Brazil Looks To Strengthen Ties With China, As Taiwan Loses Yet Another Ally in Latin America

“Brazilian and Chinese interests… align at present in some important areas, the most important being an investment in a multipolar world order.”

Today (March 28), Brazil’s President Luiz Inácio Lula da Silva (aka Lula) was supposed to be meeting the President of the People’s Republic of China Xi Jinping for the first time in over a decade. There was a lot riding on the outcome. After four years of strained relations with the government of Brazil’s former premier Jair Bolsonaro, currently still laying low in Florida, China is keen to get back on friendly terms with the fellow BRICS member. But the visit had to be “indefinitely postponed” at the last minute after Lula was admitted to hospital with a “bacterial and viral bronchopneumonia.”

Lula is apparently making a strong recovery and Brasilia has conveyed to Beijing his desire to reschedule the visit but it is unclear when that will happen. In the meantime, 240 Brazilian officials and business figures, many from the country’s burgeoning agricultural industry, are in Beijing trying to hash out new deals in Brazil’s biggest export market. From Bloomberg:

Brazil’s Agriculture Minister Carlos Favaro, who landed on Wednesday alongside the unusually large business delegation, has been laying the groundwork for several potential agreements between the two countries. In an interview on Friday, he said his mission is to re-establish warm ties between the countries, and refrained from giving explicit targets for bilateral commerce.

Trade and investment are the key drivers for any deepening of relations between the two countries. Lula wants to boost sales to China, which is already the biggest destination of Brazilian exports, and lure investment to upgrade the country’s infrastructure.

The South American nation is already the main supplier of agricultural goods to China, accounting for 60% of its soybean imports and 40% of its beef purchases. Now Brazil wants to push those numbers even higher while also working with Beijing on strategies to keep agricultural expansion from harming the environment.

A Win-Win for Both Countries

China has been Brazil’s largest trade partner for the past 14 years. Last year, the two countries’ bilateral trade was worth $172 billion — more than twice the size of Brazil’s bilateral trade with the US. The Lula government is also looking to expand Brazil’s exports of both corn and cotton to China — two sectors that have been traditionally dominated by the US. It would be a win-win for both BRICS economies: China would get to reduce its dependence on US food exports as US sanctions loom while Brazil would get to expand its already huge agricultural industry — ideally not at the expense of the Amazon rain forest.

Also no doubt on the agenda when the two presidents finally meet will be the unanimous decision last Friday to appoint Brazil’s former President (and former vice president under Lula) Dilma Rousseff as president of the New Development Bank (NDB), formerly known as the BRICS bank. Founded on the first day of the 6th BRICS summit in 2014, with $50 billion of seed funds, the bank’s purpose is to mobilise resources for infrastructure and sustainable development projects in emerging markets and developing countries (EMDCs).

Its founders harboured dreams of finally breaking the grip of the Bretton Woods institutes, the International Monetary Fund (IMF) and World Bank. But so far the NDB has failed to live up to its early promise. But that could change. There is likely to be plenty of demand for emergency financial support in the coming months and years as countries in the Global South struggle to service their debts. Russia last week wrote off $20 billion of debt owed by African nations. China has already spent $240 billion bailing out “Belt and Road” counties, according to a report by researchers from the World Bank, Harvard Kennedy School, AidData and the Kiel Institute for the World Economy.

Membership of the NDB is also growing. In 2021, Egypt, the United Arab Emirates, Uruguay and Bangladesh took up shares, albeit of much smaller size than the respective $10 billion investments made by the bank’s founding members. Worldwide interest in joining the BRICS group is also “huge,” according to South Africa’s Foreign Minister Naledi Pandor. In early March, she claimed to have 12 letters from interested countries on her desk. They apparently include Saudi Arabia, United Arab Emirates, Egypt, Algeria, Argentina, Nigeria and Mexico.

It is hard to imagine Mexico, long part of the North American free trade bloc NAFTA, now supplanted by the United States-Mexico-Canada Agreement (USMCA) agreement, taking such a bold step — even as tensions rise between parts of the Biden Administration, particularly the State Department, and Mexico’s AMLO government. As Silk Road Briefing notes, such a move would be seen as “a direct affront to Mexico’s US relations and a sign that global economies, even on America’s border, are having serious doubts about the US ability to trade on fair and equal terms.”

Other big items likely to be on the agenda of a future meeting between Lula and Xi will include fleshing out recently announced plans to set up yuan clearing arrangements in Brazil, as well as Brazil’s prospective membership of China’s Belt and Road Initiative (BRI). That’s right, folks: Brazil, one of the four founding members of the original BRIC grouping (the “S” for South Africa came later), is one of 50 or so countries yet to join China’s flagship global infrastructure project. Not that it has made much of a difference: even outside the BRI, Brazil placed fourth among the countries that received the largest amount of inward Chinese investment between 2006 and 2021.

The ongoing war in Ukraine is also likely to feature in any future discussions between the two presidents. Based on their public statements, both want to see the war come to an end. Since taking office for an unprecedented third term in January, Lula has proposed creating a small group of countries totally uninvolved in the Ukrainian conflict — including, for example, China, India, Brazil, among others — to mediate a negotiated settlement. He even discussed the idea with Biden during his visit to Washington in January, but it was unceremoniously shot down.

Toward A More Strategic Relationship

Most importantly, as a piece in Global Voices notes, if the meeting had gone ahead, which it presumably will do shortly, it would have provided “an opportunity for the relationship to develop and take on a more strategic character under the incoming Lula government.” If, or rather when, this happens, it could “significantly impact” the United States and the American continent as a whole. That said, it is important to remember that Lula has generally been a conciliatory, balanced statesman on the international stage, as notes a piece in Responsible Statecraft:

He may harbor a lingering distrust of the U.S. government for what he sees as undue influence over Brazilian affairs in the recent past — NSA spying on former president Dilma (confirmed) and purported U.S. Justice Department involvement in his 2018 arrest (alleged), to list only two recent episode — but that does not mean he sees China as the good guy in the complicated game of international intrigue.

Brazilian and Chinese interests do, however, align at present in some important areas, the most important being an investment in a multipolar world order. Brazil has long craved greater influence in international affairs. It has wanted a permanent seat on the UN security council and inclusion in the OECD for years. Both goals remain out of reach.

The two countries’ economies are also increasingly intertwined. At the risk of repeating myself, China is not only Brazil’s but South America’s largest trading partner:

As a trading power, the US holds complete sway over Central America, at least for now. And pound for pound, it is still Latin America and the Caribbean’s largest trading partner. But that is predominantly due to its huge trade flows with Mexico, which account for a whopping 71% of all US-LatAm trade. As Reuters reported last June, if you take Mexico out of the equation, China has already overtaken the US as Latin America’s largest trading partner.

This has happened for a variety of reasons. As I’ve noted before, 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 squandered trillions of dollars spreading mayhem and death and breeding a whole new generation of terrorists, China began snapping up Latin American resources, in particular food, petroleum and strategic minerals like lithium.

Left to their own devices, governments across the region, from Brazil to Venezuela, to Ecuador and Argentina, took a leftward turn and began working together across multiple fora. The commodity supercycle was born. Since then China has become the most important trading partner for nine countries in the region (Paraguay, Brazil, Chile, Argentina, Peru, Venezuela, Cuba, Uruguay and Panama). In total, 22 of the region’s 33 countries have signed up to China’s Belt and Road Initiative, including four in Central America (Nicaragua, Costa Rica, Panama and El Salvador).

Unlike the US, China does not tend to meddle in internal politics in the region, or at least hasn’t until now. That may change if more and more countries begin to default on Chinese loans, as already happened in Ecuador in 2020. The US, apparently with zero self awareness, has made no bones about accusing China of deploying “debt trap diplomacy”. But for the moment the Chinese are happy to let the money do the talking — and so too are many Latin American governments.

Washington is now making up for lost time. In January, the Commander of US Southern Command (USSOUTHCOM), General Laura Richardson, who has a rare talent for saying the quiet parts out loud, said the US military is seeking to “box out” China and Russia from strategic resources in the region. “In a lot of our (sic) countries in this region” she said, the PRC “is the number one trade partner, with the United States number two in most cases.”

Here she is giving testimony to the Senate Armed Services Committee last week on the PRC’s “expand[ing] economic, diplomatic, technological, informational and military influence in Latin America and the Caribbean”:

#SASC testimony: #SOUTHCOM Commander Gen. Laura Richardson discussed the People’s Republic of China’s expanding influence in #LatinAmerica & the #Caribbean. pic.twitter.com/olrVmGY2WA

— U.S. Southern Command (@Southcom) March 23, 2023

Meanwhile, US Ally Taiwan Just Lost Another Key Ally in Latin America

The Government of Honduras announced on Saturday that it is severing diplomatic relations with Taiwan, days after Honduran president Xiomara Castro unveiled plans to reestablish ties with China. The Honduran Ministry of Foreign Affairs indicated that the country’s Executive “recognizes the existence of only one China in the world, and that the Government of the People’s Republic of China is the only legitimate government that represents all of China.”

In her announcement, Castro said the decision to reestablish ties with Beijing formed part of her “determination to push through with her government’s plan and expand the borders freely in concert with the nations of the world.”

Castro is the wife of Honduras’ former democratically elected President Manuel Zalaya, who in 2009 was dragged out of the presidential palace in his pyjamas by armed troops, forced onto a plane and flown out of the country. The US-backed coup was followed by a succession of deeply corrupt governments that ruled with a ruthless determination to protect the interests of the national oligarchy and foreign finance capital. One inevitable result has been a huge surge in northward migration from the country to the US.

The latest announcement by the Honduran government has caused widespread anger in Taiwan, where its president Tsai Ing-wen said her country will not engage “in a pointless competition of dollar diplomacy with China.”

“For many years we have maintained the belief that working with all our capabilities and with a pragmatic and forward-looking approach we could maintain the substantive and long-term development of our diplomatic allies,” the president said in a video released this Sunday. Since Tsai came to power in 2016, Taiwan has lost nine international allies who have chosen to establish official ties with Beijing.

This means that just 12 countries now recognise Taiwan, most of them in Latin America and the Caribbean: Belize, Guatemala, Haiti, Holy See (Vatican City), Marshall Islands, Nauru, Palau, Paraguay, Saint Kitts and Nevis, Saint Lucia, Saint Vincent, and the Grenadines and Tuvalu.

China claims Taiwan as part of its territory, and countries have to choose between maintaining official relations with Beijing or with Taipei. Since 2007, four other Latin America countries have cut ties with Taipéi in order to establish relations with China. They include, most recently, El Salvador. In November, its President Nayib Bukele announced plans to “sign a free-trade agreement with China” after meeting with Beijing’s ambassador. Before making the announcement, Bukele’s government cancelled a preexisting free trade agreement with Taiwan.

China also offered to buy up all $21 billion of El Salvador’s distressed sovereign debt, as I reported at the time. Since then there have been no further announcements regarding the offer. If the two countries were to actually consummate such a deal, it would represent another watershed moment for the region. As Bloomberg noted at the time, “anything close to that by a leading sovereign creditor hasn’t happened since the late 1980s, when the US moved to bail out Latin America,” along with, as Bloomberg failed to note, some of Wall Street’s biggest banks.