Politically, economically and geopolitically, the sands are shifting in Latin America — and not in Washington’s favor!
If you’re trying to win the hearts of minds of millions of people living in countries neighboring your own, many of which your government has not exactly treated well over the decades, it’s probably not a good idea to call them corrupt. Yet that is exactly what the head of US Southern Command, Admiral Craig Faller, did last week. In an interview with Politico on Friday, he accused China of taking advantage of widespread corruption in Latin America to further its own interests (not that this is something the US would ever do or has ever done):
PRC state-owned and private businesses often exploit pervasive corruption in the region to undermine fair contracting practices and circumvent environmental compliance. A common tactic they use is to provide lucrative pay offs to local officials in exchange for favorable deals.
To be sure, there are legitimate aspects of these activities that provide needed investment to a region still recovering from the impact of Covid-19. It’s incumbent on all of us to forge a way ahead that recognizes the important role [China] can play as part of a rules-based international order.
But here is the friction: The PRC does not seek fair competition based on rules. It seeks to create dependencies, not trusted partnerships. Through its deepening economic ties and coercive influence, Beijing is vying for key support from regional partners on U.N. votes and backing for Chinese appointees to multinational institutions. Ultimately, Beijing wants to create a global system in which authoritarian regimes are viewed as legitimate forms of governance. A system where the rule of law, human rights and free speech are stifled. A system where international norms are manipulated for its own benefit, and it’s happening now.
Obviously, the rules-based system of which Faller speaks is the current one in which the US remains top dog and gets to dictate the rules. By gaining more influence within that system by ramping up its public diplomacy — and in return gaining “key support from regional partners” — the Chinese are breaking not only rules but the spirit of the game, especially if they are paying off local officials in exchange for favorable deals (something the US would never dream of doing).
While Faller may bemoan Beijing’s predilection for authoritarian regimes, the reality is that no country has done more to undermine and ultimately topple democratically elected sovereign governments in Latin America (and elsewhere) than the US. In the past 12 years alone Washington has supported two successful military coups in the region, one in Honduras in 2009, the other in Bolivia in 2019.
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, including, it now seems, Taliban-controlled Afghanistan.
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 neighborhood 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. 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 Case in Point: Peru
When Pedro Castillo was finally named president of Peru after almost two months of delaying tactics by his opponent Keiko Fujimori, one of his government’s first acts was to arrange a sit down with the Chinese ambassador and executives of two of China’s largest mining firms, both with multi-billion dollar interests in Peru. Among the topics under discussion was the option of strengthening Peru’s free trade agreement with the East Asian superpower.
“At present, technical teams of Peru and China are working, through virtual means, on the optimization of the FTA between both countries,” said Roberto Sánchez, Peru’s Minister of Trade and Tourism, adding: “Bilateral relations with China are extremely important”.
China is already Peru’s biggest trading partner and has been since 2014. Around 30% of the Andean country’s exports go to the Asian giant. And that number is growing fast: the volume of Peru’s exports to China increased by 38% year on year between January and March.
Chinese companies have poured just over $10 billion into Peru’s mining sector, according to government data. Peru’s new government has talked about raising taxes on the biggest mining companies, including Chinalco and Shougang Hierro Perú. That has not gone down well in Beijing. Hong Kong-based COSCO Shipping Ports Ltd is also building a huge port in Chancay, just north of the capital Lima, with a total investment of $3 billion. There are also ambitious plans for a transcontinental railway linking South America’s Atlantic and Pacific coasts from Brazil to Chile.
Peru is the second largest recipient of Chinese investment in South America, accounting for 21% of the total dispensed over the past 14 years. The only country to have received more is Brazil, accounting for 47% of all the money invested by the Chinese government and companies in the region. That works out at a total of $66 billion, just under half of which went toward financing energy projects.
Reaping the Dividends of Vaccine Diplomacy
A couple of days after his meeting with the Chinese ambassador and mining executives, Peru’s President Pedro Castillo received the first of two doses of China’s Sinopharm vaccine. He called on the Peruvian people to do the same as the country’s public health authorities prepare to ramp up their inoculation program.
It is an example of how China is reaping the dividends of its vaccine diplomacy, including in Washington’s own backyard. Earlier this month, Beijing announced that Chinese vaccine developers had provided over 230 million vaccine doses to 18 countries in Latin America, including Brazil, Mexico, Argentina, Chile and Peru, mostly through exports. In a virtual press conference with international press agencies, the director general of International Foreign Economic Affairs, Wang Xiaolong, said that China has so far provided 700 million doses to over 80 countries — “more than all other countries combined.”
While China was flooding Latin America with vaccines, Pfizer, one of three US vaccine makers whose product has been granted emergency use authorisation, was essentially shaking down countries in the region, demanding that they put up sovereign assets, such as federal bank reserves, embassy buildings and military bases, as insurance against the cost of any future legal cases involving Pfizer BioNTech’s vaccine. As I wrote for NC at the time, Pfizer’s bullying tactics put off some countries, including Brazil and Argentina. This opened up a rich vein of opportunities for other vaccine makers. Since then, Pfizer and Moderna vaccines have been made available through the GAVI Alliance’s COVAX scheme. Some countries in the region are planning to use the doses as booster shots.
China’s covid-19 diplomacy does not end with the vaccines. By late October last year, it had provided over 179 billion masks, 1.73 billion protective suits and 543 million testing kits to 150 countries and seven international organizations around the globe, reports TIME magaizne.
“The pandemic has opened up a diplomatic opportunity that China did not have before,” says Benjamin N. Gedan, a former South America director on the White House’s National Security Council. This has not gone unnoticed by Washington; the U.S. State Department’s J-Bureau – responsible for “elevating and integrating civilian security in U.S. foreign policy” – has been analysing China’s mask diplomacy to decipher where Beijing is attempting to gain influence, sources involved told TIME magazine.
Shifting Political Sands
China is not quite supplanting the US in Latin America just yet — the US is still top dog, particularly in Central America and the Caribbean — but it is eroding its influence. And the political sands in the region are not exactly shifting in the US’ favor right now. Even historically closely aligned countries such as Peru and Mexico are now governed by people and parties that are somewhat less disposed to US influence.
Mexico’s President Andres Manuel Lopez Obrador (AMLO for short) has banned GMOs from domestic consumption despite US protestations. His government has declared war on obesity and the processed food and sugary drinks companies that are fuelling it; it has demanded that large corporations, including American ones such as Walmart, settle their decades-long tax debts with the Mexican state; it has rolled back some of the sweeping energy reforms unleashed by AMLO’s predecessor Enrique Peña Nieto; and it even provided material support to Cuba during its recent travails.
Now, the AMLO government is suing US gun makers for contributing to illegal arms trafficking, which the government says has fuelled thousands of deaths in Mexico’s drug wars. A few weeks ago AMLO even called for the replacement of the Washington-based Organization of American States (OAS) with an institution that is not beholden to any one country (i.e. the US).
In the next 15 months general elections will take place in three of South America’s biggest economies: Brazil, Chile and Colombia. For the moment it’s impossible to predict who will win but there will almost certainly be plenty of drama.
Colombia just witnessed its biggest protest movement in living memory, which forced the government to withdraw plans to raise taxes on the country’s struggling middle classes and to hike taxes on businesses instead. But that was after dozens of protesters were killed in Cali by the country’s highly militarised, UK-trained police forces.
In Brazil, opinion polls suggest that Luiz Inácio Lula da Silva — known as Lula — should comfortably beat Jair Bolsonaro. But Bolsonaro has pledged not to stand down if he loses the October 2022 election to “fraud”, setting the stage for a dangerous standoff. If Lula does win and Bolsonaro doesn’t try to hang on to power — which is looking like a pretty big “IF” right now — it will mean that Latin America’s two biggest economies Brazil and Mexico, which account for roughly 60% of the region’s GDP, will be led by independent-minded politicians of a more or less leftward bent. That would probably not be welcome news in Washington.
Against this backdrop China has decided to concentrate most of its foreign direct investment in Latin America in three countries: Mexico, Chile and Colombia. All three are traditionally closely aligned with the US — none more so than Colombia, which thanks to the US’s disastrous drug-eradication program Plan Colombia has received more US military aid than the rest of Latin America combined. But Beijing is also showing an interest. Last year, 77% of all Chinese investment in the region went to Mexico, Chile and Colombia. By contrast, between 2010 and 2014 Argentina and Brasil attracted six out of every ten dollars invested by Chinese companies in Latin America.
Given Mexico’s geographic location and the sheer scale of its trade with the US, which accounts for over 80% of all its exports, there’s no way that China will be able to supplant the US. But it can chip away at the edges, by pouring investment into Mexico’s logistics, services, telecommunications and transport sectors, which is what it’s doing. And Mexico would like nothing better than to reduce its over-sized dependence on its northern neighbor. As for Chile, it is already in thrall to China, which purchases around 35% of all its exports. Again, that number is increasing.
Reversing the Trend
What can the US do to stop or reverse this trend? Quite simply, it can try to invest more and trade more with countries in the region, and most importantly in ways that are mutually beneficial — not like the deals Pfizer is offering, or the latest generation of trade deals with their investor-state dispute settlements that have already robbed Latin America of billions of much-needed dollars.
The US has done this before, albeit a long, long time ago. To a certain extent, it cemented its domination of the global economy after World War 2 by doing something similar to what China is doing right now: investing in countries that desperately need the money. The US Marshall Plan, which won the hearts and minds of millions of battle-wearied Europeans, was all about rebuilding infrastructure in war-torn Europe.
But countries face a different type of disaster today. Covid-19 has ripped asunder entire economies, destroying an untold number of jobs and businesses. Many are hanging by a thread. Nowhere is this more true than in Latin America, which has just 5% of the world’s population but accounts for a quarter of all Covid deaths. The region’s healthcare systems are bursting at the seams. According to a survey of health services in the region, 97% of participating countries and territories reported disrupted health services while 45% reported disruptions in at least half of their health services.
“Soon, COVID-19 will not be the only health crisis demanding countries’ attention,” warned Pan American Health Organization (PAHO) Director Carissa F. Etienne.
Even before Covid, Latin America was steeped in economic problems. Now, those problems — including rapidly rising public debt, surging youth unemployment (a record 23% at last count), soaring inflation and stagnating growth — are much bigger. Many of Latin America’s cash-strapped governments simply cannot afford to provide the sort of fiscal or monetary support programs being rolled out in more advanced economies. In the coming months and years many of them will need outside help. But who will it come from? And what strings will come attached?