North America

5 Challenges for Canada’s Economy in 2015

Canada, the world’s sixth largest “developed” economy, has been on an excellent run in the recent past. According to figures from the World Bank, Canada’s GDP grew at a faster pace than those of the United States or Britain during five out of six years between 2008 and 2013, and during 10 out of 15 years since 2000. It grew at a faster pace than those of Japan, Germany, and France during more than 20 out of 25 years since 1990.

In 2014, however, Canadian growth appears to have trailed that of the US and Britain, the first time since 2003 that it has lagged behind both at the same time. Now, with oil prices having fallen by more than 50 percent since just the start of October, many Canadians are worried their economy will disappoint even more during the months ahead. These fears may be justified: the Canadian economy could have to face a number of significant challenges in 2015.

Challenge #1: Oil Prices

Lower oil prices, assuming they persist, represent a fourfold threat to the Canadian economy:

1. Oil exports account for a larger share of GDP in Canada than they do in any other nation in the rich world, with the exception of Norway or the Gulf Arab monarchies. In fact, apart from Canada, Norway, or Denmark, every noteworthy developed economy in the world is actually a net importer of oil. Canada, in contrast, is the world’s 10th largest net exporter of oil, and the world’s 5th largest net exporter of oil outside of the Middle East.

As of August 2014, the value Canada’s oil exports were the equivalent of approximately 3.6 percent of Canadian GDP, which means that the 50 percent reduction in the price of North American crude oil that has occurred since August should lead, all other things being theoretically held the same, to a 1.8 percent contraction in Canadian economic output. By comparison, during the “Great Recession” of 2009, Canada’s (and the US’s) GDP shrunk by an estimated 2.7 percent, which is the only year Canada’s GDP has contracted since 1991, when it shrunk by 2.1 percent.

2. Canadian oil sands projects, which in 2013 accounted for roughly 60 percent of Canadian oil production, are on the higher end of the production cost range, with average break-even costs estimated (by some) to be around $80-85 per barrel. This, of course, is without even taking into account most of the environmental costs associated with its production, which tend to be substantially higher than those of other oil projects as well. Newfoundland, meanwhile, which accounts for around 9 percent of Canada’s oil production, also has high break-even costs, since it is primarily engaged in offshore drilling.

3. Most Canadian oil is of the heavy or extra heavy variety, and has a high sulphur content. There are currently very few refineries capable of handling this type of oil; most of the ones that are able to refine it are located either in the US Midwest or along the US Gulf coast. The rapid growth of oil production from shale deposits, however, which is ultra-light oil and “sweet” (meaning it has a low sulphur content), and which in most cases has lower production costs and does less damage to the environment than Albertan oil sands production does, is causing some of these refineries to be retrofitted to handle light, sweet oil instead, potentially leaving much of Canada’s oil output less valuable.

4. None of Canada’s most important trade partners are likely to be among the main beneficiaries of falling oil prices. Canada has one primary trade partner, which is the United States, and three secondary trade partners: China, Mexico, and Britain. The US accounts for more than half of Canadian trade, while China, Mexico, and Britain combined account for close to 20 percent of Canadian trade.

None of these four countries, however, are significant importers of oil, or of energy in general. Net energy imports account for less than 15 percent of the US’s total energy use, and net oil imports were (as of August) equal to just an estimated 1.6% of US GDP, both much lower than in most other developed economies (see graph below). In fact, if oil prices continue to fall, they might drop below the break-even prices of US shale production, Alaskan oil production, or offshore oil production in the Gulf of Mexico, which could hurt the US energy industry and grant oil market share back to the lowest-cost producers such as Saudi Arabia and the other Gulf Arab monarchies.

Developed Economies Energy and oil importsWhat is more, the US is a leading exporter of a number of commodities that may see their prices fall as a result of lower oil prices, such as coal and food. Compared to Northeast Asia or Europe, the US is also barely dependent on importing most important minerals, such as iron ore, copper, or aluminum, the prices of which often correlate with oil prices as well to a certain extent. The US is a net exporter of iron ore, in fact, which has the largest international market of any commodity apart from crude oil, and which has seen prices fall by around 30 percent in the past six months and 50 percent in the past year. (Canada, meanwhile, is the world’s fourth largest net exporter of iron ore). The United States’ wealth of natural resources could prevent it from benefiting too much from falling oil prices.

While China, Canada’s second largest trade partner, has become the world’s largest oil importer, it is actually not too dependent on its oil imports either (see graph), since it produces so much coal domestically, and coal continues to account for over two-thirds of its overall energy consumption. China is actually the world’s fourth largest oil producer, sixth largest natural gas producer, fifth largest nuclear power producer, and largest producer of hydroelectricity, wind power, and energy from biomass. Energy imports account for only around 10-15 percent of China’s total energy usage, which is many times less than in most other economies in Asia, or than most countries in the developed world.

20150123103628Britain and Mexico are not significant net importers of oil either. Britain, unlike other large European economies, is only a very minor importer of oil (it is actually one of the world’s top 20 oil producers, because of the North Sea), while Mexico is the world’s 15th largest net exporter of oil and, despite importing more natural gas from the United States than it ever has in the past, also remains a net exporter of energy in general.

Thus, Canada’s main trade partners are not likely to be among the leading beneficiaries of falling oil prices – at least, not unless their populations respond to cheaper gasoline prices by going out and spending far more money than they otherwise would have. As a result, Canada should not necessarily expect these trade partners to boost their purchases of its exports during the months ahead.

[Note: Japan’s trade with Canada may actually be a little bit larger than Britain’s or Mexico’s. However, this is only because the Japanese economy is much larger than Britain’s or (especially) Mexico’s. Per dollar of its GDP, Japan buys significantly less from Canada than Britain, Mexico, or the US do relative to the size of their own economies (see graph below). This means that British, Mexican, or American economic growth might be more likely to have a stimulative effect on the Canadian economy than the same amount of Japanese economic growth would. Similarly, Mexican growth would probably help Canada more than growth in any country apart from the US would, so it is a shame for Canada that Mexico is a net exporter of both energy in general and oil in particular]Canadaian exportsChallenge #2: Other Commodities 

The price of oil is often correlated with the price of commodities in general, since bulk commodities tend to require a lot of energy to produce and a lot of fuel to transport. This presents an additional risk for Canada, given that Canada is not only a massive exporter of oil, but also of many other commodities. Commodities other than oil account for an estimated 20-30 percent of all Canadian exports. Most of Canada’s most important non-oil commodities have prices that tend to correlate at least somewhat with oil prices. These include not only natural gas and coal, but also industrially used metals like nickel, copper, and iron ore, as well as nonmetal commodities like potash (used for fertilizer) and timber (which in Europe accounts for half of all energy produced from “renewables”), both of which Canada is the world’s largest exporter of. Canada is also the world’s third largest net exporter of electricity, trailing only France and Paraguay, and the world’s largest uranium producer apart from Kazakhstan.

Canadian natural gas, which is by far the most valuable Canadian commodity export apart from oil, has recently been fetching prices far below the global average, since natural gas is costly to ship overseas, and since the US market is already over-supplied because gas is coming up as a by-product in shale oil production. Coal prices, meanwhile, have been hurt by a combination of falling oil and gas prices, slowing Chinese industrial growth, and concerns over pollution in various countries (China included). While coal in Canada receives little media attention because of the prominence of Canadian oil and gas, it nevertheless remains one of Canada’s top four or five commodity exports.

Canada is also the world’s second or third largest exporter of wheat, trailing only the US and maybe France. Canadian grain production tends to have relatively high break-even prices, a result not only of the latitude and climate of farmland in the Prairies, but also of the fact that the Prairies are landlocked and have no access to commercially navigable waterways (unlike US, European, or Argentinian farmland, for example), which are necessary to reduce costs given that grains are bulky goods which even today are expensive to transport long distances overland. In Canada, therefore, export revenues might be hurt more by falling grain prices than they would in other significant grain-exporting countries. The Food and Agricultural Organization of the United Nations estimates that in 2014 global food prices fell by 3.7 percent, the biggest fall since 2011, led by grain prices which fell by around 12.5 percent, with nearly all of that fall occurring during the past six months.

Finally, there is marijuana, which, though it is difficult to be certain, arguably accounts for more of Canadian export revenues than any commodity apart from oil or natural gas. Indoor marijuana production, which is responsible for a large share of Canadian production, is an extraordinarily energy-intensive enterprise, such that falling energy prices may cause Canadian producers to save on input costs. On the other hand, there is the legalization of marijuana in Washington state, which is just across the border from marijuana-growing British Columbia, as well as in states like Colorado and, most importantly, California. Legal marijuana production in the US has taken off in the past year or so, and it will probably squeeze the value of Canadian (and Mexican) marijuana exports.

Challenge #3: China 

The relationship between Canada and China is based around more than just exports of Canadian natural resources to China and imports of Chinese manufactured goods to Canada. British Colombia  in particular has a close economic relationship with China, the result of Vancouver’s (and Victoria’s) Pacific coastline and physical isolation from most of the rest of the Canadian and North American markets. British Colombia sends approximately 35 percent of its overseas exports to China, which is almost twice the share that the rest of Canada does, and 2.5 times the share that the United States does.

Partly as a result of this British Columbian transpacific relationship, Canadian exports to China are equal to roughly 2.5 percent of Canada’s GDP, whereas US exports to China are equal to only 1.3 of the US’s GDP. In addition, there are social and financial ties between Canada and China that are economically significant, albeit difficult to measure precisely, reflecting the fact that roughly 11 percent of British Columbia’s population and 5 percent of Canada’s total population are of Chinese origin — compared to just 1.2 percent for the US’s population, 0.3 percent for the European Union’s population, and 4 percent for Australia’s population.

All of this is to say that Canada will feel the effects of an economic slowdown in China, and not only because of the effect such a slowdown would have (and has already been having) on commodity prices. Canada could be particularly affected by a crisis in southeastern China, if one were to occur, since because of the historical connection between Canada and Britain, most of the Chinese immigrants in Canada have come from Hong Kong and adjacent parts of southeastern China (and spoke southeastern Chinese languages like Cantonese, even though Cantonese is only spoken by approximately 60 million people within China, compared to nearly a billion Mandarin speakers).

Notably, eastern Chinese provinces have had the slowest growth in China every single year since the global financial crisis. Meanwhile, Hong Kong’s economy has slowed immensely in recent years and had an especially difficult 2014, and mainland southeastern China was the slowest-growing major Chinese region in 2014. This could potentially wind up being bad news for the Canadian economy this year.

Challenge #4: The United States   

According to most Canadian economic analysts, Canada’s saving grace in 2015 is likely to be the US economy, which has been rebounding to a certain extent from its relatively poor performances in 2007, 2008, 2009, 2011, and 2013, and which had particularly strong growth in the third quarter of 2014. While this assessment is probably true, it is nevertheless important to point out that the American economic recovery has not been occurring in the areas of the US that have the greatest impact on the Canadian economy.

Most of Canada’s exports to the US go to states in the Northeast or Midwest, on the borders of the Atlantic or, especially, the Great Lakes. Michigan, New York, Ohio and Illinois together receive around one-third of all Canadian manufacturing exports to the US, for example. Yet most states in this region have not performed very well during the years since the financial crisis.

With the exception of states like North Dakota, which have economies based around the production of commodities like oil and agriculture and compete directly in these industries with neighbouring Canadian provinces in the Prairies, most of the best-performing US states have not been near the Canadian border. Instead, they have been in southern or western states, most notably Texas. Ohio, Michigan, and Illinois, meanwhile, were among the slower-growing economies during that same period. These trends have largely continued during 2013 and 2014 (though, on a more positive note for Canada, the economy of Michigan has been doing decently in the past two years, and Michigan is the single largest importer of manufactured goods produced in Canada).

In addition, upstate New York, the only part of the US which borders both Ontario and Quebec, has performed far worse than the New York City metropolitan area through these years. In Michigan, similarly, growth has been stronger in the western part of the state, which does not border Canada, than in the northern or eastern parts of the state, which do. And in Ohio, growth has been stronger in southern cities like Columbus or Cincinnati, which are relatively far away from Canada and the Great Lakes, than it has been in northern, Lake Eerie cities like Cleveland or Toledo.

Falling Energy Prices and US State Economies

In spite of auto-related manufacturing in states like Michigan and Ohio, the US’s Northeastern and Great Lakes states will not necessarily be among the main beneficiaries of the fall in energy prices. New York, for example, consumes the least amount of energy per capita of any state apart from Rhode Island. Northeastern states like Vermont, New Hampshire, and Massachusetts, which have close ties with Canada, are extremely energy-efficient. The Pacific northwestern states, Oregon and Washington state, which are economically integrated with British Columbia, are also energy-efficient. And the Great Lakes are for the most part only partially energy-intensive economies (apart from Indiana, which is quite energy-intensive). Michigan consumes the 16th least amount of energy per capita, while Pennsylvania is 20th, Illinois is 25th, and Ohio is 28th.

Moreover, the area in and around the Great Lake states is one of the major energy-producing regions of North America, and therefore may not benefit as much from cheaper energy as some other parts of the US will. Pennsylvania produces significantly more energy than any state aside from Texas or Wyoming, and much more natural gas than any state other than Texas. The West Virginia-Pennsylavania-Kentucky-Illinois-Indiana-Ohio region accounts for around three-quarters of all the coal production in the US outside of Wyoming; coal production which is being squeezed by falling natural gas prices as a result of fracking.Ohio, Illinois, and to a lesser extent Michigan also produce a decent amount of oil themselves, and Michigan has the largest natural gas storage capacity of any state in the country.

Meanwhile, the shale gas basins in this region, namely the Marcellus basin and the (more geologically challenging and expensive to develop) Utica basin, have had by far the fastest productivity growth in recent years of any major basins in the United States (see graph below). In the case of the Utica, which contains significant amounts of both oil and natural gas, the basin encompasses not only Pennsylvania, as the Marcellus does, but also other areas near Canada, like eastern Ohio and upstate New York.

utica gas

us_shale_map

In spite of their historical reputation for loving and making cars, none of the Midwestern states even remain among the top ten states in terms of per capita vehicle ownership. Even Michigan now only ranks around 15th in terms of per capita vehicle ownership. The Great Lakes/Midwest is also one of the leading ethanol-producing, iron-ore producing, and food-exporting regions in the entire world, which could hurt as food, fuel, and mineral prices have been falling.  Finally, cheaper oil could make it cheaper for people living in northern cities like Buffalo to fly south or west, spending more time and money in sunnier states, or in the Rocky Mountains.

It may also be worth mentioning that, even as American growth is generally a good thing for the Canadian economy, the fact that the US is growing at a decent pace at a time when countries like Russia, Japan, Germany, Brazil, and possibly even China and Mexico are all flirting with recession means that US national power might increase at a pace that could become uncomfortable for some of the economies that have to deal with the Americans most often, potentially including Canada.

Indeed, given that US election season is approaching, American politics could perhaps become relatively erratic during 2015. The Republican-controlled Congress, the Democratic-controlled White House, or various US state governments could, for instance, place indirect restrictions on imports from various provinces or industries within Canada in order to provide a short-term protectionist boost to American employment growth. They might also run political attacks against the Albertan oil sands during the year leading up to the election: the Democrats in order to energize their environmentalist base; the Republicans (and in some cases the Democrats) in order to divert environmentalist ire away from American coal production, offshore oil production, or fracking.

Challenge #5: Canadian Politics

There is a federal election in Canada in 2015. In most countries, investors usually have a clear idea of what they want to see from an election. They want the victory of a competent, “market-friendly” candidate, with a majority government and no significant regional divisions displayed in the country’s voting patterns. This is, in fact, what they got out of the most recent Canadian federal election, in 2011: the right-of-centre Conservative Party won a decent-sized majority government (which was Canada’s first majority government since prior to 2004), winning in Ontario, British Colombia, and the Prairies, while at the same time Quebec abandoned its independence-minded Bloc Quebecois en masse in favour of the NDP, which also became the largest opposition party by a large margin in Ontario, British Colombia, and the country as a whole.

From the perspective of investors, it is unlikely that the 2015 election will be much more favourable than the current situation that exists in Canada. Even if the Conservatives were to win an even larger majority than they have now, which seems unlikely, this would still only be a continuation of the status quo, and would therefore be unlikely to generate any excitement among Canadians or foreign investors. Plus, given that the Conservative leader Stephen Harper has been Prime Minister for just short of ten years now, this status quo may start to become tiring even for investors and Conservatives. It would certainly not induce any sort of “hope and change” optimism that could potentially help stimulate markets in the short-term. In fact, Harper’s opponents will likely be spending the election campaign trying to convince Canadians that their economy has been brought to the brink of recession.

In contrast, it is not very difficult to imagine that the elections could make Canada less appealing to investors. Here’s one scenario that would be much worse from an investor’s view: the Liberal Party, led by 43-year old Justin Trudeau (the son of a former Canadian Prime Minister) wins a minority government in parliament, while, on a provincial level, the country is regionally divided in its voting patterns, with Ontario going primarily for the Liberals, Quebec voting primarily for the NDP, the Prairie provinces voting primarily for the Conservatives, and British Columbia roughly splitting its vote between the Liberals and the Conservatives.

In such a scenario, Canada would have changed from having a “market-friendly” majority government led by an experienced Prime Minister, and having no regionalist tendencies reflected in its voting patterns, to having a left-leaning minority coalition government led by an inexperienced Prime Minister and having significant regionalist divisions between eastern Canada and western Canada, as well as between Quebec and the rest of the country, reflected in its voting patterns.

If the NDP defeat the Conservatives instead of the Liberals, meanwhile, which is also possible (the NDP are currently the second largest Canadian party in parliament by far), it would bring to power a party that has never been in power before in its history, which until relatively recently was viewed by many conservatives as being “far left”, and which has a leader who is only in charge because of the tragic death of the former leader of the NDP following the party’s unprecedented success in the Canadian election of 2011. (Though notably, he is more experienced than the Liberal party leader).

Even worse, a staunchly provincialist party like the Bloc Quebecois, which is currently polling at around 10-20 percent in Quebec, could theoretically end up becoming the kingmaker in a split between the Conservatives and a Liberal-NDP coalition. Investors could turn on Canada to a certain degree if they begin to think that an increasingly fragmented result such as this is likely to occur. Thus, while the defeat of Stephen Harper’s Conservative Party or the loss of its majority position in parliament would not necessarily be bad for Canada over the longer term, it arguably represents a short-term challenge for the Canadian economy – and in particular, for Canadian financial markets – during the election year ahead.

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North America, South America

The Coming US-Argentine Tango

Argentina has the world’s 20th largest economy, 8th largest territory, and 30th largest population, according to the World Bank. Yet Americans have historically had little to do with the place. The United States and Argentina have never been close allies, nor have they been hated rivals. Today the two countries trade just $15 billion or so with one another: Argentina is just the seventh biggest trade partner of the US in Latin America, and the US is only the third biggest trade partner of Argentina. Most Americans cannot name a single Argentinian person, past or present. No, not even Lionel Messi!

There are a number of fairly straightforward reasons why the US and Argentina have not become too close to one another in the past. Interestingly, however, there are also a number of reasons why the US and Argentina might become quite close in the future. Given the size of both countries, any such move towards one another could represent a significant evolution in world affairs. Let’s try to lay out the case for why this might happen, then, beginning by looking at some of the reasons why Argentina and the US have never been close in the past, and then moving on to why they might finally become so in the years or decades ahead:

1. Distance

Even in the modern world, there remains a strong correlation between physical distance and international trade. This correlation matters for trade between the US and Argentina, since the two countries are located on extreme opposite ends of the Western Hemisphere. The flight from New York City to Buenos Aires takes about 11 hours, for example; it is longer even than the flight from New York to Moscow, or from Buenos Aires to Johannasburg. Flying from Las Angeles or Chicago to Buenos Aires is longer still.

By ship, Argentina and the US are even further apart than they are by air, since the detour around Brazil (which juts far out into the Atlantic Ocean) adds an additional 2500 km or so to the trip from New York to Buenos Aires. That makes it about 30 percent further by ship than by plane. In addition to this detour around Brazil, the journey through the Panama Canal adds a significant amount of time, canal fees, and size limitations to container ships travelling from the US West Coast to Argentina. And taking an overland shortcut through Chile can still be very difficult for transporting bulk goods, as there are no railways or all-season roads which fully cross the Andes Mountains.

3-623-31031-XWesternHemiPhy

Argentina’s trade is not only impacted by its physical isolation from the US, but also by its physical isolation from Europe and East Asia. Sailing from Buenos Aires to Shanghai, for instance, whether by going westward across the Pacific Ocean or eastward across the Atlantic and Indian Oceans, is roughly two and half times further than sailing between Las Angeles and Shanghai. Sailing from Buenos Aires to Paris is around two times further than from New York  to Paris. Partly as a result of this phsyical isolation, Argentina is not well-integrated into global trade networks.

In fact, Argentina’s overall international imports and exports of goods are equal to just around 25 percent of its GDP, according to the World Bank. This is the second lowest share in the entire world among developing countries (see graph below). Plus, nearly a quarter of Argentina’s trade is with Brazil, which is even less trade-oriented than Argentina is. Thus, in addition to not trading much with the US directly, Argentina also does not have much to do with the global commercial system as whole, and therefore also has few indirect commercial connections with the US.

trade as % of gdp in developing economies[Note, by the way, that Argentina is an exception to two different trends displayed by this graph. The least trade dependent economies tend to be extremely large — like Brazil, Russia, India, Indonesia, China, and to a lesser extent Turkey and Mexico — and/or tend to have relatively low per capita incomes, like Nigeria, India, Indonesia, Colombia, Iran, and to a lesser extent China and Venezuela. These trends exist not only among the countries shown in this graph, but also throughout the world as a whole: the least trade dependent economies tend to be either giants like the US, Japan, and Brazil, or else are some of the most impoverished states in the world, like the Democratic Republic of the Congo or the Central African Republic. Argentina is neither extremely large nor relatively poor (it has a per capita nominal income of around $15,000, which is higher than the Latin American average and more than double that of China), yet it is still second from the bottom in terms of its dependence on trade — not only on the graph above, but also among all of the countries in the world, according to the World Bank]. 

2. Economics

Argentina’s economy is driven to a decent extent by its farm output. According to the World Bank, Argentina has more arable land per capita than any country in the world apart from Australia, Canada, or Kazakhstan. Agricultural goods like corn, wheat, and especially soybeans account for well over a third of Argentina’s net export revenues. It also produces the most beef of any country apart from the US, Brazil, China, or India.

This has historically put Argentina in direct competition with the United States, which in the past was an agriculturally-oriented society, and even today remains the world’s largest producer of both soybeans and corn, and the world’s largest exporter of grains in general. Though at present agricultural goods account for perhaps no more than 5 percent of US exports, they continue to play an outsized role in American politics, because their production is spread out across many different states, municipalities, congressional districts, etc. Thus, the US and Argentina continue to compete economically, to a certain degree.

It might be tempting to say that the same is true of Brazil, which is the world’s second largest producer of soybeans and beef, and third largest producer of corn. But actually, most of Brazil’s export revenues come from goods that are net imports of the United States and Argentina, such as oil, iron ore, coffee, and sugar. Partly because of this, in fact, Brazil exports approximately 7.5 times as much to the US as Argentina does, even though Brazil’s overall exports are only 3.5 times larger than Argentina’s overall exports.

3.  Language 

Because of the high utility of the Spanish language, Latin America is one of the worst regions in the world at speaking English. According to English First, “Latin America is the weakest [at speaking English] of all regions, with an average English proficiency score barely surpassing the low proficiency cut-off.” (Spain, similarly, is far behind the other major countries in the European Union in terms of its English language proficiency). Argentina is no exception to this pattern. Only 6.5 percent or so of its population has a “high” level of English proficiency, according to this article. 

In addition to serving as a commercial barrier between the two countries, the Spanish-English linguistic division has also helped keep the US and Argentina apart in the political sphere. Argentina’s Spanish identity, for example, has given it ties to countries which the US has had rivalrous relations with in the past, such as Cuba, Venezuela, Ecuador, Mexico (where the US invaded Mexico City during the 1840’s, and Veracruz in 1914), Spain (which the US fought a globe-spanning war against in 1898, and which had a fascistic government during middle of the 20th century), Nicaragua (which the US occupied in the 1910s and 1920s, and supported guerillas in during the country’s civil war in the 1980’s), Panama (invaded by the US in 1885, and again in 1989), and others. America’s English identity, similarly, has helped given it relatively close ties to Britain, which Argentina fought a war against in 1982 over the Falkland Islands, resulting in more than 900 deaths.

4. Geopolitics

While today Argentina is generally seen as being an insignificant country when compared to its larger neighbour Brazil, this was not always the case. As recently as the 1950s, Argentina’s economy was actually estimated to be larger than Brazil’s. Brazil aslo used to be much more internally divided along both regional and racial lines than it is today (and even today it is highly divided along both regional and racial lines), in relative contrast to Argentina where the population and political power was more closely unified. Indeed, rather than Brazil, it was Argentina and even Chile which were the major military and naval powers native to the region until at least the early part of the 20th century. Plus, because Brazil spoke Portuguese rather than Spanish, its potential influence within the rest of Latin America or Spain seemed comparatively limited. Many therefore predicted that Argentina, not Brazil, would wind up emerging as South America’s “Great Power”.

Of course, the US does not take too kindly to fellow Great Power hopefuls. Thus, it saw no reason to become too chummy with Argentina, particularly following Argentina’s relative victory over Brazil in a war for Uruguay in the 1820’s, and Argentina’s decisive victory over Paraguay during the 1860’s (in a war in which arguably 90 percent of Paraguay’s entire male population died, making it perhaps the deadliest war for a country in modern history). When, for example, the US convened the first-ever International Conference of American States – the precursor to today’s Organization of American States – in 1890, hoping to implement a hemipshere-spanning trade union and formal political network, the conference resulted in feuding between Argentina and the US, and to a lesser extent between Chile and the US, which prevented the US’s political goals from being realized.

Argentina later irked the US during the begining and middle of the 20th century when, partly as a result of the fact that its population had some significant Italian and to a lesser extent German roots, it took a relatively sympathetic position toward US’s adversaries in the World Wars. To this day, Americans often associate Argentina with its providing of shelter to prominent Nazis fleeing Germany following the end of the war. Following the end of the war in 1945, in fact, the United States even briefly tried to keep Argentina out of the newly-created United Nations. Brazil, in contrast, was the only independent South American country to send soldiers to fight on the side of the Allies during the war.

Later still, during the Cold War, the Soviets hoped to gain influence in Latin America to serve as leverage against the United States. While the US was mainly concerned with the close-to-home governments, geurillas, or criminal organizations in places like Cuba, Venezuela, Colombia, and Central America, the bond between Latin American nations meant that the US often viewed the left-wing governments of countries further south, like Chile (such as that of Salvador Allende, who was killed in 1973 in a military coup sponsored by the CIA) and Argentina (such as that of Isabel Peron, who was toppled in 1976 in a military coup that may have been sponsored or supported by the US government), as potential threats as well.

5. Politics 

Argentina and the US are in some ways exact opposites of one another in terms of their political culture and internal geopolitical structure. In the US, no single region holds a majority of national economic power; rather, the country’s economic activity is spread out among a number of different influential regions, such as California, Texas, Florida, the Northeast, the Midwest, the South, and so on. The largest urban area in the US, in and around New York City, only has around 5-10 percent of the country’s total population, while the largest region, the Greater Northeast, only has around 15-20 percent.

Even within the US’s Greater Northeast region, economic power and influence is spread out between a sizeable number of major states, all of which have had their own unique assets — politics in Washington, finance and culture in New York, education and technology in Massachusetts, coal and natural gas in Pennsylvania, shipping and gambling in New Jersey, manufacturing in Michigan and Ohio, services and agriculture in Ilinois, etc. — as well as their own natural harbours on the Atlantic Ocean or Great Lakes with which they have historically been able to engage with the outside world. Divisions like these have arguably made it difficult for a powerful central government to form within the United States.

Argentina is perhaps the extreme counter-example of this sort of highly diffuse American system. The Buenos Aires urban area, which is the political, cultural, financial, and commercial capital of the country, is home to approximately one-third of Argentina’s overall population. Another 15  percent or so of Argentina’s population lives within the general area around Buenos Aires. No other metropolitan area in Argentina has a population that is even more than 10-15 percent as large as Buenos Aires’ is.

[Update:  In Argentina’s presidential elections this past October, the two candidates were the leaders of the province of Buenos Aires and the Autonomous City of Buenos Aires, respectively].

In addition to this, a large majority of both Argentina’s entire population and farmland is located within river basins that empty into the Atlantic at precisely the spot where Buenos Aires is located (see maps below), and the produce of these farmlands is transported almost entirely along these rivers. The farmland of Paraguay, Uruguay, and even of significant areas of Brazil is also located within this basin. Moreover, most of the Argentinian population within this basin is highly dependent on Buenos Aires to ship its produce to international markets, because there are few other natural harbours to serve as ports in northern Argentina apart from the Rio de la Plata Estuary in which Buenos Aires (and Montevideo, the capital of Uruguay) is situated.

Riodelaplatabasinmap

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As such, any government that is able to control Buenos Aires and the region around it faces relatively little challenge in controlling the entire country — at least, absent interference by a foreign power or neighbouring state. Buenos Aires is, in fact, probably quite a bit more influential within Argentina than even cities like London, Paris, or Moscow are within Britain, France, or Russia. Partly as a result of this, Argentina has often seen a lot of “European-style” Big Government, as opposed to “American-style” libertarianistic government. This Argentinian style did not much please the US during its Cold War against the Soviet Union, when Americans saw themselves as being locked in a struggled against centralized socialistic styles of government, which Argentina possessed in an on-and-off fashion prior to the military junta that seized formal control of the country between 1976 and 1983. Argentina also experienced military coups in 1943, 1955, 1962, and 1966.

Even today, Argentina’s government continues to support poltical and economic policies Americans think of as illiberal and overweening, such as high trade tarrifs and high government subsidies of commodities like water and gas. Similarly, the Argentinian government is overwhelmingly viewed by America’s investor class as being populist, corrupt, and dishonest brokers in longstanding disputes over the repayment of Argentina’s foreign debts. In these sorts of ways, the sharp divisions in political culture between the US and Argentina have perhaps contributed to the two countries’ continuing relative estrangement from one another.

10 Reasons Argentina and the US could finally become close in the future: 

1. The Decline of Distance 

While the influence of distance on trade remains large, it is already much smaller than it once was in the past, and may continue becoming smaller in the years or decades ahead. As was alluded to earlier, cheaper air travel could be especially likely to help boost US-Argentine ties, since the distance between the two countries by air is significantly shorter than it is by sea. The Internet is obviously another potential driver behind the potentially declining economic importance of distance — making the fact that Argentina may have the first or second highest rates of Internet access in Latin America, and among the highest in the entire developing world – especially noteworthy. Around 60-75 percent of Argentina’s population is estimated to hae Internet access, up from just 20 percent a decade ago.

Given that linguistic ties will perhaps be very important in allowing for Internet-based economic or social connections to take place, the Internet could also help create indirect ties between Argentina and the US via Mexico and the countries of the Caribbean basin, which are already close to the US commercially and socially even without the Internet. More importantly, it could create direct ties between Argentina and the US as a result of the growing ubiquity and importance of the Spanish language within the United States itself. Which brings us to point number two:

2. Spanish in the United States

As a result of the American immigration boom of the relatively recent past (see graph below), the Hispanic population in the US is currently estimated at 55 million, which means that it is actually larger than Argentina’s entire population is. An estimated 40 million Hispanic Americans speak Spanish at home, up from just 17 million in 1990. US Hispanic populations have a median income estimated at around $40,000 (not far from three times higher than Argentina’s) — compared to $52,000 for the United States as a whole.

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Even if the US’s high rates of immigration from Latin America were to decrease, the number of Hispanic Americans in higher-paying jobs and in the workforce in general would continue to grow quickly over the next few decades, as a result of the fact that there are many Hispanic children, teenagers, and 20-30 year olds in the country. The estimated median age for US Hispanics is 27 years old, for example, compared to 37 years old for the country as a whole. Most Hispanic children and teenagers are American born and raised, and are therefore much more likely than their parents or grandparents to possess the social connections, English language skills, and educational qualifications that are often the prerequisites to achieving financial success in the United States.

Hispanic Americans have also been living mostly within relatively wealthy or fast-growing US economies, such as Texas, California, New York City, Washington D.C., Washington state, Colorado, etc. If the economic and political clout of Hispanics in the US continues to grow, it may create opportunities for Spanish-speaking countries like Argentina to forge greater economic linkages with it. As was mentioned above, this relationship is likely to be particularly significant because of they continued spread and increased ubiquity and sophistication of the Internet. Online connections between Spanish-speakers in the US and Argentina could increase not only in direct terms, but also indirectly via Spanish-speakers in countries like Mexico and the Dominican Republic.

As for Argentinians living in the US, there are only about a quarter of a million. However, this number has been growing: around 60 percent of Argentinian-Americans arrived in the US after 1990, and most came since Argentina’s economic crash in 2001. Most live in Florida, California, or New York. Given that about a quarter of Argentinian-Americans live in Flordia, and that they are significantly more wealthy than the general Hispanic-American population, it is actually theoretically possible that they could play an important role in deciding the outcome of a US presidential election.

 3. Containing Brazil 

Argentina may have had a slightly larger economy than Brazil back in the 1950s or 1960s, but that is hardly the case today. Brazil’s economy has grown to become the world’s sixth or seventh largest, both in nominal terms and adjusted for purchasing power. It is close to quadruple the size of Argentina’s and ten times that of Venezuela’s (Brazil’s next largest neighbour). Brazil’s population, meanwhile, is the fifth largest in the world, around five times larger than Argentina’s and almost two-thirds as large as the US’s. And of course, Brazil’s territory remains enormous, nearly as large as the US’s, Canada’s, or China’s, and triple the size of Argentina’s.

Brazil has the world’s largest resources of freshwater and biodiversity, and it is the second largest producer of soybeans and iron ore, the third largest oil producer outside of the Middle East or North America, and the largest producer of coffee, sugar, raw tobacco, meat products, fruit juice, wood pulp, and a number of other commodities. Brazil has also become the world’s seventh largest motor vehicle manufacturer. (Argentina, meanwhile, is the 19th largest motor vehicle producer; the per capita motor vehicle production of Argentina and Brazil is about the same).

In the past, Brazil’s economy has been hurt by the difficulty of developing its challenging terrain, unifying its disparate regions, accessing the far-away markets of North America, Europe, and Asia, and overcoming its racial and class divisions (Brazil arguably has the most class-based income inequality of any major country, and, relatedly, was the last country in the Americas to outlaw slavery, in 1888). If, however, Brazil can overcome these challenges, perhaps helped by technological advances to do so, it could maybe become a great power in the decades ahead. Notably, unlike in other Great Power aspirants, such as the former Soviet Union, India, or even China, the internal regional divisions in Brazil are not overlain by internal linguistic divisions or milleania-old historical divisions. Nearly 100% of Brazilians speak Portuguese.

If Brazil does end up becoming a Great Power, a US-Argentine relationship would probably form to try and contain it. A powerful Brazil would almost by definition make Argentina feel threatened, for a number of reasons including that Brazil’s influence in Uruguay – a  country of just 3 million people, which was part of Brazil until Brazil lost a war to Argentina in the 1820’s – would put it much too close to Buenos Aires for Argentina to feel comfortable with.

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From the US’s perspective, meanwhile, if a Brazil was able to eventually take control of Argentinian politics – whether formally or informally – it might be able to use Argentina’s resources (and also Uruguay’s, Paraguay’s, and Bolivia’s) to become more powerful still. Given that Brazil also has ties to the rest of Latin America and Spain, since Portuguese and Spanish are really not all that different, such a move could theoretically allow Brazil to become a rival global superpower to the United States. The US would almost certainly not want to take the chance of allowing that to happen, and so would probably prefer to ally itself closely with Argentina to begin with to make sure that it never does.

4. Shale Gas 

Today, an estimated 40% of US natural gas production (and the US produces the most natural gas in the world) comes from shale deposits, as does 15% of Canadian natural gas production (and Canada produces the world’s fourth most natural gas). And yet, because of the various challenges associated with shale production, no country in the world apart from the US or Canada produces any significant quantity of shale energy. And even US and Canadian shale production only began in earnest less than a decade ago.

Going forward, it may be that there will be diminishing returns in the US and Canadian shale gas production industries, such that their production costs will rise over time in comparison to the potential production costs of shale gas deposits in other countries. This could make American energy companies – the only ones with the expertise required to produce significant quantities of shale gas – look abroad for gas to develop. Outside of North America, the two largest shale gas reserves are thought to be in China and Argentina. Argentina is also thought to have the fourth highest shale oil reserves, behind only the US, Russia, and China.

Developing China’s shale gas reserves could be difficult for American companies, not only because of potential political barriers between the two countries, but also because of China’s high population density and shortage of freshwater (which fracking uses intensively) in some of its gas-rich regions, and because China’s basins are is in many cases more difficult to develop from a geological standpoint than American ones are. Developing shale reserves in Russia could also be very difficult for US companies.

Argentina, on the other hand, seems like a relatively favourable location for shale gas production. Argentina also wants to boost its gas production, since in recent years its demand for gas has outpaced its domestic supply, forcing it to become dependent on imports from Bolivia. And it has the gas pipelines to do so in place already, since it is has long been a major conventional gas producer (it produces around 13 times more natural gas per capita than China does). This is important, since natural gas cannot be transported in trucks, trains, or barges, like oil and coal can, but instead must have pipelines to move from the site of production to the markets of consumption. Argentina could perhaps become the next mecca for American energy companies, therefore. Chevron has already gotten the ball rolling on this, investing over a billion dollars in the country in 2013.

5. Mexico, the Carribbean, Central America, and Spain  

Argentina may be located on the oppopsite site of the globe from the United States, but Mexico, the Carribbean islands, Central America, and to a lesser extent the northern countries of South America and Spain are not. If these Spanish-speaking countries can become closer to the United States, it could create closer indirect ties between Argentina and the US (though, of course, the reverse of this is also true: if Mexico and the United States were to have a falling out as a result of drug trafficking or immigration issues, for example, it could potentially damage US-Argentinian relations in an indirect way). So, in what ways could these countries be likely to become closer to the US in the years ahead?

One area, of course, is outsourcing. In recent decades, when the United States was looking to save money by outsourcing its manufacturing base, it frequently chose to do so in China. Today, however, Chinese exports are increasingly expensive, and the US increasingly views China as a potential rival. It may be that the US will need to find new locations to outsource to in place of eastern China. Many see India as the likely candidate for this, and maybe they are right; however, the fact is that India, because of its intense regional internal complexities, lacks the political and commercial economies of scale that helped make China (and Japan, and Northeast Asia as a whole) such a significant exporter to the US during the past half century or so. Moreover, unlike Northeast Asia, India is located far closer to wealthy consumers in Europe, East Asia, the Persian Gulf, and Australia than it is to the US, so it may be that its economic ties will mainly be to those areas, rather than to North America. The US, then, may find that Mexico, Central America, and the Carribbean are the economies most likely to become its “next China”.

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Mexico is already well along this path. Its exports to the US have benefited not only from cost increases in China, but also from the Texas shale gas boom, which, because gas cannot be shipped cheaply overseas like oil can, the Texans have been exporting huge amounts to Mexico, which has been helping to keep the cost of Mexican electricity relatively competitive. US exports to Mexico are up almost 450 percent since 1993 (when NAFTA was finalized), while Mexican exports to the US is up more than 600 percent since 1993.

Meanwhile, if the US and Cuba can finally mend fences, it could also obviously be a huge development, since Cuba is not only the largest Caribbean state, but is also located much closer to the US than any other. Given how slowly container ships move, this proximity to US markets could be very important for companies that are using “just-in-time” logistics as more have increasingly been doing as a result of the ability to use sophisticated computer programs to organize logistical networks. Indeed, any move toward “just-in-time” logistics would help grow US trade with Mexico and the Carribbean in general.

The proximity of this region to the US could also help it to grow its American and Canadian tourist industry, which for a number of reasons could increase a lot in the future. (For example, because of the growing number of American retirees, or the possibility of growing seasonal American unemployment as a result of job automation, or the increasing ease of being away from home for longer amounts of time because the Internet). In 2014, just under three-quarters of the estimated 68 million US  tourist visits abroad were to countries within the Americas.

Trade between South America and the US, meanwhile, could also increase because of possible changes in technology. If, for example, machines allow North America to take back much of the world’s manufacturing industry from Asia, it could cause countries like Peru, Chile, and Colombia to export more of their mineral resources northward to the US instead of halfway across the world to Asia. Similarly, the development of once-remote African, Siberian, or Central Asian mineral resources could lead Asian (and European) manufacturers to rely less on South American natural resources than they do today, which could also free them up to be sold to the United States instead.

It is probably also worth mentioning that in the past generation there has been a huge religious shift within Latin America, and particularly within Central America, whereby tens of millions of people who were raised Catholic have switched to become Protestant evangelicals (or, to a lesser extent, to become religiously unaffiliated or atheistic). The share of Protestant evangelicalism has risen from an estimated 4 to 19 percent of Latin America’s population since 1970. Given that more than 50 percent of the US population is Protestant, and that maybe 25 percent are Evangelical, this religious shift might influence relations between the US and Latin America to some degree. In Argentina, meanwhile, an estimated 15 percent of people are now Protestant, more than half of them new converts. Argentina’s population also has the highest rates of secular or atheistic people in Latin America apart from Uruguay, Chile, or the Dominican Republic, also giving it something in common with the “developed” world.

Finally, US ties to Spain will perhaps remain relatively close during the decades ahead. One reason for this is that the US is highly dependent upon Spain’s Strait of Gibraltar in order access to the Mediterranean Sea (and by extension, to access the Indian Ocean and the Black Sea). Another is that the US may want a strong ally in Europe in addition to Britain, in order to keep any potential relationships between major continental European powers like Germany, Russia, and France in check. Spain is arguably a likely candidate to become this ally, since Spain’s economic ties with Germany and Russia are very small compared to, say, Italy’s, France’s, or Turkey’s ties with Germany and Russia. Moreover, Spain has a potential connection to Spanish-speakers in the US, and it already has a relatively significant economic relationship with Britain (and could become by far the main destination for British Baby Boomer retirees in the coming years). Indeed, Spain has already been one of the US’s main European allies in modern times, for example sending more troops to both Afghanistan and Iraq than any European country apart from Britain, Poland, Italy, or the Netherlands.

 6.  Food Exports 

As was mentioned earlier in the article, Argentina and the US have often been economic competitors of one another in the past, as a result of both being major food exporting nations. Today they are still competitors in global food markets, though because the US economy is no longer as agriculturally-oriented as it once was, they do not always compete to the same extent as they used to in the past. If Argentina could reduce its dependence on agricultural exports as well, it could further cause the level of economic competition between the two countries to fall. Of course, the reverse of this is true as well: if Argentina and the US are able to increase their agricultural exports, they would maybe become more competitive with one another again.

One area to watch here is biofuels. Both the US and Argentina (but especially the US) are world leaders in biofuel production, and both might try to increase their biofuel production going forward in order reduce their dependence on oil imports and reduce their carbon emissions. Already, for example, about 40 percent of the US’s world-leading corn production is used to create ethanol, which accounts for around 10 percent of the fuels used by American vehicles. Argentina’s overall biofuel production is lower than the US’s, but its per capita biofuel production is quite a bit higher than the US’s.

If biofuels become the next big thing in “renewable” energy production, such that Argentina and the United States start using much more of their corn and soybean production to create biofuels to use domestically in their transportation sectors, then they will probably not be exporting nearly as much food as they do today, and so will not be competing as much with one another economically. If, on the other hand, their biofuel production decreases, then they could start competing with one another more in global food markets again.

Finally, in the decades ahead world food markets could perhaps be transformed by technology. If new technologies allow countries with a lot of remote, under-developed, or “unconventional” farmland – like Kazakstan, Russia, Brazil, Australia, Africa, etc.. – to become major grain exporters for the first time, or if it allows countries with little farmland but a lot of capital – like Germany, Japan, South Korea, etc.. – to become larger grain exporters, then countries that have historically dominated global grain exports, like the US (along with Canada) and Argentina (along with Paraguay and Uruguay), could find themselves in a much more diverse global food marketplace. If more countries turn in to major food exporters (which in fact did happen during the decade of the 2000’s, for instance with the quadrupling of Brazilian soybean exports, which led to increased Argentinian-Brazilian economic competition), it could potentially reduce the level of competition between Argentina and the US.

7. Bridging the Andes

Argentina and Chile are the second and fourth largest economies in South America and the 48th and 50th richest countries in the world in terms of their per capita nominal GDP. They both speak Spanish, and they share a land border that is more than 5000 km long, the third longest border between any two countries in the world. Argentina’s capital of Buenos Aires is only 900 km from Chile’s capital of Santiago, while Argentina’s fourth largest city, Mendoza, is just 150 km from Santiago.

In contrast, Santiago is 2500-3000 km from Sao Paolo (Brazil’s largest city by far), Rio de Jaenaro (Brazil’s second largest city by far), or Lima (Peru’s largest city, and the second largest city in South America). It is 1400-1800 km from the largest cities of Paraguay and Bolivia, and 4200-4800 km from the largest cities of Colombia and Venezeula. In addition to their physical proximity, both Argentina and Chile could also potentially use one another as very significant short-cuts in order to access the Pacific Ocean (for Argentina) or the Atlantic Ocean (for Chile).

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And yet, Argentina and Chile actually do not have all that much to do with one another.  There is some trade and travel between the two countries, but not nearly as much as one might think. The reason for this is that the Andes Mountains sit in between the two countries, and they are such a formidable barrier that, even today, there are no railways or all-season roads that cross them. The lack of railways between the two countries is especially significant, because Argentina and Chile mainly produce bulk goods like grains (for Argentina) and minerals (for Chile), neither of which can be transported long distances efficiently by truck in most cases.

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In the future it might be that Argentina and Chile will overcome the Andes, whether through a tunnel with a railway through it (which they are hoping to finally build within the next decade), or by air travel becoming cheaper (whether passenger flights or cargo flights), or by more reliable mountain roads being constructed and maintained, or by cyberspace becoming more important, or by gas pipelines (which already exist — see map below) exporting more of Argentina’s natural gas to Chile’s gas-hungry economy. If this were to happen, the two countries might form a very close relationship. Though it is not likely to result in their fusing to become a single country, the future synergy between Chile and Argentina (Chargentina?) might become extremely significant.

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This could have an affect on US-Argentina relations, for several reasons. First, the US could see Argentina-Chilean cooperation as being worhty of political engaegement, since a connection with Chile could help Argentina to more successfully ensure that Brazil never becomes a great global power. Second, a railway linking Chile to Argentina could do a lot to help boost trade between Argentina and the US West Coast. From Chile’s northern commercial port of Antofogasta to Las Angeles by sea, for example, is less than half the distance from Argentina’s northern port of Buenos Aires to Las Angeles via the Panama Canal. Antofagasta to Las Angeles is even shorter than from Buenos Aires to Miami.

Lastly, a connection between Argentina and Chile could create an indirect connection between Argentina and the US. This is because the Chilean economy is much more closely integrated with the US economy than Argentina is. Whereas in Argentina trade with the US only accounts for about 8 percent of total Argentinian trade, and Argentina’s total trade only accounts for about 25 percent of Argentina’s GDP, in Chile trade with the US accounts for about 16 percent of total Chilean trade, and Chile’s total trade accounts for an estimated 56 percent of Chile’s GDP. In other words, Chile’s trade with the US relative to the size of its GDP is more than four times as large as Argentina’s is.

Even leaving Chile aside, Argentina could also find the Andes Mountains less imposing in the future because of the completion of the large expansion to the Panama Canal, which is expected to finally be complete (after having been delayed several times) in 2016. The expansion is supposed to allow ships carrying up to arount 13,000 containers to use the canal, up from around 5000 containers today. The expansion could help Argentina access the US West Coast, and could help Pacific Latin American countries, like Chile, Peru, Ecuador, and El Salvador, access the eastern half of the US. Similarly, improvements in the overland intermodal transport networks of countries like the US, Mexico, Panama, or Costa Rica could help in trade between the two sides of the American continent, which could have both a direct and an indirect positive influence on US-Argentinian trade.

8. The Falkland Islands

In 1982, Argentina invaded the Falkland Islands (which it calls the Malvinas Islands), prompting a war with Britain, which successfully counter-invaded the islands. Around 900 people were killed. Though certain elements of the US government (including, arguably, then-president Reagan) were sympathetic to the Argentinians claim on the islands, the US ultimately supported Britain in the war, hurting US-Argentine relations.

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Today the Falklands is still a tense issue in British-Argentinian relations. However, as the population of Britain is now another generation removed from its grand imperial past (remember, even as late as the 1970’s Britain still formally had a pretty huge empire), and as Argentina is no longer ruled by an intensley right-wing military junta as it was in the late 1970s and early 1980s when the war occured, and as the Falklands/Malvinas Islands are only home to fewer than three thousand people to begin with, it seems possible that it will become less and less problematic of an issue going forward.

If Britain and Argentina can finally manage to sort out the Islands issue, it might help to boost US-Argentina relations. In fact, even if Argentina and Britain cannot sort out the issue without another conflict, US-Argentinian relations could perhaps improve if the Argentinians become pleasantly surprised by US neutrality (or perhaps even outright support for Argentina) in any future spat (or war) over the islands.

9. The Antarctic Connection 

World maps tend to be somewhat misleading, since they often tend to make areas nearer to the north and south poles – like Greenland, for example – a lot larger than they actually are in the real world. This stretching applies to Argentina too, since Buenos Aires is acually located further south than Cape Town in South Africa or Sydney in Australia. The southernmost provinces of Argentina are about 2000 km further south than Africa or Australia, in fact, and they are several hundred km south of southern New Zealand. A similar thing is true of Chile: Santiago is situated at roughly the same latutide as Buenos Aires is, and southern Chile extends about as far south as southern Argentina does.

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One of the effects of this is that the distance between Argentina and the other southernmost countries in the world, namely Australia, South Africa, especially New Zealand, can be a lot less than it appears. Looking at a two-dimensional map, for instance, one would probably assume that northern Argentina is a lot closer to South Africa than southern Argentina is. But in fact, southern Argentina is actually slightly closer to South Africa than northern Argentina is. Both are only around 7000 km from South Africa, which means that by sea Argentina is actually closer to South Africa than Argentina is to Venezuela or Colombia. Indeed, from southern Argentina to South Africa is more than twice as close by sea as is the distance between southern Argentina and Europe.

Similarly, even though New Zealand is often considered a part of Asia, the distance by air from Buenos Aires to central New Zealand is actually about the exact same as from central New Zealand to Shanghai, while the flight from southern Argentina to southern New Zealand is about 1.5 shorter than from New Zealand to Beijing. The flight from Melbourne or Sydney in Australia to Buenos Aires, meanwhile, is only about 1.5 times further than from Melbourne or Sydney to Shanghai, and is around the same as from Melbourne or Sydney to Mumbai. Sydney is around 9000 km from southern Argentina by air, whereas New York City is around 1600 km from Sydney by air.

Thus, anything that would reduce air cargo costs and the safety costs associated with flying over the Antarctic ice could be significant in increasing the interactivity between these Antarctic-region countries. In fact, the most direct route between Argentina and western Australia is by flying basically over the South Pole itself. Even by sea, however, by rounding the southern cape of South America, Buenos Aires is about as close to New Zealand as New Zealand is from Shanghai (and quite a bit closer than to Beijing or Seoul), and Buenos Aires is only about 1.5 times further from Australia as Australia is from Shanghai.

If Argentina becomes much closer than it is today to South Africa, Australia, and New Zealand – each a significant member of the global “Anglosphere” – it could perhaps help bring Argentina indirectly closer to the United States. In addition, and perhaps even more importantly, the US continues to have some very significant strategic military interests in various parts of the region around Antarctica: in particular, the US navy wants to ensure that it continues to have access to the route around the southern cape of Argentina and Chile, since its aircraft carriers are too large to pass through the Panama Canal or the Northwest Passage to move between the Pacific and Atlantic Oceans.

There are some other reasons to think that Argentina might become somewhat more closely entwined with these countries. In the case of South Africa, most of Argentina’s exports (which are mostly of food) pass directly by its shores on their way to food importing nations in the Arab world and southern Asia. In addition, South Africa’s chief regional rival is Angola, a Portuguese-speaking country that was often the world’s fastest growing economy during the past decade or so, and which has potential pan-Portuguese ties with Argentina’s potential rival, Brazil (and to a lesser extent with Mozambique, which is South Africa’s most populous next-door neighbour by far). It is not unthinkable that a South Africa-Argentina relationship would form to counter a Brazil-Angola one.

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Argentina could also potentially become closer with South Africa and Australia if Argentina finally uses its wealth to develop a large industrial base, since South Africa and Australia are both huge exporter of various minerals. Or, if Argentina finally mends its relationship with Britain over the Falklands; during the Falklands war, for example, even then-apartheid-era South Africa cut off diplomatic ties with Argentina, and did not resume them for nearly a decade. Also, if Australia’s severe water shortage risks eventually turn it from a net exporter of grains to a major net importer of grains, it could lead to a much larger trade relationship between the two countries.

Finally, because of the relative proximity between areas of the Antarctic region, if the southern halves of Argentina and southern Chile could be developed economically on a significant scale for the first time, perhaps through the use of new technologies like water desalination (southern Argentina is arid), wind power (southern Argentina is one of the windiest places on the planet), machine-intensive development (southern Argentina lacks a significant labour force because it is sparsely populated, but it is also resource rich), or cheaper air travel (southern Argentina and Chile have huge tourist potential, yet are very remote, and in many cases are also highly mountainous and archipelagic), it might have a positive influence on their economic interaction with fellow Antarctic-region economies in South Africa, southern Australia, and New Zealand.

10. Political Convergences

Earlier we talked about how Argentina’s and the United States’ geo-economic and political systems are in a certain sense complete opposites of one another, with Argentina being highly centralized around northern Argentina in general and Buenos Aires in particular, and with the US being extraordinarily diffuse by comparison. However, this could be changing in both countries, because of technology. In the US, technology may be serving to bring the country’s disparate regions closer together – as communication has already become easy because of the Internet, and travel could perhaps become much easier in the future as well. Technology might allow the US to overcome its de-centralized geography to become somewhat more centralized, in other words.

In Argentina, conversely, technology could perhaps allow the country to overcome its centralized geography to become somewhat more de-centralized, if, for example, it empowers Argentinian individuals, businesses, or other groups, allows northern Argentina to become somewhat less dependent on Buenos Aires, or allows for the development of regions – such as the Andes regions and southern Argentina – that in the past have not had significant economies. If technology allows the US to become more centralized and Argentina less centralized, the two countries might start to have more in common in terms of political culture. In turn, this could perhaps help them finally become closer to one another.

 

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