LA PAZ, Bolivia (AP) — Matilde Flores haggles with customers about the smartly tailored jackets she's selling at her street stand in central La Paz on a chilly morning.
"The fabric is Chinese but they're stitched together domestically," she tells one shopper, but the customer is clearly more interested in the price than the origin.
Flores is facing up to Bolivia's new reality: clothes either wholly produced in China or sewn together locally with Chinese material are increasingly cheaper than anything produced in Bolivia with the country's raw materials.
Same for shoes.
"Chinese and now the Peruvian shoes are taking over and they aren't even leather," Genaro Torrez said as he hammered a sole flat for a pair of fine leather shoes in his workshop. "The Chinese shoe is 70 percent cheaper, the Peruvian 40 percent cheaper than domestic."
Although rich in raw material and skilled craftspeople, this poor, landlocked South American nation of 10 million can barely compete globally in anything that isn't dug out of the earth or grown in a field.
"He who doesn't advance in globalization retreats and Bolivia has been fully globalized and, rather than benefiting, is suffering the consequences," said Gary Rodriguez, director of the Bolivian Institute of Foreign Trade.
"The day we least expect it the domestic markets for our pasta and beer will also disappear," said Alberto Bonadona, an economist and newspaper columnist.
Domestic manufacturing has been slammed by a double whammy of cheap foreign goods, mostly from China, and a nearly unfettered flood of contraband that further cripples the ability of Bolivian products to compete.
"Our raw material is good but production costs are high because we work by hand," said Torrez. That's a big problem when China can undercut even Bolivia's labor costs.
China's advantage is that its manufacturing sector is highly mechanized and colossal in scale, its labor cheap, its job protections weak and its currency undervalued against the dollar, he said. Bolivian production, by contrast, is of much smaller scale, often artisanal, and strict labor laws make it difficult to fire workers. Frequent political unrest, including road blockades, also hurt competitiveness by raising costs.
Bolivia's trade deficit keeps widening, particularly with China. Last year, Bolivia bought $937 million in goods from China and sold $330 million. Chinese textile imports, worth $8.7 million in 2010, nearly doubled to $17 million last year, according to the National Institute of Statistics.
From China, Bolivia buys everything from motorcycles to televisions to herbicides. To China, it sells minerals and lumber.
China overtook the United States last year to become the chief provider of goods sold in Bolivia. It dominates both legal imports and the contraband readily available everywhere.
"Everything here is Chinese: The toys, the computer, the cell phone, the pen, even school pencils, down to clothes and shoes. They are preferred for their price," Rodriguez said.
In the 1960s, Bolivia sold steel to the United States, which then exported cars back to the South American country. The shoemaker Torrez complains that it Bolivia today exports nonrenewable resources to China and gets back something lesser: goods made of synthetic material.
"It's unfair competition," said Torrez, recounting how skilled cobblers have quit his business because its shoes can't compete with cheap imports. "They prefer to go back to being miners because they earn more there."
Bolivia imported $21 million worth of footwear last year compared to $15 million in 2010, according to government figures.
Raw materials now account for 70 percent of Bolivia's exports, with 40 percent of the $859 million in direct foreign investment last year in minerals and natural gas, according to the U.N. Economic Commission for Latin America and the Caribbean, or ECLAC.
Meanwhile, tailors and seamstresses are moving to Peru and Brazil.
Big textile factories gave way more than two decades ago to small family-run workshops where clothes were sewn with fabrics more cheaply produced in China and Peru, where the industry is more modern and efficient. The clothes made with those imports include Bolivia's vibrantly colored traditional Andean garb.
Little thread is still produced locally. The country's cotton crop, hurt by imported synthetic fibers, is made into fabric for clothing sewn for export, chiefly to the United States. Some experts say Bolivia would do well to export thread and clothing made from the wool of alpaca, llamas and vicunas, but that industry is poorly developed.
Imports of used clothing, mostly from the United States, also hurt domestic production, costing Bolivia more than 160,000 textile industry jobs between 2000 and 2008 as some 32,000 mom-and-pop workshops shut down, according to the National Chamber of Industry.
The government moved to halt the used-clothing dumping by raising tariffs in 2009. But they have hardly helped. And now, the wave of cheap Chinese-made attire is cresting.
A lot of the clothing is contraband, which began to proliferate with the wholesale privatization of Bolivia's economy in the 1990s, shock treatment therapy to end runaway inflation. The privatizations, along with the earlier closure of state-owned mines, fed unemployment and with it the informal economy.
It's gotten so bad that about 70 percent of Bolivia's economy not related to minerals now runs on contraband, said Daniel Sanchez, the president of the country's Business Federation.
Bonadona complained that recent Bolivian governments, including Morales', "have adopted onerous measures that are asphyxiating legal industry, but are tolerant of economic informality."
One example is beer-making. Brewers were slapped with a tax last year to support milk consumption, raising beer prices and hurting demand.
High mineral prices have helped Bolivia's economy grow at a respectable annual rate of 4.6 percent since 2005, but to revitalize other sectors and create jobs, the National Chamber of Industry said in a June report that the economy ought to be growing at more than 7 percent.
In 2009, the Bolivian government tried to spur the domestic textile industry by raising duties on textile imports to 35 percent and offering small and medium producers low-interest loans.
It didn't appear to help.
Differences with the United States over its alleged meddling in Bolivian politics led Washington to halt trade preferences, beginning in 2009, that had allowed Bolivians to export tariff-free to the United States.
Morales tried replacing the U.S. market with Venezuela but that didn't work. Import restrictions and delayed payments hurt sales.
It's gotten so bad that Bolivia's biggest textile exporter, AMETEX, had to suspend production last month after losing the ability to pay its debts.
The company's owner, Marcos Iberkleid, said the loss of the U.S. market was the main reason sales dropped to 25 percent of the previous volume.
The government stepped in this week to save the 1,700 jobs at AMETEX's five plants. It will lease the factories for a new state-owned company it christened the National Textile Company.
"We're going to sell thread and fabric in the local market and export clothing," said Teresa Morales, Bolivia's minister of productive development. "It will be a new era for the textile industry."
The government is also, she said, studying raising its tariffs on textile imports to try to even the playing field.
The president of an association of small and medium businesses in the eastern city of Santa Cruz, Janeth Coffield, is skeptical:
"Let's hope it happens so we can end this crisis but authorities assured us in the past that the used clothing trade would disappear and that hasn't happened."
Associated Press writer Frank Bajak contributed from Lima, Peru.