Latin America pivots to China on trade and development

By: | Issue #650 | at 08:00 AM | Channel(s): International Trade  

As the U.S. goes it alone, China steps into the void.

The Belt and Road Forum that took place in Beijing last month included among its attendees two leaders that roused international curiosity: President Mauricio Macri of Argentina and President Michelle Bachelet of Chile. A couple of months before that event took place, Chile and Peru were among seven new members approved by China to join the Asian Infrastructure Investment Bank.

The Belt and Road initiative is generally understood to be a massive program being undertaken by Beijing to improve intra-Asia infrastructure connections as well as those between Asia and Europe on the model of the ancient Silk Road. The Asian Infrastructure Investment Bank (AIIB) is a multilateral financial institution initiated by China to support the building of infrastructure in the Asia-Pacific region.

Given recent developments, it would appear that these programs may have dramatically expanded their reach, or are about to. But the converse is also true: Latin American economies are increasingly looking to China for leadership on trade and development.

Secondary Impact of TPP Withdrawal

The reasons are not mysterious and can be summed up in a single word: Trump. One of the new president’s first acts was to withdraw the United States from the Trans-Pacific Partnership (TPP), providing a clear sign that the US was retreating from leadership in the Asia-Pacific and creating a vacuum that China was happy to fill. Meanwhile, the smaller economies of Latin America, adrift without their US anchor, were easily sucked into that vacuum.

The implications of these shifts extend way beyond trade to the geopolitical structures that have prevailed in recent decades. “In many ways, TPP was more than a trade deal,” said Antonio Hsiang, Professor and Director of the Center for Latin American Economy and Trade Studies at the Chihlee University of Technology in Taipei. “It was a key strategic maneuver.”

Indeed, TPP was a central aspect of former President Obama’s foreign policy, as he pivoted away from the quagmires of the Middle East and turned his attention to Asia to counter China’s expanding influence in that region. TPP, as Hsiang said, wasn’t only about trade—it was also about preventing China from getting too big for its britches geopolitically. At the trade level, TPP was meant as a tool to prevent China from writing the rules of regional and global trade. With the US out, it should come as no surprise that our smaller neighbors to the south are looking to China for leadership and help.

Latin American countries didn’t take long to read the handwriting on the wall. The Pacific Alliance, a free-trade group comprising Chile, Colombia, Mexico, and Peru, hosted ministerial meetings in March with the TPP nations and China, Colombia, and South Korea, to send a message, according to Chilean Foreign Minister Heraldo Muñoz, that “multilateral trade and Pacific integration is alive and kicking” with US participation or not.

Meanwhile, in early May, trade officials from every signatory country of the Trans-Pacific Partnership—other than the United States—met in Toronto to discuss the future of the international trade accord. If the talks go forward it could mean that the TPP will come into force even without the US and possibly even provide room for China to join. China could also use its leverage to link the TPP nations with the Regional Comprehensive Economic Partnership (RCEP)—an initiative that lowers tariffs and non-tariff barriers among the ten ASEAN members plus China, Japan, South Korea, India, Australia, and New Zealand—to form a 20-nation trading bloc that excludes the United States.

That countries like Peru are drifting into China’s orbit shouldn’t be surprising: China has been Peru’s number one trading partner for a few years now. After Peru’s president Pedro Pablo Kuczynski took office last year, he chose to make his first foreign trip to Beijing, not Washington.

Strategic Leverage

But now countries tied intimately to the United States economically, specifically Mexico, are also pivoting eastward. Mexico recently sent a high-level trade delegation to Beijing, where the country’s economy minister was quoted as saying that “we will use the China visit geopolitically as strategic leverage” against the US. “It sends the signal that we have many alternatives.”

Although the new administration may have helped the process along, it’s worth noting that China’s presence in Latin America is not new. Beijing has been using its growing trade and financial might to challenge the global architecture the US has dominated since the end of World War II.

“Beijing sees developing its own alliances through trade and loans as an important way to counterbalance US influence,” said José Cárdenas, a director with the international consultancy Vision Americas, “and to secure support in multilateral forums on such important issues to Beijing as human rights, climate change, and economic governance.”

Latin America is not now officially part of Belt and Road but that may change given Peru and Chile’s membership in the AIIB. China claims that Belt and Road is open and inclusive and that all are welcome to participate.

Chile’s president Michelle Bachelet spoke openly about the potential benefits to Latin America from membership in the Chinese infrastructure program. “We think there are a lot of projects that can link Asia with or through Latin America,” she was quoted as saying, while attending the Beijing forum in May. Chinese investments in the region could include tunnels and highways across the Andes Mountains and ports to link South America to Asia. Latin America’s regional infrastructure is also in need of investments. (See sidebar on page 4)

Bachelet said she spoke to Chinese officials about investing in a transpacific optic fiber cable to improve digital connectivity between Asia and Latin America. The cable could be considered a part of Belt and Road, Bachelet said, “transforming the Pacific Ocean into a bridge between our regions.”

In the past decade, China’s two biggest development banks provided $125 billion to Latin America—more than the combined total lending of the World Bank and the Inter-American Development Bank. So it is not surprising that China is drawing Latin American countries into its economic orbit. What should be surprising is that the US has been so imprudent as to shove Latin American countries in that direction.

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American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.