How Latin America Can Make the Most of the US-China Competition

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How Latin America Can Make the Most of the US-China Competition

As a theater for great power confrontation, Latin American states can leverage influence and shape relations with both powers.

How Latin America Can Make the Most of the US-China Competition

Panama President Juan Carlos Varela Rodríguez poses for photographers before an investment conference in Hong Kong on April 2, 2019.

Credit: AP Photo/Kin Cheung

Their considerable economic potential and prospects for political alliances provide Latin American states with key elements that can alter the current power equilibrium. Together, through active engagement in regional multilateralism and by avoiding the trap of choosing between the United States and China, Latin American states can capitalize on these opportunities.

U.S.-China ties, described as one of the most important bilateral relationships in the world, reached their lowest point in decades under the Trump administration, whose accusations of unfair trade policies, theft of intellectual property, and civil rights abuses resulted in the mutual imposition of tariffs on goods. In the midst of it all, Latin America unwittingly became a theater for these confrontations. For instance, the U.S. Senate recently discussed a bipartisan bill aimed at improving the U.S. economic engagement with Latin America and Washington’s diplomatic presence there, partly to address China’s  activities in the region, which the bill described as a “growing malign influence” in the Western Hemisphere. The proposed legislation came after the imposition of U.S. sanctions on Hong Kong’s Chief Executive Carrie Lam and 10 officials of the Chinese Communist Party (CCP) was countered by Beijing-imposed sanctions against 11 U.S. figures, including bill sponsors Senators Marco Rubio and Ted Cruz. However, the Senate’s proposals were not mere retaliation. They reflected a growing realization that the U.S. is no longer the dominant external power in Latin America. Its general neglect and a historically reactionary and inconsistent foreign policy toward the region have led to a situation in which U.S.-Latin America ties are only superficially cordial.

At the same time, China has reportedly provided over $141 billion in loans to Latin American states since 2005, surpassing the annual lending from U.S.-led financial institutions, and the Belt and Road Initiative now involves 19 states in the region. China’s reach and influence in Latin America has thus widened considerably, and this has geopolitical ramifications given that China now has greater economic influence in the region than any previous contender for global leadership.

In a telling example, in March 2020, the U.S. rejected Venezuela’s request for financial aid to tackle the COVID-19 pandemic based on its non-recognition of the Maduro government. The incident demonstrated the long-standing volatility and political conditionality of U.S. policy in the region, while China stepped in and provided medical assistance.

The U.S. now finds itself in a position where it can no longer expect to automatically restore its power and influence in Latin America just by increasing its economic and diplomatic presence in the region. Nor can it expect Latin American states to cut their ties with China. With the annual value of Sino-Latin American trade expected to reach $500 billion by 2025, China is in the region to stay.

For Latin American states, it could be time to adopt a more Machiavellian approach to foreign policy. According to “The Prince,” world affairs are not dependent on “divine intervention,” but should be understood as the product of strategic human agency. Both the U.S. and China are often attributed a similar “divine” omnipotence vis-à-vis Latin America. For instance, the U.S. has been identified as the region’s best option for getting out of the pandemic, while China has been called the continent’s “white knight.” Such images of the two great powers could increase the pressure on Latin American states to choose between them, especially given the circumstances of their mutual disagreements. This sentiment became strongly evident in 2018, when the Dominican Republic, El Salvador, and Panama switched diplomatic recognition from Taiwan to China, causing the U.S. to recall senior diplomats from those countries in response. While such pressure is excessive, tense U.S.-China relations, in combination with renewed commitments to regional multilateralism, could provide Latin American states with a number of strategic opportunities.

The Trump administration’s repeated rejection of multilateral institutions has not only severely damaged U.S. credibility as a multilateral partner, but also reduced the likelihood that it could either salvage old global alliances or establish new ones. It is highly probable that repairing multilateralism will be a key feature of the incoming Biden administration, but the U.S. will have to depend on Latin American states in seeking to re-establish such dynamics. Chinese economic ties with states throughout Africa and Asia have largely corresponded with a political realignment of voting patterns in multilateral forums, and Latin American votes could therefore be decisive in colliding issues between the two powers.

This will be of heightened importance where such a realignment risks undermining global efforts to protect human rights. As theaters for great power confrontation, Latin American states can leverage influence and shape relations with both powers. For instance, the prospect of a Chinese military base in Argentina could be a bargaining chip with the U.S., while the hint of Latin American votes to support the U.S. position on the South China Sea issue might yield less asymmetrical post-pandemic relations with China. In this way, Latin American states can gain a sense of agency and seek to disengage themselves from the repercussions of great powers efforts to establish hegemony.

In economic terms, the Trump administration’s self-proclaimed trade war put China’s food security at risk, resulting in increased Chinese demand for Latin American agricultural products. This in turn brought a welcome debt-free influx of capital to the region. Especially South America stands out as an alternative source of imports of tariffed products such as soybeans and soybean derivatives. Globally, Brazil and Argentina are the first and third largest soybean producers, respectively, while China remains the largest importer.

In this regard, Latin American states can go a step further and use their agricultural advantage to negotiate their comprehensive integration into the Made in China 2025 strategy – a Chinese industrial policy aimed at expanding and developing China’s high-tech manufacturing on a global scale. Latin American states stand to win big from being included in this large-scale cooperation on production, which would result in a natural transfer of technology and know-how. These elements would in turn push the region further toward innovation and development in different areas. China still needs to secure the relevant value chains for this project, and therefore also stands to gain from Latin American participation. This would allow Latin American states to interact with China as a true strategic partner, rather than on a competitive basis, which is significantly more disadvantageous.

At the same time, U.S. tariffs imposed in connection with the trade war have made certain Chinese products more expensive and consequently their Latin American equivalents more competitive for the U.S. This presents an opportunity for U.S. companies to “nearshore” manufacturing to Latin America, which would advance not only the region’s industrialization efforts, but also its long-term development prospects. Moreover, an increased supply of Latin American manufactured goods to the U.S. would reduce U.S. dependency on Chinese supply chains and increase the region’s importance and bargaining position, especially in the light of the fact that 11 of the 20 current top U.S. foreign trade partners are Latin American states.

Meanwhile, the reality is that a change of U.S. administration will not end the trade war. Even if President-elect Joe Biden puts in place a less confrontational foreign policy than that of his predecessor, disputes over technological hegemony will continue in an era of increasing competition between China and the U.S. As became evident with the Huawei controversy, this could lead both great powers to make requests of other states or even coerce them into taking sides. The European Union (EU) has gone so far as to emphasize its “strategic autonomy” in adopting policies, rather than choose between China and the U.S. Interestingly, in this regard, Germany has sought technological collaboration with Latin American states in order to “link digital networks with political ones.” This has further enhanced Latin America’s global influence and might eventually locate the region at the axis of global politics, which could lead other states and regions to regard pursuit of a future alliance with Latin American states as a fruitful endeavor.

Thus, the best bet for the region will be is to deal and negotiate with both China and the U.S. in a triangular fashion. The U.S. presence remains strong in some parts of the region, such as the Caribbean, Mexico, and Central America. In others, such as in Cuba and Venezuela, the presence of China is considerable. Along the way, this approach to foreign policy might spearhead the forging of new partnerships, such as with the EU. Latin America is in a very good geostrategic position to strengthen its regional multilateralism and construct favorable long-term policies that are able to withstand great powers’ temporal whims. In times of global restlessness and contingency, Latin America’s best option will be to flexibly engage in strategic hedging.

Paola Zuleta is a research associate at Swedish Defence University.