For more than a century, the United States has been the undisputed economic hegemon in Latin America. However, over the past two decades, China has displaced the U.S. as the region’s top trading partner in many Latin American nations. Additionally, Beijing has become a major source of foreign direct investment and lending. Increasingly, Latin American governments of all ideological stripes view China as a viable economic alternative.
These developments and an unfocused U.S. response suggest that Latin America’s medium-term economic future may well be marked by dual U.S.-Chinese dominance, a scenario that may benefit the region.
Chinese economic interests in Latin America
China’s economic ascension in Latin America was driven by its interest in securing resources during the commodities boom of the 2000s and early 2010s, investment of its growing wealth and global geopolitical ambitions. Chinese trade with Latin America grew from just $12 billion in 2000 to more than $430 billion in 2021, driven by demand for a range of commodities, from soybeans to copper, iron ore, petroleum and other raw materials. These imports, meanwhile, were tied to an increase in Chinese exports of value-added manufactured goods. As of 2022, China is the region’s second-largest trading partner and the biggest trading partner in nine countries (Cuba, Paraguay, Argentina, Chile, Brazil, Uruguay, Peru, Bolivia and Venezuela).
When Mexico is factored in, however, the U.S. trade figures were more than double those of China in 2021 – $895 million compared to $428 million, according to the International Monetary Fund. Mexico accounts for 71 percent of America’s Latin American trade.
Economic linkages between the two regions are not restricted to trade. With its deep pockets, China has extended more than $140 billion in sovereign loans since 2005 to Argentina, Brazil, Ecuador, Venezuela and others, often in exchange for oil (although as a consequence of the Covid-19 pandemic it offered no new loans in 2020 or 2021). China has also prioritized foreign direct investment through its global Belt and Road Initiative (BRI), sending billions to Chinese and Latin American companies through the China Development Bank and the Export-Import Bank of China. These companies have invested in regional infrastructure projects, including bridges, port facilities, hydroelectric dams and highways. In Latin America, 11 countries – Argentina, Chile, Uruguay, Bolivia, Peru, Ecuador, Venezuela, Panama, Costa Rica, El Salvador and Cuba – have signed onto the BRI.
China’s growing economic ties with Latin America represent just one of the many steps it is taking to pursue its global ambitions.
As the BRI suggests, Chinese economic engagement is not merely about gaining access to natural resources and new markets, but geoeconomics. As political economist Albert O. Hirschman postulated in 1945, increased trade and trade dependence between states tend to produce geopolitical bonds and even foreign policy convergence. In this sense, China’s growing economic ties with Latin America represent just one of the many steps it is taking to pursue its global ambitions. Concretely, it may also be part of a gambit to diplomatically isolate Taiwan: about half the countries globally that still recognize Taiwan as an independent nation are located in Latin America and the Caribbean.
Latin America’s pivot
For their part, Latin American governments have welcomed the ascent of China. During the 2000s and early 2010s, it was left-of-center governments in places like Brazil, Venezuela, Argentina, and Ecuador that were most receptive to Chinese investment and loans, in part because they sought to distance themselves from the U.S. and Western financial institutions for ideological reasons.
However, this is no longer necessarily the case, as right-of-center governments increasingly view China as a pragmatic economic alternative to the U.S. To wit, in recent years, Chile, Costa Rica, and Peru have signed bilateral free trade agreements with China, and governments of diverse political makeups in Ecuador, Uruguay, Panama, Colombia and Nicaragua are all in the process of negotiating similar deals.
Part of the reason for this change is U.S. negligence. Among the factors damaging Washington’s reliability and reputation are the breakdown in support for free trade among both Democratic and Republican parties, the U.S.’s 2017 withdrawal from the Trans-Pacific Partnership (TPP) and the Trump administration’s repeated threats of using punitive tariffs as a political tool. China has been eager to fill the void for Latin American governments seeking alternative trade partners. Academic studies, for instance, support the notion that China has strengthened its ties with those countries where the U.S. influence was weakest.
Many Latin American countries are no longer bound to a single economic power and can bargain among several partners. For example, in exchange for joining the BRI in early 2022, Argentina received billions of dollars in Chinese currency swaps and financing, allowing it to make some short-term debt payments to the International Monetary Fund.
So far, the U.S. response to China’s ascendence has been more reactive than proactive.
Conversely, Latin American politicians may be lured back to the U.S. by what they perceive to be predatory loans from Beijing, Chinese indifference to the environment and human rights and the need to retain control over land and strategic minerals like lithium. This may ultimately result in better borrowing conditions for Latin America, as states compare the transparency, quality and productivity of Chinese-funded projects versus U.S.-funded ones.
Source : GisreportsOnline