China Power | Diplomacy | East Asia

Lula and Latin America’s Great China Debate

Great power competition is increasingly playing out in Latin America, even as Brazil’s new president seeks a return to regional unity. 

Lula and Latin America’s Great China Debate

Brazilian President Luiz Inacio Lula da Silva gestures at the government house in Buenos Aires, Argentina, as he gives a joint statement with Argentina’s President Alberto Fernandez, Monday, Jan. 23, 2023.

Credit: AP Photo/Gustavo Garello

Early this month, Argentina hosted the CELAC summit, marking Brazil’s return to the forum with the attendance of President Luis Inácio Lula da Silva. However, the summit fell woefully short of indicating the return of a common regional agenda for the Latin America and Caribbean (LAC) countries.

Over the past few years, multilateralism and regionalism have been losing the ability to bring nations together around common issues, and countries have increasingly focused on their national interests and priorities. The COVID-19 pandemic catalyzed this process, especially given the uncoordinated and individualized responses to the health crisis.

This poses a new challenge for Brazilian diplomacy. Former President Jair Bolsonaro left the country internationally isolated; the LAC was no exception. Even though Brazil returning to CELAC signals a desire to pull nations back around a common regional agenda, the design and implementation of such policy will be very difficult.

Regional Cooperation at Odds Over China

In 2003, Lula promised to strengthen Mercosur, and he intends to do so again under his new term. But the president will face many hurdles, including rising frustration among some of the bloc’s members (notably Uruguay).

There are also rising regional tensions between Peru, Argentina, Bolivia, Colombia, and Mexico due to the recent impeachment of Peruvian President Pedro Castillo in December 2022. Castillo was impeached and imprisoned after the unsuccessful  attempt to dissolve Congress in December last year. Vice President Dina Boluarte currently rules in his place, relying on the use of violent repression to quell pro-Castillo protesters demanding immediate elections.

In Uruguay, the far-right president, Luis Lacalle Pou, has on more than one occasion issued harsh criticisms of Mercosur. In Lacalle Pou’s view, the bloc needs to become more favorable to the free market because, otherwise, Uruguay will have enormous difficulties in opening up to the world. This disagreement occurs as Lacalle Pou seeks a free trade agreement (FTA) with China, which is already in negotiations.

It should be noted that Article 1 of the Mercosur constitution, the Asuncion Treaty, stipulates that all Mercosur members must adopt a common external tariff and commercial policy with third countries or groups of countries. Even aware that such an FTA would be a possible violation of the treaty, the Uruguayan president has shown no fear about proceeding with negotiations with China.

In the wake of the recent CELAC meeting, Lula visited Montevideo and highlighted that an agreement between Mercosur and China would be considered, but not so quickly, suggesting that the negotiations would be much more cautious than Uruguay would like. Although Lacalle Pou said that the meeting with Lula generated optimism, this does not mean Uruguay will interrupt its own negotiations with China.

Meanwhile, Brazil’s armed forces have expressed deep concern about Argentina’s strategic rapprochement with China, highlighted by the presence of China’s military space station in Patagonia. It should be noted that China overtook Brazil as Argentina’s main trading partner in 2021.This issue is unlikely to be resolved by a friendly relationship between Argentine President Alberto Fernandez and Lula alone.

As tensions between Washington and Beijing are set to rise and spill over into other areas such as technology, finance, and security, they also risk hampering the debate over Latin America’s future role. Opinions across countries differ about how to position the LAC in the context of global competition between the United States and China.

Argentina was the first major economy in Latin America to join the Belt and Road Initiative, a strong signal that its interests find more common ground in China than in the region.

Lula’s Mixed Signals Toward Europe and China

Lula’s return to government provides an opportunity for Brazil to return to its past engagement in major global issues. The readiness of major international leaders to congratulate Lula after the election result demonstrates how anxiously the international community awaited Brazil’s return to the board of major global discussions.

Lula was quick to reactivate the Amazon Fund, which was paralyzed after two of the main donors, Germany and Norway, suspended transfers to the fund during Bolsonaro’s tenure. The loss of around $283 million at that time now seems set to be compensated, as Germany announced the donation of 193 million Brazilian reals to the fund, which was followed by the visit of the country’s chancellor, Olaf Scholz, to Brazil this week.

There is a huge opportunity to restore the Mercosur-EU FTA talks on this occasion, furthered by Lula’s signal that the bloc should prioritize Europe before engaging in substantive talks with China on an FTA. Negotiating with Europe also seems to be a strategic card for Brazil to gain more time by keeping Argentina and Uruguay within the Mercosur framework. If successfully established, the agreement could strengthen unity among the member countries and increase the costs of leaving Mercosur.

A closer look at China’s role is inevitable under these circumstances. Even though Beijing has not explicitly expressed a negative reaction to this matter, the LAC cannot ignore the fact that since the mid-2000s, China has become an exogenous factor complicating the development of South American integration. China is directly affecting Brazilian interests in the region and the efforts of neighboring countries toward existing regional projects, just as it also implies changes in relations with the United States and Europe.

The growing Chinese commercial activity in the region has been causing internal trade displacement. Trade relations between South American countries have remained constant or even declined, while trade between all South American countries and China has increased. The implication is that China is replacing other trade partners – including the regional partners themselves.

The Chinese trade flow with Mercosur members has increased strongly over the last 10 years, especially with regard to the level of imports. It can be safely stated that, in terms of competitiveness and improvement of industrial and technological processes, China has worked hard to surpass any other competitors – and the Mercosur members are no exception.

Among some European politicians, there is a fear that, without a trade agreement with the largest economies in South America, the region could be the target of an even greater offensive by China. A failure by Brussels to forge an alliance with South America would leave the region open to greater commercial and political influence by Beijing.

China is already Brazil’s biggest trade partner, and threatens to displace European companies from a market that is considered traditional for exports from Germany, France, Spain, and other European countries. In 2022, the Brazilian trade map revealed this new political reality: China was the destination for 27 percent of all Brazilian exports.

Another European interest is to consolidate the strategic alliance with South America, as part of the construction of a more balanced international scenario that can ease the hegemony competition between the United States and China.

Brazilian Foreign Minister Mauro Vieira is scheduled to visit Beijing next March, and China expects nothing more than priority in Asia – especially with talk of the possibility of Vieira visiting India first.

Four years of diplomatic neglect and backtracking under Bolsonaro have left Brazil’s role in Latin America weakened and uncertain. Throughout his term, Bolsonaro sought to strengthen relations with countries of the same political ideology, positioning Brazil in a very different way than before. Lula’s return to office raises expectations of the resumption of regional and international relations.

As foreign policy is a two-way street, the new government should anticipate and assimilate possible gains in international relations, particularly from great power competition, and work to convince internal sectors that Brazil’s international engagement will have positive results, especially in the immediate regional environment.

Undeniably, Mercosur members have recently come to be considered by the Chinese as strategic partners. However, they are seen individually – rather than as part of an economic integration bloc – and the investments made and scheduled are based, solely and absolutely, on the strategic supply interests of the Chinese state. This opens space for the countries in the region to be very pragmatic, balancing between Chinese and European interests. The legacy of previous mandates, in which Brazil was a natural and active regional leader, seems to qualify Lula for this task, but it is far from serving as a model to be replicated at the moment.

The author would like to thank Franco Alencastro and Pedro Mendes Martins for providing insights.