“Beijing is now the main trading partner for most nations in the region and has the fastest-growing stock of investments.”
On August 17, 2021, we published an article titled “The US Is Losing Power and Influence Even In Its Own Back Yard.” It was the first in a series of articles that have traced how China has gradually surpassed the US as South America’s main trading partner and has even begun chipping away at US economic dominance over parts of Central America, the Caribbean and, more recently, Mexico. From that initial article:
Unlike the US, China generally does not try to dictate how its trading partners should behave and what sorts of rules, norms, principles and ideology they should adhere to. What China does — or at least has by and large done over the past few decades until now — is to trade with and invest in countries that have goods — particularly commodities — it covets…
In Latin America and the Caribbean it has worked a treat. China’s rise in the region coincided almost perfectly with the Global War on Terror. As Washington shifted its attention and resources away from its immediate neighbourhood to the Middle East, where it frittered away trillions of dollars spreading mayhem and death and breeding new terrorists, China began snapping up Latin American resources. Governments across the region, from Brazil to Venezuela, to Ecuador and Argentina, took a leftward turn and began working together across various fora. The commodity supercycle was born.
China’s trade with the region grew 26-fold between 2000 and 2020, from $12 billion to $315 billion, and is expected to more than double by 2035, to more than $700 billion.
[Recent data suggest it is well on track to achieving that. In 2023, the total trade volume between China and Latin America reached a record $480 billion, according to China’s National Customs Administration]
In the last 20 years China has moved from an almost negligible position as a source of imports and destination of exports within the region to become its second trade partner, at the expense not just of the US but also Europe and certain Latin American countries such as Brazil whose share of inter-regional trade has fallen. According to the World Economic Forum, “China will approach—and could even surpass—the US as LAC’s top trading partner. In 2000, Chinese participation accounted for less than 2% of LAC’s total trade. In 2035, it could reach 25%.”
A Thousand-Word Photo?
The potential ramifications of China’s rise to dominance of South America, a region whose fortunes and resources have been largely controlled by Europeans and their North American descendants for the best part of the past 500 years, appear to be finally dawning on the West. The German broadcaster DW reported last week that “Alarm bells are ringing in the United States,” citing an article by Swiss newspaper Neue Zürcher Zeitung:
“As a supplier of raw materials, South America has great economic importance for China’s development. This is where 45 percent of the agricultural products traded on the world market come from. Meat and soybean exports are particularly important for the nutrition of the Chinese population. South America also supplies two fundamental minerals for the energy transition: lithium and copper. Two-thirds of the known lithium reserves and forty percent of the copper reserves are located in the region. Chile and Peru are the two largest copper producers in the world. (…)
Spain’s El País warned that the Asian giant is expanding its political and economic influence in the region, eroding the role of the West and putting Washington and Brussels on alert. The Financial Times appears to have reached the same conclusion. In a “Global Insight” op-ed on Wednesday, the pink paper’s Latin American editor, Michael Stott, averred that Joe Biden has lost to Xi Jinping in the “battle for Latin-America”:
“Beijing is now the main trading partner for most nations in the region and has the fastest-growing stock of investments.”
The article notes that Biden’s farewell trip to Brazil and Peru “epitomises Washington’s waning influence” in the region, citing photos from last week’s Apec summit in Peru and this week’s G20 meeting in Brazil as visual proof of that waning influence. In both photos Xi Jinping stands front and centre in the first row while Biden “lingers near the end of the back row in one picture and is absent from the other.” There are, however, official explanations for this that have nothing to do with the US and China’s relative strategic influence:
In the first picture at last week’s Apec summit in Peru, leaders stood in alphabetical order, which favoured China over a rival superpower starting with U. In the second, shot at this week’s G20 meeting in Rio de Janeiro, US diplomats said the group photo was taken early, before Biden had arrived.
As we can see in this photo of the 2016 Apec summit, also in Peru, Obama was also close to the end of the back row.
Nonetheless, as the op-ed notes, “the summit photographs serve as metaphors for the eclipse of the US by China in Latin America, a region that Washington used to call its backyard,” and which Biden has called its “front yard”, as if that were somehow better.
China Making Moves
A better illustration of the two rival superpowers’ sharply contrasting approaches in Latin America was on display last week at the opening of Peru’s Chancay megaport, at which Xi Jinping made a guest appearance. What was China’s paramount leader doing attending the inauguration of a Peruvian port? First, he was already in Peru to attend the Apec Summit; and second, Chancay is as much, if not more, Chinese than it is Peruvian since it is majority financed and owned by Chinese state-owned company Cosco Shipping.
This has raised questions about Peru’s sovereignty. From DW:
In 2021, the national port authority granted Cosco exclusivity to operate Chancay. When this clause was made public, there was a nationwide outcry in Peru.
In March of this year, the government asked the judiciary to annul this provision. (…) But in June, President Dina Boluarte backtracked under pressure from China and abandoned the request to annul the clause. At the same time, the Peruvian Congress adjusted the port law, so that exclusive rights are now allowed for Cosco.
With an estimated total cost of $3.6 billion, the half-finished port in Chancay represents one of the most important infrastructure projects China has spearheaded in the region. The first phase of construction has already cost $1.3 billion and the next five phases will see further investments of another $2.3 billion through 2032.
Chancay is the first port on South America’s Pacific coast that will be able to receive ultra-large vessels – which can transport more than 18,000 containers — and it is hotly tipped to become the main maritime node in Latin America, especially if China’s ambition to forge a new maritime-land corridor between China and Latin America bears fruit.
“China wishes, together with Peru, to use the port of Chancay as a starting point to create a new land and sea corridor between China and Latin America, connecting the Inca Trail with the 21st century Maritime Silk Road, and opening a path to shared prosperity for Peru and for the countries of Latin America and the Caribbean,” Xi said on Thursday during a bilateral meeting with Peruvian President Dina Boluarte, according to Chinese media.
The idea of building a land corridor connecting South America’s Pacific and Atlantic seaboards is hardly a new one. In fact, it has been on the drawing board since the late 19th century. In 2007, the then-heads of state of Brazil, Bolivia and Chile, Lula da Silva, Evo Morales and Michelle Bachelet, agreed to undertake efforts to build a land route connecting the Atlantic port of Santos (Brazil) with the Pacific ports of Arica and Iquique (Chile) or Port of Ilo (Peru) and expedite custom procedures along that route.
But progress has been sporadic. In 2013, Xi Jinping proposed the construction of a 3,755-kilometer-long Central Bioceanic Railway Corridor connecting Peru, Bolivia and Brazil, with the goal of improving the efficiency of international freight transport, optimizing export logistics and promoting regional integration. The project received fresh impetus in 2023 thanks to an agreement between the presidents of Bolivia and Brazil, Luis Arce and Luiz Inácio Lula da Silva, to reactivate this ambitious infrastructure initiative.
Where’s the US Marshall Plan for Latin America?
While Xi Jinping celebrated the opening of the Chancay sea port, the Biden Administration promised to deliver nine Black Hawk helicopters for a $65mn anti-drug programme. Peru, together with Ecuador and Argentina, recently signed an agreement with the US to intensify cooperation in the War on Drugs — a war whose real purpose it to maintain US geostrategic dominance in key, normally resource-rich regions of the world.
But that wasn’t all: Biden also announced the donation of second-hand diesel trains from California for the Lima metro system.
“It was such a striking contrast,” Michael Shifter, adjunct professor at Georgetown University, told the FT. “You have this huge Chinese mega-port project that evoked Peru’s history going back to the Incas and seeking greatness. And then what Biden delivered was some more helicopters for coca eradication. That seems completely outdated and stale.”
During his visit to Brazil, Xi discussed multibillion-dollar Chinese investments while signing a joint declaration with Luiz Inácio da Silva to raise the status of their countries’ bilateral relationship to a “Community of a shared future Brazil-China for a more just and sustainable world”. Likewise in Peru, Xi signed a declaration with President Dina Boluarte to upgrade their countries’ bilateral free trade agreement and express readiness to cooperate on large-scale infrastructure projects in accordance with their respective national laws.
The contrast with the US could not be starker. During his brief stay in Brazil, Biden announced a $50mn donation to a conservation fund. And that was about it. And this has been more or less the story of the past two decades of US interaction with Latin America. Even as Washington has grown more and more agitated about Beijing’s rising influence in its “back yard”, it has not come close to matching China’s economic footprint in the region.
A few months ago, General Laura Richardson, the now-retired commander of US Southern Command, called for a new Marshall Plan for Latin America in order to counter Chinese and Russian influence in the region. But beyond military helicopters and diesel trains, there is little to show for it. As Shifter told the FT, the Americas Partnership for Economic Prosperity, an initiative touted by Biden as an answer to Beijing, was “all dressed up very nicely. But when it comes down to committing real resources, there’s nothing there.”
In a recent interview, Ben Rhodes, Obama’s former deputy national security advisor for strategic communications, warned that Washington is rapidly running out of time to change its ways: “while the US is watching the Trump show, the rest of the world has moved on; they’re aligning around China or they’re neutral like Lula.”
This video is a must-watch. I rarely agree with @brhodes but he’s 100% correct here.
He says he’ll “always be haunted” by a comment that Xi Jinping made to Obama in 2016 when referring to Trump: “If an immature leader throws the world into chaos, the world will know who to… pic.twitter.com/DyKNQw1aPq
— Arnaud Bertrand (@RnaudBertrand) November 22, 2024
Even Argentina’s anti-communist, fanatically US and Israel-aligned President Javier Milei had a brief meeting with Xi on the side lines of the G20 summit, the outcome of which was a joint pledge from both leaders “to continue working on strengthening their [countries’] commercial ties and on the development of joint projects.”
“China expressed its interest in increasing trade with the Argentine Republic, while Argentina expressed its vocation to diversify and increase its supply of exports to the Chinese market,” said Milei’s spokesman Manuel Adorni after the meeting with the Chinese government, adding: “Both nations agreed to continue working on strengthening their trade ties and developing joint projects that benefit both economies.”
This is arguably one of the most impressive testaments to China’s rising influence in South America — the fact that a national leader who a year ago was calling the Chinese government “murderous” and was pledging to “never to do business with communists” just met up with Xi and pledged to expand trade with China. Milei, never one to worry about betraying his word to voters, was so pleased with the meeting that he posted a photo of him and Xi on his twitter account.
El Presidente Javier Milei se reunió con el Presidente de la República Popular China, Xi Jinping, en Río de Janeiro. pic.twitter.com/49uaV2nsia
— Oficina del Presidente (@OPRArgentina) November 19, 2024
Milei is also hoping that his close ties with Donald J Trump and his near-total alignment with US foreign policy will also yield economic dividends for Argentina, particularly with regard to Argentina’s foreign debt to the International Monetary Fund (IMF), where the United States has veto power as the majority member of the organization. Milei is also keen to sign a trade agreement with the US, but he is likely to be disappointed.
In his first presidency, Trump visited Latin America only once and that was to attend the 2018 G20 summit in Buenos Aires. By contrast, this was Xi’s third visit to Peru and the third time he had met with its President Dina Boluarte in a year.
If anything, a new Trump administration, with Marco Rubio installed as secretary of state, is likely to play the role of spoiler in the region — even more so than recent governments. As Matias Spektor of the Getúlio Vargas Foundation in São Paulo told the FT, there is little prospect of Trump boosting US trade and investment in Latin America. And if Washington cannot compete with Beijing on economic terms, it will instead try to make life more difficult for Chinese investors by pressuring Latin American countries to curb China’s presence while more generally stirring the pot in the region.
The Trump transition team is already talking about taking punitive action against Chancay. Mauricio Claver-Carone, an adviser to Donald Trump’s transition team, has proposed applying a 60% tariff to products from China and other Latin American countries that pass through the port. Claver-Carone cites two motives for taking such action: to address concerns that the port could become an entry point for low-cost goods from China, and to discourage Latin American countries from allowing the Chinese regime to build strategic infrastructure in their territories.
