The looming U.S.-China rivalry over Latin America

By Gary Regenstreif
June 12, 2013

President Barack Obama meets with Chinese President Xi Jinping (L) in California, June 7, 2013. REUTERS/Kevin Lamarque

Though the U.S. and Chinese presidents heralded a “new model” of cooperation at their weekend summit, a growing competition looks more likely. The whirlwind of activity before President Barack Obama met with President Xi Jinping in the California desert revealed that Beijing and Washington’s sights are set on a similar prize — and face differing challenges to attain it.

Their focus is Latin America and the prize is increased trade and investment opportunities in a region where economic reforms have pulled millions out of poverty and into the middle class. Latin America is rich in the commodities and energy that both China and the United States need, largely stable politically and eager to do deals.

Consider the travel itinerary: Obama visited Mexico and Costa Rica last month. Vice President Joe Biden recently went to Colombia, Trinidad and Tobago and Brazil. Chile’s president paid Obama a visit last week, Peru’s leader arrived Tuesday and Brazil’s is due in October.

Meanwhile, just after Biden left Trinidad, Xi arrived, part of a tour that also took him to Costa Rica and Mexico to promote trade and cooperation.

Both U.S. and Chinese officials, however, are finding a more self-confident Latin America, able to leverage its new strength to forge better agreements and find multiple trading partners. That will likely force Washington to work harder to maintain its leading trade position against China — which has money to burn in the region.

“There is a more energetic [U.S.] tone, a more optimistic mood about economic agenda in second term than [the] first time,” Michael Shifter, president of the Inter-American Dialogue, a Washington policy group, told me. “There’s something happening in the region and the U.S. wants to be part of it. Whether there’s a well-thought-out vision or policy remains a question. But there is more of an affirmation of the region and a willingness to engage.”

The United States, Latin America’s largest trading partner throughout much of its history, still retains this position. Washington has now signed free trade agreements with more than a third of the hemisphere’s nations and annually exchanges more than $800 billion in goods and services with Latin America — more than three times the region’s commerce with China.

In Obama’s first term, however, the administration was widely viewed as neglecting Latin America. And China has moved in fast.

China built its annual trade with the region from virtually nothing in 2000 to about $260 billion in 2012. In 2009, it overtook the United States as the largest trading partner of Brazil, the region’s powerhouse — largely through massive purchases of iron ore and soy.

Other data is telling: In 1995, for example, the United States accounted for 37 percent of Brazil’s foreign direct investment. That dropped to 10 percent in 2011, according to the Council of the Americas, which seeks to foster hemispheric ties.

Washington’s renewed ardor is at least partly because of the fear that China will repeat in Latin America the economic success it has built in Africa. China has been able to present itself as a benevolent partner there, which has played well against the West’s history of meddling in domestic affairs.

“It’s about influence and leverage,” said Eric Farnsworth, vice president of the Council of the Americas, “…The region matured and expects to be treated in real partnership rather than [in the] patronizing way it happened in the past.”

The challenges facing Beijing and Washington lie in how each approaches the region. Washington confronts lingering resentment about its historic regional interference, stretching back to the 1823 Monroe Doctrine, and its continuing desire to mix business with policy — which muddies its approach to trade and investment. Washington’s domestic problems, its pivot to Asia and a host of global crises, also serve as distractions that could keep its actions in Latin America from matching its words — as has happened before.

China, meanwhile, is largely viewed in the region as unencumbered by ideology. It approaches opportunities almost exclusively on commercial terms there.

Biden, in a May 29 speech in Rio de Janeiro, gushed about the progress made by Latin America and trumpeted the region’s growing international stature.

“In the U.S.,” Biden said, “the discussion is no longer what it was when I was first elected as a young man: What could we do for the Americas? That’s long since gone. The issue now is: What can we do together? We want to engage more. We think there’s great opportunity. We’re optimistic.”

As with many new starts, a recognition of past mistakes is in order. “For many in Brazil,” Biden said, “the United States doesn’t start with a clean slate. There’s some good reason for that skepticism. That skepticism still exists and it’s understandable. But the world has changed. We’re moving past old alignments, leaving behind old suspicions and building new relationships.”

China has particular interest in Mexico, the region’s second-largest market. Beijing has been competing with Mexico to supply the U.S. market with manufactured goods. But China is now looking to work with Mexico City — investing in infrastructure, mining and energy because of the expected reforms that would open the oil industry to foreign investment.

There are obstacles ahead. One irritation that President Enrique Peña Nieto shared with Xi is that though Mexico posted a trade surplus with its global partners, it ran a big deficit with China.

China is looking for even more however. It is eager to pursue a free trade agreement with Mexico, but Mexico City said last week it was too soon. Meanwhile, Mexico’s trade with the United States continues to flourish and it is due to displace Canada as the largest U.S. trade partner by the end of the decade, according to the Dialogue.

China is also considering joining negotiations for the Trans-Pacific Partnership agreement, which aims to boost trade among the Americas, Asia and Australia. The talks include the United States, Canada and other major economies on the Pacific rim.

Each superpower also brings baggage to the region. Washington still seeks to exert pressure on its partners. It has told Brazil, for example, that it has the responsibility to use its leverage with others, such as Iran. Meanwhile, “Chinese investment,” Farnsworth said, “doesn’t always bring with it good governance practices or anti corruption or environmental concerns.”

The different approaches suit Latin America just fine as it looks for continued growth. “Latin Americas welcomes being courted by both superpowers,” Shifter explained.

Just as Latin America doesn’t want to rely too much on the United States, it also now doesn’t want to depend too much on Beijing, particularly in light of the China’s current economic slowdown.

“It gives them options,” Shifter said about the different dynamics in play. “The U.S. relationship comes with more complications. The Chinese one comes strictly on the economic question. They’re very targeted, strategic in areas they want to support. They have a specific agenda. The U.S. agenda is more diffuse. Latin America welcomes both.”


PHOTO (Insert A): China’s President Xi Jinping (2nd L) and his Mexican counterpart Enrique Pena Nieto (2nd R) shake hands as China’s first lady Peng Liyuan (L) and Mexico’s first lady Angelica Rivera look on, at the archaeological site of Chichen Itza in Mexico, June 6, 2013. REUTERS/Victor Ruiz Garcia

PHOTO (Insert B): Vice President Joe Biden visits the Santa Marta slum in Rio de Janeiro, May 30, 2013. REUTERS/Victor R. Caivano/Pool



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