Theoretical Framework: “Complex Interdependence”

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Chapter 2: Complex Interdependence

2.1 Theoretical Framework: “Complex Interdependence”

The theoretical framework of the present research is based on the argument put forward by Keohane and Nye in their book Power and Interdependence¹, in which the theory of “complex interdependence” is developed, to analyze the relations among China, Brazil, and Argentina, as described in the preceding section.

This chapter focuses on complex interdependence theory to examine the relations between these countries, doing so at the light of the theory’s fundamental tenet that “asymmetrical interdependence can be a source of power.”²

According to the authors, “complex interdependence” (to be hereafter referred to within the text as CID) is “a very broad term” that describes an ideal type of international system (not a description of the world), a “hypothetical world” referring to interactions among a number of actors that have “reciprocal costly effects” (in the sense that such effects are significant, consequential, either by reducing costs or providing benefits). ³

1 Robert O. Keohane and Joseph S. Nye, Power and Interdependence (New York: Wesley Longman, 2001).

Despite having been developed over three decades ago, in the third edition of the book the authors note that their complex interdependence theory remains “relevant today”, which they attribute to the fact that the analysis suggested in Power and Interdependence has been, in their view, “a fruitful one”, since it

“stimulated useful further research”. Indeed, the model has been widely used in the field on International Relations and International Political Economy, and part of the reason might be that their argument convincingly linked “the liberal stress on interdependence with the realist focus on power” (while the authors noted that “the concept of complex interdependence is clearly liberal rather than realist”).

According to their argument, “the sharp opposition between realist and liberal theories is overstated”, and both approaches could, as a matter of fact, be considered as “complementary.” Please refer to Keohane and Nye, Power and Interdependence, xiii, 241, 275 and 287; “Power and Interdependence revisited”, in International Organization 41, no. 4 (1987): 730-762.

2 Please refer to Keohane and Nye, Power and Interdependence, xii-xiii. For an analysis of power and

“asymmetrical interdependence”, see Albert Hirschman, National Power and the Structure of Foreign Trade (Berkeley: University of California Press, 1945); Kenneth Waltz, “The Myth of National Interdependence”, in The International Corporation, ed. Charles P. Kindleberger (Cambridge, Mass.: MIT Press, 1970).

For a discussion on the role of state power in international trade, see Stephen D. Krasner, “State Power and the Structure of International trade”, in World Politics 28, No. 3 (April 1976): 317-347.

For an analysis of interdependence, leverage, and influence, see Klaus E. Knorr, “International Economic Leverage and Its Uses”, in Economic Issues and National Security, ed. K. Knorr and F. Trager (Lawrence, KS: University Press of Kansas, 1977): 102; and R. Harrison Wagner, “Economic Interdependence, Bargaining Power and Political Influence”, in International Organization 42, 3 (Summer 1988): 461.

For an analysis of “interdependência econômica” in Brazil, please see P. R. de Almeida, Formação da diplomacia econômica no Brasil: as relações econômicas internacionais no Império (São Paulo: SENAC, 2001); for the case of Argentina, see Carlos Escudé, “Argentina y China puedan avanzar en una

‘interdependencia simétrica’”, in DangDai 7 (March 2012) http://dangdai.com.ar/index.php/actualidad/4-actualidad/900-escude-argentina-y-china-puedan-avanzar-en-una-interdependencia-simetrica (accessed April 2, 2012); Foreign Policy Theory in Menem’s Argentina (Gainesville, FL: University Press of Florida, 1997); and “An introduction to Peripheral Realism and Its Implications for the Interstate System: Argentina and the Cóndor II Missile Project”, in International Relations Theory and the Third World, ed. Stephanie G.

Neuman (New York: St. Martin's Press, 1998). See also Celestino del Arenal, “Mundialización, Creciente Interdependencia y Globalización en las Relaciones Internacionales”, in Cursos de Derecho Internacional y Relaciones Internacionales de Vitoria-Gasteiz (Bilbao: Universidad del País Vasco, 2009): 207-208.

3 Keohane and Nye, Power and Interdependence, 236.

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From the very outset, Keohane and Nye argue that “we live in an era of interdependence…the very nature of world politics is changing. The power of nations…

has become more elusive. The world has become interdependent.”⁴ The authors proceed by emphasizing the importance of theory for any valid attempts to make sense of such a world, arguing that “theory is inescapable; all empirical or practical analysis rests on it”⁵ and proposing CID as such, while pointing out that one of the main purposes of the book is to seek and offer satisfactory answers to certain aspects of reality that can be observed in international affairs and that the authors find rather puzzling. In particular, they note that their efforts are devoted to examining “what are the major features of world politics when interdependence, particularly economic interdependence, is extensive”⁶, one of the major questions the authors ask in this book.

Under conditions of CID, Keohane and Nye note that these features are the multiple channels of contact that exist between actors (which are not limited to states), as well as the multiple issues for state policy goals (which are subject to trade-offs and among which there is no stable hierarchy), with the threat or use of force among states being irrelevant.⁷

The chapter analyzes how Sino-Brazilian and Sino-Argentine relations are characterized by “asymmetrical interdependence” and the intertwined concepts of

“power”, “asymmetry”, and “interdependence” (i.e., “mutual dependence” –with special emphasis put on its two dimensions, “vulnerability” and “sensitivity”). Keohane and Nye point out that the book was written in the 1970s, “the decade of interdependence.”⁸ It was also then that K.E. Knorr noted that “power arises from an asymmetrical interdependence”⁹ and R.H. Wagner that “‘dependence’, in this context, means need, and ‘asymmetry’ refers to the fact that “one party needs the benefits derived from a relationship more than the other.”¹⁰ The inference from an asymmetry of need to political influence is usually justified by an appeal to intuitively plausible ideas about individual bargaining behavior.”¹¹ In this regard, Keohane and Nye point out that

“asymmetrical interdependence” “merely provides a first approximation of initial bargaining advantages available to either side”¹², noting that they “do not expect asymmetrical interdependence, which is a measure of potential power, to predict perfectly actors’ successes or failures at influencing outcomes.”¹³

The above concepts are examined in the following sections of this chapter, which highlights that they are inextricably linked and particularly well-reflected in terms of the trade ties that connect these countries.¹⁴ In this context, it should be remembered that

4 Ibid., 3.

5 Ibid., 4.

6 Ibid., 5.

7 Ibid., 245, 271, 276.

8 Keohane and Nye, “Power and Interdependence Revisited,” in International Organization 41, no. 4 (1987): 730-762.

9 Knorr, “International Economic Leverage and Its Uses”,102

10 Wagner, “Economic Interdependence, Bargaining Power and Political Influence”, 461.

11 Ibid.

12 Keohane and Nye, Power and Interdependence, 17.

13 Ibid., 16.

14 The authors note that “the economic benefits of exchange have been well understood since Adam Smith (亞當·斯密) and David Ricardo (大衛·李嘉圖) developed classic economic theories of the division of labor and comparative advantage two hundred years ago. As Smith and Ricardo pointed out, trade enables areas

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they are characterized by economic complementarity: the export of Brazilian and Argentine commodities –mainly soybeans (and its derivatives, such as soybean oil), iron ore and crude petroleum– to China, and the import of Chinese manufactures to Brazil and Argentina. This is the predominating pattern for the large majority of Latin American countries and, in each case, shows a high concentration of exports –i.e., exports to China consists of a remarkable reduced number of primary commodities.

Regarding the countries being examined in this study, it needs to be mentioned that the PRC is, respectively, the largest or second-largest trading partner of Brazil and Argentina: China is Brazil’s top trading partner (since 2009, when it overtook the US, in what was considered as a “historical landmark” due to the fact that the US had held the top position since the 1930s)¹⁵, and Argentina’s second-largest (behind Brazil, having also surpassed the US –and Chile– in 2007).¹⁶

Due to the theoretical implications that the real economic magnitude of the PRC has for this study, and in order to offer an more accurate idea of it, these relations should be consider within a broader context: in global terms, China is an economic powerhouse¹⁷ which currently ranks second among the world’s major economies (behind only the US, “the world’s foremost commercial and political power”)¹⁸ and that has been projected to become the largest economy worldwide by 2016¹⁹, as well as a “trading superpower” that, according to recent calculations, is expected to become the global top trader by 2015.²⁰ All these give the PRC a clearly dominant position vis-à-vis Brazil and Argentina –as well as towards most countries in the world. Thus, these two South

with different factor endowments to specialize in what they are best at.” Keohane and Nye, Power and Interdependence, 27.

15 “China surpasses U.S. to become Brazil’s biggest trading partner”– China View – May 5, 2009.

http://news.xinhuanet.com/english/2009-05/05/content_11316255.htm (accessed May 5, 2009).

16Based on data from the Observatory of Economic Complexity – Massachusetts Institute of Technology (MIT) and UN COMTRADE

http://atlas.media.mit.edu/explore/tree_map/export/arg/show/all/2000/

http://atlas.media.mit.edu/explore/tree_map/export/arg/show/all/2010/(accessed March 25, 2011).

17 As reported by the Organization of Economic Cooperation and Development. Please refer to “Economic Survey of China 2010”, OECD, 2010.

http://www.oecd.org/economy/surveys/economicsurveyofchina2010.htm (accessed March 25, 2011).

See also: “Economic Survey of China 20103”, OECD, 2013.

http://www.oecd.org/redirect/eco/surveys/economicsurveyofchina2013.htm (accessed March 23, 2013).

18 The authors point out that the US, having “become more powerful, on a global basis, than any state in previous history,” after the end of the Cold War, is “the most important actor in the system.” See: Keohane and Nye, Power and Interdependence, viii, 257, 291, 298.

19 According to a recent Citigroup report, China is expected to overtake the United States to become the world’s biggest importer and largest trader (“largest country by trade value”) by 2015. For further details, please refer to: Cathal O’Daly, “Opportunities to support growing relationships with China”– Citi OpenInvestor Report– Citibank – March 2013.

http://www.citibank.com/transactionservices/home/securities_svcs/docs/opp_growingrelationships_china.p df (accessed May 21, 2013).

Also, see: Xiaojun Li, “China as a Trading Superpower”, in China’s Geoeconomic Strategy (London:

IDEAS, London School of Economics and Political Science, 2012): 30.

http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR012/li.pdf (accessed December 28, 2012).

20 “The People’s Republic of China and Latin America and the Caribbean: Ushering a New Era in the Economic and Trade Relationship” – ECLAC Report – June 2011: 6.

http://www.cepal.org/comercio/publicaciones/xml/4/43664/People_Republic_of_China_and_Latina_Ameri ca_and_the_Caribbean_trade.pdf

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American countries play the role of minor trade partners of the Asian giant –albeit to different extents– since neither of them holds an even remotely similar rank in China’s trade agenda.

The data in Table 1 shows that, in the last year of the observed period (2010), neither Brazil nor Argentina can be considered as being relevant export destinations for China. Brazil does not rank within the top 10 list, and Argentina does not even appear within the top 20. Rather, the importance of these countries relative to the PRC lies in the role they can play as suppliers and providers (sources of imports), i.e., as countries of origin of some of the commodities that the PRC needs to import, with only one of them – Brazil– ranking as a top 10 import source, and only occasionally (in 2006).

Table 2.1 – China’s Top 10 Trading Partners (Exports and Imports) 2010

Rank Exports Imports

Massachusetts Institute of Technology (MIT–麻省理工學院 ) and UN COMTRADE http://atlas.media.mit.edu/explore/tree_map/export/chn/show/all/2010/ and

http://atlas.media.mit.edu/explore/tree_map/import/chn/show/all/2010/

* Brazil ranked 6^th as a supplier in 2010

Thus, although Brazil ranked as an important source of imports for China in 2010, for most of the observed period –just like in the years preceding it– neither Brazil nor Argentina rank as top 10 export destinations of the PRC, while Tables 2 and 3 show

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that China is the number one or two export destination for both countries (Brazil’s largest partner since 2009, and the second-largest partner of Argentina since 2007, with the exception of 2009).

Figure 2.1–Brazil’s Top 5 Trading Partners: China’s Ascendance to Top Export Destination 2000-2010

Source: Compiled by author.

Based on data from the Observatory of Economic Complexity Massachusetts Institute of Technology (MIT) and UN COMTRADE http://atlas.media.mit.edu/explore/tree_map/export/bra/show/all/2010/

Table 2.2 –Brazil’s Top 5 Trading Partners: China’s Ascendance to Top Export Destination 2000-2010

Rank 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* http://atlas.media.mit.edu/explore/tree_map/export/bra/show/all/2010/

and 2010 Edição Especial – Ministério da Fazenda do Brasil (2010): 102-105, 110.

http://www.fazenda.gov.br/divulgacao/publicacoes/economia-brasileira-em- Brazil's Top 5 Trading Partners 2000-2010 (Export Destinations)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Years

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perspectiva/economia_brasileira_em_perspectiva_pt_ed_especial_2010.pdf

The data in Table 2.2 shows China’s remarkable ascendance to Brazil’s top trade partner in 2009. Succinctly put, the general trend can be summarized as showing that China moves upwards throughout the observed period, overtaking Brazil’s top trade partners and displacing the US and Argentina until it reaches the top position in 2009. Indeed, China was not even a Top-10 export destination for Brazil. As a matter of fact, the PRC ranked 11^th in 2000 (with 2.1%, US$ 1.2 billion), behind the 5 countries mentioned in the respective column, plus Italy (6^th, 4.1%), France (7^th, 3.6%), Mexico (8^th, 3.2%), the UK (9^th, 2.9%) and Chile (10^th, 2.4%). A year later, in 2001, China was not a Top-5 export destination for Brazil, but it ranked 6^th in Brazil’s Top-10 trade partners (with 3.4 %, US$

2 billion, behind the 5 countries above, and having surpassed 7^th Italy [3.3%], 8^th Mexico [3.3%], 9^th France [3.3%], and 10^th the UK [3.1%]). In 2002, China overtook Argentina:

the PRC ranked 4^th, surpassing Argentina –which, due to its 2001 crisis, was relegated to the 5^th position that year, sharing it with Mexico. Interestingly, it was the only year in the observed period that Argentina was not a Top-3 trade partner of Brazil. In 2003, China achieved a remarkable 2^nd place, only behind the US and ahead of Argentina, the Netherlands and Germany. From 2004 to 2008, China was the third in the Top-3 list of trading partners, until it reached the top position in 2009, displacing the US – the

“historical landmark” aforementioned– and remaining at it in 2010 and up to the time of writing. The US was relegated to the second position, although in September 2010, the Brazilian Ministry of Foreign Affairs had projected that Argentina would rank as Brazil’s second-largest trading partner by December, which in the end proven to be a mistaken projection.²¹

In the case of Argentina, the trends are remarkably similar, with the most notable exceptions being that Brazil consistently ranks as its top export destination, with the PRC not having being able to overtake it and ranking 2^nd since 2007, when it overtook the US (a position that, with the exception of 2009, maintains until the present).

Figure 2.2–Argentina’s Top 5 Trading Partners: China’s Ascendance to 2^nd largest Export Destination 2000-2010

Source:Compiled by author.

21 Remarks made by Brazilian Foreign Minister Celso Amorim at the 8^th Annual Meeting of the International Institute for Strategic Studies (IISS) on September 11, 2010.

See “Argentina to Become Brazil’s Second-Largest Trade Partner” – Americas Quarterly – September 13, 2010.

http://www.americasquarterly.org/node/1813 (accessed September 21, 2010).

http://www.iiss.org/conferences/global-strategic-review/global-strategic-review-2010/plenary-sessions-and-speeches-2010/second-plenary-session/celso-amorim/ (accessed September 21, 2010).

Argentina's Top 5 Trading Partners 2000-2010 (Export Destinations)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Years

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Table 2.3– Argentina’s Top 5 Trading Partners: China’s Ascendance to 2^nd largest Export Destination

Rank 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Brazil and Argentina (showing the ascendance of the PRC to the top of these countries’

export destinations), Table 2.4 reflects the huge differences that exist between the crucial role that the PRC plays for Brazilian and Argentine exports, and the vastly lesser importance of these countries in terms of Chinese total trade. This point is clearly illustrated by the fact that the highest percentage ever accounted for by Brazil throughout the observed period was reached in 2010, when it received a mere 1.6% of Chinese total exports and represented 3.7% of China’s total imports –i.e, the logical deduction being that, for the PRC, Brazil is much more important as a supplier (of raw materials) than as a

22 Oviedo, Historia de las relaciones internacionales entre Argentina y China, 491.

23 Ibid.

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market for Chinese products. The same logic applies to Argentina, but to an even lesser degree – the maximum values were registered in 2008, when it was the destination for a virtually inconsequential 0.45 % of Chinese total exports and represented 1% of Chinese total imports (again, it is more important as a provider than as a market).

Table 2.4–Modest Relevance of Brazil and Argentina in China’s Total Trade – 2000-2010

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http://atlas.media.mit.edu/explore/tree_map/import/chn/show/all/2010/ (accessed February 20, 2012).

Under these circumstances, and given its emphasis on asymmetry, CID is a particularly appropriate theory to examine relations between these countries –interdependent as all three of them are– given the truly remarkable differences among them. Nevertheless, this study underscores that differences in asymmetry clearly indicate that Sino-Brazilian relations, asymmetrical as they are, are so to a lesser degree than the relationship China-Argentina –which is highly asymmetrical.

In addition, the different degree of vulnerability towards each other makes Brazil and Argentina more dependent on Chinese purchases of their products –as shown in the

“China export dependency index” developed by Ferchen, García Herreo and Nigrinis²⁴– than vice versa.

In order to illustrate the above points, it would be convenient to put emphasis on the fact that, in 2010, Brazil –the largest economy in Latin America and the sixth in the world– accounted for a mere 1.6% of Chinese total exports, while the PRC, Brazil’s main export destination, accounted for 16% –a ten-times larger figure– of its total exports.²⁵

Differences in economic magnitude are even more clearly reflected in Sino-Argentine relations, in part due to the fact that Argentina can be considered as a

“peripheral country”, as pointed out by Keohane and Nye and others.²⁶ Indeed, Argentina –the economically weakest party out of the three countries being examined, even if the analysis is circumscribed to Latin America– was China’s fourth trading partner in the region in 2010, accounting for a mere 0.44% (US$ 7.6 billion) of Chinese total exports (behind Chile’s 0.57%, which ranked third after Mexico and Brazil).²⁷ The PRC, on the other hand, represented a 19-times higher figure, 8.6% (US$ 5.8 billion), of

24 M. Ferchen, A. García-Herrero and M. Nigrinis, “Evaluating Latin America’s Commodity Dependence on China”, BBVA Working Paper 13, Vol. 5 (January 2013): 8.

http://www.bbvaresearch.com/KETD/fbin/mult/WP_1305_tcm348-370500.pdf (accessed February 12, 2013).

25 As of 2010, and besides the volume of Sino-Brazilian trade falling short of the list of the PRC’s top 10 partners worldwide, and in spite of being among the top 3 agricultural suppliers) and being relegated by other countries across the world, Brazil did not rank either as the PRC’s number one export destination in Latin America, which was Mexico –accounting for 2.4% of Chinese total exports. See “Where does Brazil export to?”–The Observatory of Economic Complexity–Massachusetts Institute of Technology (MIT– 2010.

http://atlas.media.mit.edu/explore/tree_map/export/bra/show/all/2010/

“Análisis del comercio agrícola chino en 2010” – Conserjería Agrícola – Embajada Argentina en la República Popular China – May 10, 2011.

http://www.agrichina.org/admin/kindeditor-4.1.2/attached/file/20120924/20120924133900_2656.pdf (accessed May 20, 2011.)

26 Keohane and Nye, Power and Interdependence, 61.

See also: Carlos Escudé, Foreign Policy Theory in Menem’s Argentina (Gainesville, FL: University Press of Florida, 1997); “An introduction to Peripheral Realism and Its Implications for the Interstate System:

Argentina and the Cóndor II Missile Project”, in International Relations Theory and the Third World, ed.

Stephanie G. Neuman (New York: St. Martin's Press, 1998); Eduardo D. Oviedo, “Argentina Facing China:

Modernization, Interests and Economic Relations Model,” in East Asia 30, No. 1 (March 2013): 7-34, http://link.springer.com/article/10.1007/s12140-012-9184-1/fulltext.html; Historia de las Relaciones Internacionales entre Argentina y China 1945-2010 (Buenos Aires: Dunken, 2010); J. Uriburu Quintana,

Modernization, Interests and Economic Relations Model,” in East Asia 30, No. 1 (March 2013): 7-34, http://link.springer.com/article/10.1007/s12140-012-9184-1/fulltext.html; Historia de las Relaciones Internacionales entre Argentina y China 1945-2010 (Buenos Aires: Dunken, 2010); J. Uriburu Quintana,

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