Word that Uruguay was seeking a trade deal with China sparked elation at the El Álamo ranch, a lush lawn punctuated by cacti and herds of cattle on Uruguay’s eastern plains.
Most of the livestock is destined for buyers in China, where they face tariffs of 12 percent — more than double the tariff applied to meat from Australia, China’s top beef exporter. Ranchers in New Zealand, the second largest exporter, enjoy duty-free access to China.
“Bring on the trade deal,” said Jasja Kotterman, who runs the family-owned farm. “That would level the playing field for us.”
But the enthusiasm that permeates this South American country has more recently given way to resignation that a trade deal with China will not come soon. What seemed like a new opportunity for Uruguay has turned into a cautionary tale about trade policy pitfalls for small countries grappling with complex geopolitical realignments.
Uruguay’s President Luis Lacalle Pou has risked his economic legacy to strike a trade deal with China. “We have every intention of delivering it,” he said last July, announcing the start of formal negotiations. China was open to talk about a bilateral deal with Uruguay.
But Uruguay’s aspirations sparked anger and accusations in neighboring Brazil and Argentina, as well as what was seen as economic retaliation. Together with Uruguay and Paraguay, they belong to Mercosur, an alliance formed more than three decades ago to promote regional trade.
Brazil has sidelined Uruguay in recent months as it pursues a broader trade deal with China on behalf of the bloc.
“We as Mercosur want to sit down and discuss with our Chinese friends the Mercosur-China agreement,” Brazil’s President Luiz Inácio Lula da Silva said during a January visit to Montevideo, Uruguay’s capital.
In April, Mr. Lula to China, where he received red carpet treatment, including a visit to the country’s Supreme Leader Xi Jinping.
“No one will forbid Brazil to improve its relationship with China,” Lula said.
Whatever interest the Chinese government had in making a deal with Uruguay, it soon gave way to its focus on Brazil, a calculation based on basic arithmetic: Uruguay is a country of 3.4 million people, while Brazil is the largest economy of South America with 214 million inhabitants.
But despite the Brazilian president’s expressed interest in brokering a trade deal, prospects for a Mercosur-China deal seemed somewhere between minimal and nonexistent.
Mercosur, a notoriously slow organization fraught with internal discord, has spent more than 20 years finalizing negotiations for a trade deal with the European Union. And one of its members, Paraguay, has no relationship with Beijing, but maintains relations with Taiwan. That alone made the possibility of a deal between Mercosur and China almost unthinkable.
All of this increased the likelihood that Uruguay will ultimately damage its relations with its neighbors while not reaping any economic benefits.
“Uruguay is being used as leverage for China to negotiate with Brazil,” said Ms. Kotterman, the superintendent of the El Álamo farm, as a full moon cast a silver glow over the grass.
Reconfigure the card
Uruguay’s reach for a trade deal with China was about more than the final destination of its cows. The government sought to redraw the terms of cooperation with the rest of the world while separating the country from the legacy of trade protectionism that prevailed in South America’s largest economies.
It explicitly looked to China as a counterweight to the United States’ dominance in the hemisphere.
Unions opposed the prospect of a deal as a threat to higher-wage factory jobs, while politicians – some within the ruling coalition – condemned the president’s affiliation with China as a risk to national security.
But the biggest concern was the consequences of a possible rift within Mercosur, which was founded in 1991.
Mercosur works as a collective to set rates with the rest of the world. By seeking its own deal with China, Uruguay is violating the group’s solidarity. It would open its markets to Chinese-made factory goods in exchange for lower tariffs on beef exported to China. Additional sales for ranches in Uruguay would come at the expense of beef producers in Brazil and Argentina.
Mercosur is widely seen as a company that falls far short of its goals of establishing a common market in South America. Its alleged plans to promote trade were often hampered by the interests of politically powerful industries in Brazil and Argentina. The two nations have managed to secure dozens of waivers that have spared their companies from competing with others in the bloc.
Yet many regional leaders see cooperation as key to achieving prosperity and freeing the continent from its excessive dependence on mining resources and the cultivation of staple crops such as soybeans.
Mercosur’s champions say the alliance is the only way for its members to build common energy markets, international highways and other infrastructure needed to drive production forward.
Mercosur has also cast itself as an alternative to dependence on the United States.
“Mercosur is important and should be more important,” said Martin Guzmán, a former Argentine economy minister. “I see no way out of the problem of the continent’s stagnation if there is no deeper integration.”
He criticized Uruguay’s push for a trade deal with China as a threat to the bloc.
“If everyone behaves this way,” he said, “there are costs in the long run.”
More cows than people
Uruguay’s exporters preferred to focus on the potential benefits: a greater sales opportunity in China, home to 1.4 billion people.
Facundo Marquez focused on the prospect of additional sales for his company Polanco Caviar, which farms sturgeon in cages in the Negro River in central Uruguay. Rising incomes in China have boosted demand for caviar, but Chinese producers are almost completely shielded from foreign competition.
No industry had more to gain than beef.
Uruguay exports about 80 percent of its beef, worth about $3 billion a year, according to the National Meat Institute, a government agency in Montevideo. But the country’s beef producers face tariffs of 26 percent in the United States and more than 45 percent in the European Union after exhausting small quotas.
That makes China the obvious focus, while sparking bitter talk that Washington has refused to negotiate a trade deal to open up the United States to export beef from Uruguay.
“The United States talks a lot about how they value Uruguay’s democracy and human rights, but in the end they turn their back on us,” said Conrado Ferber, president of the National Meat Institute. “That’s why we trade with China.”
Jorge González, who runs a slaughterhouse in a humble town of Lavalleja, is especially fond of Chinese buyers because they buy the whole cow. European buyers are usually only interested in the best portions that make up less than half the cow. Americans buy a little more, making less valuable cuts of hamburger meat. But in China, a diverse array of culinary offerings, such as hot pot, is driving demand for even thinly sliced portions of less valuable meat.
Mr. González, 56, buys cattle from surrounding farms and sends them to a conveyor belt where workers cut the animals into meat and put the pieces into boxes. He exports most of his production around the world by container ship. Seventy percent goes to China.
His factory has enough capacity to slaughter about 100,000 animals a year, about twice as many as he processes now. A trade deal with China would encourage local farmers to produce more, he said.
Mr. González hopes that a deal can still be struck with China, given Uruguay’s virtues as a food producer. The country has vast open spaces and almost four times as many cows as people, making it a useful place to produce meat for export.
“The Chinese are looking for a guaranteed supply of food,” Mr González said.
The farm El Álamo is one of Mr. González’ suppliers. There, Mrs. Kotterman and her family focus on another aspect of the Chinese market: the growing demand for premium beef.
Over the past five years, her ranch has invested significantly in the production of a growing herd of Wagyu – cows originally raised in Japan and famous for their extraordinary marbling and tenderness. El Álamo paid Mr. González to butcher his Wagyu and sell the meat directly to buyers in China.
There are worse places to be a cow than the rolling hills of the 14,000-acre ranch. Gauchos set out at dawn atop regal horses and herded cows to green pastures flanked by shady groves of eucalyptus trees. One recent morning, as a pale sun struggled to break through the fog, a vet checked which of the cows was pregnant.
Mrs. Kotterman’s father, Raymond De Smedt, fears that politicians in South America are conspiring to sabotage the economy.
According to him, China is the future. Mercosur is in the past.
“It’s a dead duck,” he said, referring to the alliance. “We would have been better off without Mercosur, and everyone just does what they want.”
