Argentina Compared to Brazil

There was a prediction from Peter Zeihan that Japan, Argentina and Turkey would emerge as regionally dominant powers. Japan would dominate Asia, Argentina would dominate South America and Turkey would dominate the area of Europe and the Middle East near it. I will first look at Argentina versus Brazil and Argentina by itself. I will follow up with articles looking at Japan and Asia and Turkey and its region.

2014 Peter Zeihan Provided More Details of His Fall of Brazil and Rise of Argentina

His point is that he loves Argentina’s geography and if Argentina just stopped having bad political leaders then everything would be great. He dislikes Brazil’s lack of rail system. Brazil has too many steep mountains. If the World does not have cheap capital and China’s demand goes away then Brazil has problems.

I am dubious of predictions that Argentina could start doing better and that they will start breaking from their many decades-long pattern of one economic crisis after another. This is not impossible but it is unlikely.

But I have a major problem with the World goes almost Mad Max and Argentina transforms from a country constantly tripping over itself and emerges as regional superman that has more power than an economy that is currently over 3 times bigger.

This prediction was predicated on a Zeihan prediction that the US would withdraw as the global cop and the collapse of world trade and world order. The World would return to the WW2 and earlier period of relatively frequent wars.

Argentina now and Forecast

Trading Economics has a look at Argentina’s economy now. Argentina has 45% inflation and just below 10% unemployment. Argentina’s economy is suffering because Brazil had a recession from 2015-2016 where Brazil had negative 3.5% GDP each year.

Argentina will continue to struggle with lackluster growth for the next few years, as it begins to digest the challenges behind the implementation of President Macri’s economic reforms and the woes coming from its key trading partner Brazil. Structural improvements should materialize in the long run as reforms mature. In the meantime, private consumption should benefit from slowing inflation (albeit still above the administration’s 12-17 percent target for 2017) and credit expansion.

Argentina has an economic history with a lot of crisis. I do not get how Zeihan can predict that Argentina stops shooting itself in its own economic foot.

Here is a link to a comparison Argentina and Brazil’s economy. Argentina’s economy is about 3 to 3.5 times smaller than Brazil. Argentina has 32% of its people living below the poverty line to 4% in Brazil.

Argentina workforce is 18 million while Brazil has 111 million. Argentina is 6 times smaller in terms of workforce.

Zeihan predicted that Brazil would tank because of lack of world trade.

Brazil’s top trading partners in 2017 were. Brazil shipped US$217.7 billion worth of goods around the globe in 2017, down by -10% since 2010 but up by 17.5% from 2016 to 2017.

China: US$47.5 billion (21.8% of total Brazilian exports)
United States: $27 billion (12.4%)
Argentina: $17.6 billion (8.1%)
Netherlands: $9.3 billion (4.2%)
Japan: $5.3 billion (2.4%)
Chile: $5 billion (2.3%)
Germany: $4.9 billion (2.3%)
India: $4.7 billion (2.1%)
Mexico: $4.5 billion (2.1%)
Spain: $3.8 billion (1.8%)
Italy: $3.6 billion (1.6%)
Belgium: $3.2 billion (1.5%)
South Korea: $3.1 billion (1.4%)
United Kingdom: $2.8 billion (1.3%)
Russia: $2.7 billion (1.3%)

So If Argentina is doing great in the Zeihan scenario, why would they not be importing more from Brazil?
Also, if Brazil is doing terrible, say worse than the 2015-2016 recession then how would Argentina be going great? Brazil went to -3.5% GDP and Argentina went to -4% GDP.

So Zeihan is implying that with US out as global cop that somehow things would get so bad that China and Brazil and other bi-lateral relationships would not be able to figure out a way to maintain their own trade shipments? China could not get Brazilian oil? I don’t see it.

Zeihan says the USA continues to do great. Even if the US was not the global cop, the US would still protect its own trade. US Trade with Brazil is detailed at US Trade Numbers.

The top five U.S. exports to Brazil by value through September were the categories of Civilian aircraft, parts; Gasoline, other fuels; Coal, briquettes; Petroleum gases, other gaseous hydrocarbons; and Computer chips, respectively. They accounted for 37.97 percent of total exports to Brazil.

The value of the top five categories of U.S. imports from Brazil –– Oil; Value added to a returned import; Returned exports, with change; Aircraft, Spacecraft, Satellites; and Semifinished products of Iron, nonalloy steel –– accounted for 35.11 percent of all inbound shipments.

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