By Fabio Almada-
Latin Americas’ geographical closeness to the United States has conditioned many aspects of its trade, security and external affairs policies as, historically, the region has seemed to unquestionably belong to the American direct zone of influence. However, in the last four years, President Donald Trump has insulted some of the continent’s governments, caged and separated families of migrants, discouraged investment and supported trade protectionism. His administration’s lack of interest and unclear regional strategy has allowed China to start having more economic and political presence in the continent. Latin America has much to gain —and to lose— from China’s increasing interest in the region.
The Context: Trump's Latin America Oversight
China’s economic interests in Latin America are not matched by other big powers. The United States, the clear regional hegemon, has not shown much interest in increasing economic ties after four years of the contentious Trump presidency.
Trump did manage some foreign policy and trade victories regarding Latin America, such as aligning Brazil’s foreign policy, a normally independent one, to his administration’s views while developing good relations with Bolsonaro, mainly due to their similar political rhetoric and agenda. As well as this, Trump successfully restructured, in his favour, the North American Free Trade Agreement (NAFTA), now “United States-Mexico-Canada Agreement” and got Lopez Obrador, Mexico’s president, to help him appeal to Mexican-American voters on his only foreign trip since taking office.
Nevertheless, Trump’s administration by no means helped its southern neighbours with their security and economic problems. He stopped most economic aid to Central America that could have helped to stabilize the sub-region and mitigate the large immigration waves. His foreign policy rather centred on overthrowing the regimes in Cuba, Nicaragua and Venezuela. Some critics say this policy is a consequence of Florida’s importance for the electoral college, home to a large Cuban and Venezuelan exiled population.
Many other Latin American governments have fallen into line due to fear of threats of tariffs and sanctions. According to a Pew Research Centre study, ordinary Latin Americans do not hold much appreciation for the U.S. The percentage who express a favourable view fell from a high 60% in 2015 to around 45% in 2017. Trump’s “build a wall” slogan symbolised his perspective on the continent and embodied his little interest in creating bonds and synergies with the region. With a U.S. with such isolationist tendencies, Latin American governments have looked elsewhere for investment and business opportunities.
Beijing’s Latin-American Ambitions
Many Latin American governments and firms consider doing business with China a perfect opportunity for furthering international engagement, source of external financing and expanded access to its gigantic market. Bilateral trade increased 26-fold from $12 billion in 1999 to $315 billion in 2019, placing China as the region’s current second-largest trade partner, only surpassed by the U.S. President Xi Jinping has already set a goal of increasing the rate to $500 billion in 10 years. China has also become the top trading partner of Brazil, Chile, Peru, and Uruguay and the second-largest trading partner for many other countries across the continent.
China’s principal geopolitical project is the Belt and Road Infrastructure Initiative (BRI). Inspired by the ancient Silk Road trade routes, the BRI consists of projects in more than 80 countries in Central, South and South-East Asia, the Middle East and Eastern Europe. The people living across these regions account for 63% of the world’s population and an economic output of approximately 29% of the global total.
In 2017, Xi Jinping formalised that Latin America and the Caribbean were a “natural extension” of the BRI’s vision. That same year, Panama was the first country in the region to officially endorse the BRI, only a few months after switching diplomatic ties from Taipei to Beijing. In the following two years, 18 out of 23 nations in LatAm joined the BRI in some way or another. Exceptions include Argentina, Brazil, Colombia, and Mexico, the largest economies in Latin America and whose ties to the U.S. as economic partners are close. These countries have closely followed the initiative but are yet to sign on.
The Belt and Road Initiative will allow China to project its power across different continents and reflect the geostrategic new equilibrium- one where the centre of geopolitical power is centred in Asia. This has caused many international political analysts to ask themselves if a closer approach to this Chinese global project will help the region advance its prosperity through improved interconnectivity or whether it is merely another tool to extend China’s geopolitical reach and influence. The answer to this question is not a simple one, as much depends on the way that BRI projects are conceptualized, executed, and enforced. But at a time of high geopolitical tensions, critics and supporters of the BRI argue over the project’s objectives and consequences.
According to the World Bank Group on macroeconomics, trade and investment policy, a fully implemented BRI transport system project could grow global trade by up to 6.2% and bring real-income up by 2.9%. More than $141 billion in loan commitments have already been provided by Chinese banks to Latin American countries, exceeding, in some years, those from the World Bank, the American Development Bank and the Development Bank of Latin America. However, cases of debt sustainability and project delays in Malaysia, Myanmar, Sri Lanka and Pakistan have given rise to concerns about the project’s benefits and risks.
There is still much work to be done to successfully convert these opportunities into real economic benefits. If mishandled, the Belt and Road Initiative can become a double-edged sword.
Beware the Dragon
A few Latin American governments are worried that Chinese imports could deindustrialize their economies and establish a strong economic dependence on Beijing, however, most of them largely ignore the wider geopolitical implications of the BRI. Political leaders see the BRI is a low-risk gamble for economic growth and enhanced international cooperation, in times of Western protectionism and the absence of global trade alternatives. Nevertheless, China is very attentive to the geo-strategic location of the region and its closeness to the United States, its main geopolitical rival and principal obstacle to their global rise. The fact that only Panama has signed an official BRI agreement is symptomatic of the fact that signing up more countries would create a strong opposing reaction in Washington, a fact that China is well aware of.
Beijing has prioritized the Eurasian aspect of its BRI strategy but despite not being the principal focus, the Western Hemisphere is also in Xi’s wider aim. For the moment, expanding the BRI might lead to some unnecessary confrontation with the U.S. but China will most likely continue to low-key expand its presence in Latin America without disturbing the dormant U.S. attention in the region.
China is not yet calling the shots in LatAm but its influence is growing by the day. Latin America should be aware of the conditions that come with the infrastructure and financial agreements- critics of the BRI claim it is an instrument of political warfare. While presenting it as an inclusive win-win effort for international development and cooperation in reality it focuses on China’s interests, serving as a tool for their broader geopolitical strategy. Chinese-backed loan firms finance the building of ventures and then seize control of whole operations when borrowers can’t keep up with the high levels of investment needed. This predator strategy eventually succumbs countries to mortgage their financial independence and ultimately surrender their sovereignty.
A recent analysis by the World Bank indicates that 12 out of 43 low and middle-income BRI members in Asia, Africa and Europe could experience high debt dynamics associated with the infrastructure project. Latin America should take caution as many countries in the region bear similar high debt-to-GDP ratios to those of BRI members elsewhere.
Trade Agreement Alternatives: The EU and Biden Administration
Latin America has other options apart from China regarding trade and access to international markets. Such is the case of the negotiations between Mercosur and the European Union. The proposed trade treaty will be implemented in stages over 15 years, with the ultimate objective of eliminating 93% of the tariffs on products exchanged between the two blocs, creating the largest free-trade zone in the world. However, the EU-Mercosur agreement has faced serious challenges and 2020 has made the whole ratification process even harder.
In October, the European Parliament emphasized that “the EU-Mercosur trade agreement cannot be ratified as it stands”. This is a result of Brazil’s reluctance in upholding the agreement’s clauses on deforestation and protection of the Amazon forest. EU citizens and Parliaments in Austria, Belgium, Ireland and the Netherlands have voted against it. At the time of writing, a vote in France is still pending. Strong advocates of the deal such as Germany are becoming sceptical, as weak enforceability of the agreement’s pillars and sustainable development, which are built on dialogue alone, are still problems to be tackled. Brazil's recent policies seem contrary to the European commitment to green policies and the promotion of human rights.
In light of this, there is a significant possibility that the EU will not ratify the treaty at all. Such rejection could harm the cause of environmental protection and ultimately benefit China. Beijing’s strategy is based on not asking any political requirements or conditions when agreeing on economic deals, something that sets them apart from the EU and often the U.S. They will take advantage of the huge market and commodities imports.
Even if the EU-Mercosur deal goes through, it is still unclear if cooperation and dialogue will be as strong as expected due to political tensions, especially those between president Macron and Bolsonaro. Both blocs need to compromise. In the meantime, political tensions will prevent any progress regarding the deal’s implementation and environmental protection.
Aside from the hope of an EU-MERCOSUR trade deal, the incoming Biden administration will most likely also offer alternative sources to China for investment and trade for Latin American governments. Changing the trajectory towards Latin America must be a priority for Biden’s administration, but that will not be enough. The region will face a great impact from Covid-19 and the economic recession that will follow. A renewed foreign policy towards Latin America will face unprecedented challenges and a more robust geopolitical competition from China which has incremented its economic and diplomatic strings in the region.
Shifts in the international scenario (and four years of neglect by the Trump administration) will make it impossible for Biden to pick things up where his team left off in 2016. What is required is a different approach focused on mitigating the current health and migration problematics while trying to incorporate Latin American countries into the broader foreign policy agenda.
Some of the president-elect’s priorities will be the distribution of vaccines and the economic recovery, yet, Latin America might not be at the bottom of his to-do list. Biden knows the region far better than previous presidents as he took responsibility for the Americas in his second term as Obama’s Vice President.
As president, it’s likely that he will resume his previous aid programme and foreign policy regarding Central America with the intention to fight corruption and deter illegal migration through economic development. The coming administration will need to alleviate human suffering in Central America while developing a comprehensive regional plan to slow migration waves and help improve the situation in migrant’s home countries. The U.S. should return to a value-based foreign policy where programs strengthen governmental institutions and civil society. This is also the opportunity to reframe drug policy and focus on the harm that illegal drug trafficking inflicts on the continent’s governments. This renewed approach could help overcome scepticism about American commitments and provide a contrast to China’s model.
Prioritizing Latin American foreign policy can benefit both north and south. The region is the right location to build new supply chains, now that the U.S. needs to diversify its partners and to promote greener energy resources. There are significant carbon-free resources to exploit which can help advance environmental policies.
Sino-American geopolitical tensions seem to reduce the BRI to a yes or no question, but for the reasons explained above, Latin American countries do not see it as a zero-sum game. A pragmatic approach focused on meaningful engagement could prove more effective than simply following whatever Washington dictates. The region has much to gain and to lose from a program such as the BRI.
As the BRI moves beyond rhetoric, each country must explore all of the initiative’s implications and formulate their own BRI strategies, avoiding at all costs the debt traps, project-level risks, fiscal implications and competitive pressure on local firms that have caused pushback in other regions. Failure to do so could set back regional development.
A pragmatic and creative approach is needed to ensure that the Belt and Road Initiative provides benefits for the region. The extent to which the initiative can play out in Latin America’s favour depends on how national governments steer their projects, investments and loans towards long-term national development needs.
Bibliography:
Castañeda, Jorge G. Biden Can Inspire Latin America. A domestic transformation of the United States would have a tremendous impact in the region. The New York Times. November 2020.
Washington, John. We Need to Reverse the Damage Trump Has Done in Latin America. Biden’s Plans Don’t Cut It. The Intercept. April, 2020.
Belt and Road in Latin America: A regional game changer? Issue Brief. Pepe Zhang Atlantic Council Oct, 8 2019
China moves into Latin America. The Economist. Feb 3 2018
International Agreements in Progress: The trade pillar of the EU-Mercosur Association Agreement. European Parliament Think Tank. August 2019.
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