China eats ground to the US in Latin America

In recent years, China has significantly expanded its economic presence in Latin America, overtaking the United States as the subcontinent's largest trading partner. Despite US President Joe Biden's strong commitment to countering China's geopolitical ambitions, he has largely underestimated China's growing presence in its own neighbourhood. This is disconcerting and alarming, especially given Latin America's crucial role in the fight against climate change.

In early April, Brazilian President Luiz Inácio Lula da Silva urged the United States to stop "encouraging" war in Ukraine. His statement was the latest example of the diminishing influence of the United States in the region — and of the Biden administration's inability to seek a solution.

The ignorance of Latin America on the part of Americans is something of a cliché. In 1982, after a tour of the region, then-President Ronald Reagan said he was "surprised" to discover that the region is made up of several individual countries. His comment reflected the widespread lack of knowledge about a diverse subcontinent with a combined population of 430 million people. With abundant mineral resources, extensive agricultural territory and more than half of the world's remaining tropical forests, it is not surprising that China has expressed a deep interest in Latin America.

The feeling is mutual. China is not the purely malign influence that was the Soviet Union, despite the desire of some American politicians to equate the two. China pays very well for the resources it obtains in the area and has become a major lender, offering indebted countries much-needed financing that often comes with some conditions (such as purchases from China) and paying scant attention to the anti-corruption commandments that the World Bank and the International Monetary Fund insist on. On the other hand, China was not caught committing the flagrant crime of instigating coups d'état as happened with the United States on multiple occasions in the last century.

Still, the environmental impact of China's presence in Latin America is deeply troubling. The country's insatiable appetite for soy has been a major cause of deforestation in Brazil and loss of land for pasture in Argentina. Likewise, its interest in the continent reflects its growing need for water, which remains abundant in Latin America but scarce in China.

Ultimately, the United States and Europe must recognize that addressing global warming requires countries like Brazil to cooperate by preserving rainforests and adopting renewable energy. While China undoubtedly recognizes the importance of combating climate change, its immediate goal is to overtake the United States to become the world's largest economy and establish itself as an equivalent power. Achieving net-zero emissions and reducing Latin America's carbon footprint are not among its top priorities.

Ironically, one reason the United States tends to downplay Latin America is that the region has been relatively peaceful since the nineteenth century. The Monroe Doctrine, established in 1823, placed all of Latin America within the U.S. sphere of influence and has effectively prevented foreign powers from gaining a foothold there ever since. France's intervention in Mexico in the 1860s, under Napoleon III, is often considered the last major attempt by Europe to establish a permanent Latin American presence. Just a century later, the Soviet Union escalated tensions by installing nuclear weapons in Cuba and bringing the world to the brink of nuclear war.

As America's economic influence erodes, its ability to prevent foreign military forces from establishing themselves in Latin America is increasingly in jeopardy. China has already built a space observation station in Patagonia and is now pressuring Argentina to build a naval base. Given that Argentina is close to defaulting on its debt, with inflation soaring above 100%, and with a populist government in power, China could end up getting away with it. Venezuela—once favored by the American left—is also extremely susceptible to Chinese (and Russian) influence after decades of disastrous economic policies.

While Argentina and Venezuela have experienced the most publicized economic crises in Latin America, the COVID-19 pandemic has slowed growth and exacerbated inequality in other countries as well. Likewise, as Lula's comments on Ukraine suggest, the shift to the left across the continent could result in foreign policies that are not aligned with U.S. interests.

The Biden administration must step up its efforts to counter China's influence in Latin America. By helping countries in the region improve their education systems, promote savings to enable greater public investment, and implement structural reforms to improve productivity, the United States could help put the continent on the path to long-term economic prosperity. And to support Latin America's shift to renewables, the West, more broadly, must be willing to offer cash-starved, debt-burdened governments large-scale subsidies instead of credit. Given China's growing global reach and Latin America's importance to the green transition, the United States can no longer afford to underestimate its southern neighbors.

Kenneth Rogoff, former chief economist of the International Monetary Fund, is a professor of economics and public policy at Harvard University.
© Project Syndicate, 1995-2023.

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