
Figure 1 - % USA exports over UK plus USA exports to Latin America
Source: Foreign trade statistics of USA and the UK, various years.
Moreover, this explanation, which is good enough for the entire region, changes a lot when we focus separately oneach single country (figure 2). In 1913 the percentages of the USA trade vary between 32.4% forArgentina and 88.6% forHaiti and Santo Domingo. In 1918 the USA would be over the UK in all the countries, but with a wide difference in terms of its presence on each of them: the minimum value was held byUruguay (51.8%) and the maximum byHaiti and Santo Domingo (97.02%). As figures were high for some of the countries from the beginning, the big jump of the USA presence due to WWI was not a generalised fact, as we can see in Figure 2.
Figure 2 - % Exports of USA overall the exports of UK and USA, unbundled by countries.
Table 1 shows the same information as Figure 2, but only for eight single years. In the last column, we included the year in which the USA overcame the UK in Latin American import trade for the first time, that is to say, when the USA trade was more than the 50% of the trade of these two foreign trade partnerscombined. This column highlights something that could be inferred from the aggregate data, namely that theU.S. had overtaken the UK before the outbreak of the First World War. Only a few countries, Uruguay, Argentina, Brazil, Chile, and British West Indies in Guyana and The Bahamas, remained below the UK up to the years just before the war.
As is well known, the first four countries in this list have been frequently taken as the parameter from which the general history of Latin America has been reconstructed, mainly because of their size and importance in South America. However, if we consider the rest of the Latin American countries,a very different picture comes out. For Mexico, Haiti and Santo Domingo, Cuba, Colombia, Venezuela, French West Indies, Central America, Danish West Indies, Dutch West Indies, British Honduras, Ecuador and Peru, the U.S. wasmore important than the British as trading partner many years before the outbreak of the First World War. Even more, with a few exceptions, those countries exhibited a high concentration of trade in the United States since the late 19th century, with figures over 60% by 1900, and over 80% by 1913. Although concentration is not the issue here, it may be useful to take advantage of trade concentration theory in order to explain this phenomenon.
Table 1
Percentage of USA exportson the combined exports of USA and UK,
by countries (1860-1930)
1860 / 1871 / 1880 / 1890 / 1900 / 1913 / 1920 / 1930 / year > 50%México / 58,18 / 43,32 / 49,43 / 56,43 / 77,60 / 83,34 / 92,89 / 1860
Haiti y Santo Domingo / 54,56 / 59,00 / 69,38 / 71,68 / 88,58 / 95,32 / 91,16 / 1860
Cuba / 57,02 / 65,14 / 59,50 / 80,70 / 82,53 / 95,10 / 94,49 / 1871*
Colombia / 28,94 / 22,07 / 50,15 / 30,02 / 60,04 / 54,68 / 89,25 / 70,09 / 1880
Venezuela / 38,90 / 45,11 / 51,78 / 49,46 / 46,49 / 58,79 / 70,24 / 80,34 / 1880
French West Indies / 54,53 / 79,62 / 82,09 / 89,34 / 96,32 / 1890*
Central America States / 25,15 / 34,41 / 50,31 / 54,38 / 71,57 / 83,05 / 81,80 / 1890
Danish West Indies / 27,03 / 57,74 / 59,13 / 75,80 / 1890
Dutch West Indies / 37,57 / 74,05 / 80,70 / 88,25 / 92,28 / 1892
British Honduras / 40,38 / 37,58 / 66,30 / 71,23 / 83,96 / 70,30 / 1892
Ecuador / 32,27 / 42,57 / 55,84 / 71,26 / 71,75 / 1901
Peru / 11,84 / 21,15 / 19,12 / 26,41 / 50,33 / 73,08 / 68,98 / 1908
Bahamas, Brit. West Indies y Guyana / 32,95 / 36,14 / 35,55 / 46,00 / 46,93 / 84,00 / 46,98 / 1914
Chile / 25,32 / 11,66 / 8,47 / 16,44 / 17,16 / 35,45 / 60,98 / 61,49 / 1915
Brazil / 21,48 / 14,28 / 20,25 / 23,91 / 28,83 / 41,26 / 63,81 / 58,11 / 1915
Argentina / 7,49 / 8,06 / 12,64 / 16,72 / 24,46 / 32,42 / 57,64 / 51,34 / 1916
Uruguay / 14,39 / 11,38 / 24,07 / 17,49 / 34,62 / 60,90 / 55,16 / 1916
* First year of available data
Source: Foreign trade statistics of USA and the UK, various years.
According to Michaely (1962), there are several reasons that explain the concentration of import trade of a country in one or a few trading partners: one is the country size: the smaller the country, the higher the possibility that its needs of imports are fulfilled by a small number of partners. A second one would be the degree of development: a more complex economy would have a wider and more varied set of needs, which would have to be satisfied by a broader set of partners. A third one would be, of course, distance to the possible trading partners, being geographic vicinity a strong determinant of concentration.However, a country may have one or several neighbouring countries; if the vicinity to one market fosters concentration, having several adjacent markets may act as a counteracting factor.
Most of the countries showing a strong concentration of trade with the USA from early on share to some extent all of the features described above: most of them are small countries, with a low degree of economic development at the time, and a considerable nearness with respect to the dominant partner. In fact, those countries that had the lower percentage of import trade coming from the USA by 1900 (Venezuela, Ecuador, and Peru), are also the ones that share to a lesser extent the features listed above. Maybe as a result of this, US predominance was somewhat delayed with respect to the other countries of this group, although it had consolidated before WWI. The only country that, in spite of being big and less backward in relative terms, has a strong participation of US imports, was Mexico.[6] In this case, vicinity seems to have been crucial in explaining the early predominance of the USA over UK, and would also explain its higher participation from early on in the import trade of many of the Caribbean countries, as Cuba, Haiti and Santo Domingo, and the West Indies.
Mexicois a particular case in the history of the USA’s trade with Latin America,because it is the only countrywith which itwas possible to have direct inland trade. It is also a good example of the fact that geographical vicinity is not synonymous of lower transport cost. The poor infrastructures existing among them for most of the 19th century caused the absence of comparative advantage in transportation costs and a stronger presence of Great Britain until the 1880s, when railroads started to be built and made the connections between these two countries cheaper and faster. Kuntz (2003) has explained in detail the early presence of the USAin the trade of a country which is geographically close as Mexico, identifying three waves of USAexports that contributed to intensify its economic relationship to that country –two of which fall within the timeline of this paper. The first one started in 1880 and was linked to investment in railroads, as it encompassed the importation of capital goods for the construction and equipment of the lines. The effect of this first surge of railroad investment was strong and short-lived, so that it can be clearly identified in Mexico’s import accounts. In fact, the soar in US imports to Mexico coincided exactly with the time of the construction of the Mexican Central Railroad, which went from late in 1880 to 1884. Imports from the USA grew from barely 4 million dollars in 1872 to 14.3 million in 1882, then declined to 10.5 million in 1885.As this line –the Mexican Central- linked central Mexico to the US border, presumably bilateral trade between the two countries was then fostered by the operation of the railroad.However, the evidence also suggests that, in spite of the more efficient transportation means between the two countries provided by railroads, inland transportation was not the most important means by which imports were brought to the country throughout this period. With the exception of one single year (1889), between 1880 and 1929, as much as 65 to 70% of import trade was introduced by sea, whether it came from Europe or from the United States (Kuntz (2007), p. 124).This may be explained in part by the fact that ocean transportation costs were also falling, although with the available information it is not possible to establish the precise extent of this fall and to compare it with the one taking place in inland transport costs. What is more relevant for us is, however, that geographic vicinity, even when fostered by falling transportation costs, may not have been the only fact driving trade, and that we should pay attention to investment flows as a contributing crucial force. In fact, the rising presence of the USA in Mexico’s trade since the 1880s is strongly related to investment by that country in railroads and mining, and to the importation of capital goods to be used in those endeavours dominated by US investors, as well as in the nascent industrial plant –mostly under the control of Mexican entrepreneurs.