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US and China: The Fight for Latin America

According to Robert Valencia, China is vying for greater economic influence in Latin America, to include possibly constructing and operating an alternative ‘Panama Canal’ through Nicaragua. One unanticipated consequence of this burgeoning US-China rivalry, Valencia observes, is that it might push Latin American countries closer together.
By Robert Valencia for World Policy Institute

During the first weekend of June, U.S. President Barack Obama and Chinese President Xi Jinping met in California to discuss cyber espionage and territorial claims in the Pacific Rim. While tension on these topics has hogged the headlines, the fight for influence in another area could be even more important—Latin America. Other emerging markets in Africa, where China has an overwhelming influence due to foreign direct investment in mining and oil, also offer economic opportunities, but Latin America has an abundance of natural resources, greater purchasing power, and geographic proximity to the United States, which has long considered Latin America as its “backyard.”

The key question now is will Latin American countries lean more toward China or the United States, or will it find a way to balance the two against each other? Right now, Latin American countries are increasingly confident thanks to burgeoning economic and political integration by way of trading blocs, and they’re demanding to be treated as an equal player.

As a sign of its growing importance, China and the United States have courted Latin America more than usual. In May, President Barack Obama visited Mexico and Costa Rica while Vice President Joe Biden visited Colombia, Brazil, and Trinidad and Tobago. Shortly after these trips, President Xi went to Mexico and Costa Rica to foster economic cooperation.

China’s active involvement in Latin American geopolitics can be traced back to 2009. Chinalco, China’s largest mining company, signed a $2.2 billion deal with Peru to build the Toromocho mine and a $70 million wharf in the Callao port. Since then, Peru has sent 18.3 percent of its exports to China, making China Peru’s largest trading partner. China’s imports to Peru, however, rank second with 13.7 percent of the market while the United States holds first place with 24.5 percent.

China has the upper hand with the Latin American leftist countries in terms of infrastructure and technology. In 2009, Chinese telephone manufacturer ZTE played an instrumental role in assembling the first mobile phone in Venezuela known as “El Vergatario” (Venezuela slang for optimal). Former President Hugo Chávez introduced this new phone to low-income families making it the world’s cheapest phone ($6.99 for a handset). Additionally, China landed rail construction projects in Argentina and Venezuela and has become a major buyer of farm products and metal in South America. Between 2011 and 2012, China purchased nearly 58.02 million tons of soy from Argentina, up from 52 million in 2011 and 2010.

China has also maintained an active market with Brazil. Chinese oil company Sinopec and China Development Bank offered Brazilian oil company Petrobras a $10 billion loan in 2009 in return for hundreds of thousands of barrels per day. In 2011, three Chinese metal companies purchased Brazilian mining company Companhia Brasileira de Metalurgia e Mineracao.

China’s boldest move in the region is the possible construction of a massive canal in Nicaragua. Nicaraguan President Daniel Ortega pushed the National Assembly to approve the multi-billion dollar plan in June. The Nicaraguan canal would have a larger draft, length, and depth than the Panama and Suez canals, and the enactment granted a Hong Kong-based company permission to build and control the canal for nearly 100 years. The approval of this plan, however, raised the ire of environmentalists and neighboring Colombia, which recently lost 70,000 square kilometers of its Caribbean maritime territory to Nicaragua before the International Court of Justice (ICJ). Last May, Colombian diplomat Noemi Sanin claimed that China had influenced ICJ’s decision. According to Sanin, Chinese justice Xue Hanqin knew beforehand about Nicaragua’s intention to grant the canal construction to China since Xue was a colleague of Carlos Arguello, a role-player in the maritime case. There is no evidence for this, but it shows Colombia’s anxiety of China’s growing clout in the region and how it can upset balances of power.

The United States hasn’t lost Latin America, and is unlikely to lose it completely. It is still the region’s top trade partner. The United States has recently signed free-trade agreements with Colombia and Panama, and maintains other trade agreements with Peru, Chile, and Mexico. Central American and several Caribbean countries rely upon U.S. military cooperation in an attempt to curtail drug trade. Nevertheless, the post 9/11 years severely eroded U.S.-Latin American relations as the Bush administration focused heavily on the war on terror, often ignoring issues in Latin America.

China and the United States are also encountering a more confident and more unified Latin America. It is a region that has sought autonomy in its own affairs by way of rising blocs such as the Community of Latin American and Caribbean States, MERCOSUR, and the Bolivarian Alliance for the Americas (ALBA), among others. Brazil, Latin America’s largest economy, also seeks a prominent role the region with large investments in research and development and the introduction of social programs to revamp the middle class. Brazil has jumped into the global economic debates, calling out China, the United States, and other industrialized countries over the so-called “currency wars.” In 2010, Brazilian Finance Minister Guido Mantega criticized these nations for policies that weakened exchange rates that in turn affected the real currency value and Brazilian exports. Since then, Brazil has pursued a more significant role among the world’s 20 most advanced countries known as the G-20.

Both the United States and China use infrastructure investment, diplomacy, and trade as leverage, but Latin America wants to be seen as a socioeconomic partner, not a subordinate. The Pacific Alliance, for example, hopes to become a powerful bloc that can stand up to the world’s two super powers. Comprised of Colombia, Peru, Chile, Costa Rica, Mexico, and possibly soon Panama, the Pacific Alliance is a new economic bloc that seeks economic integration oriented toward Asia-Pacific markets. Additionally, the Pacific Alliance can become a springboard for other Latin American nations with a Pacific shore to join the Trans-Pacific Partnership (TPP), a proposed free-trade agreement among Asia-Pacific, Mexico, Peru, Chile, Canada, and the United States. Being part of the Pacific Alliance is significant, because for countries like Costa Rica, it would otherwise be an unlikely candidate for the TPP. Taken together, the Pacific Alliance’s GDP totals $3 trillion, making it easier to integrate itself to the TPP and for it to fight for better terms. The United States will still hold the lion’s share of the TPP with an economy that hovers around $13 trillion—but an alliance worth $3 trillion will give it more leverage than it would otherwise have. The battle for influence in Latin America may have the effect of pushing the countries closer together, allowing them to stand up to both the United States and China.

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