FPI Bulletin: The U.S.-China Race for Trade Ties in Latin America

August 4, 2014

By FPI Research Intern Nina Chitaia

As China seeks out both the commodities and export markets that it needs to fuel its economic growth, Beijing is looking more and more to Latin America.  It’s natural for a rising economy like China to search for new trade partners.  But if the United States does not do more to concretely advance its own serious agenda for expanding trade in the 21st century, America’s regional economic leadership will diminish as China’s grows.

Witness Chinese President Xi Jinping’s recent appearance at a high profile summit in the coastal Brazilian city of Fortaleza.  His immediate purpose was to meet with his counterparts from Brazil, Russia, India, and South Africa—collectively known as the “BRICS” nations—to endorse new initiatives that will challenge the influence of the Washington-based World Bank and International Monetary Fund.  Yet Mr. Xi also visited nearby countries to improve China’s economic and diplomatic ties with Latin America, sometimes in very visible ways.

China and other BRICS nations—which together represent 3 billion people and hold a combined GDP of $16 trillion, or roughly 20 percent of global GDP—are moving to assert themselves.  At the Fortaleza summit, they finalized plans to create a New Development Bank (NDB).  Framed as a potential rival to the World Bank, the NDB will provide financing for infrastructure and social development projects in Latin America and other emerging regions.  Beijing is also angling to gain greater influence over the NDB’s management.  China, with one of the world’s largest economies, negotiated with BRICS members to establish the bank’s headquarters in Shanghai.

The Fortaleza summit also yielded plans for the Contingency Reserve Arrangement (CRA), which is being framed as a rival to the International Monetary Fund.  Under the CRA, as the Wall Street Journal reported, each member nation’s central bank “would put aside a designated amount to be used in case of a currency crisis.”  China plans to contribute $41 billion out of the CRA’s $100 billion in funds, positioning it to play an important role in a future financial crisis.

During his time in Latin America, President Xi also traveled to the continent’s resource-rich countries to enhance China’s economic relations with them.  Brazil and Argentina plan to increase exports in food and raw materials to China, and attract more Chinese investors in the region.  Mr. Xi also signed a series of mineral and oil trade deals with Venezuela—including “a $4bn (£2.34bn) credit line in return for Venezuelan crude and other products,” BBC News reported.  Furthermore, he inked 29 long-term bilateral agreements with Cuba on renewable energy, infrastructure, pharmaceuticals, and other sectors.

Although the United States is still overall the top trading partner to Latin America, China is catching up.  Since 2000, trade between China and Latin America has jumped from $12 billion to $261 billion.  China has already displaced the United States as one of Brazil’s top trading partners, with total bilateral trade leaping from $3.2 billion in 2002 to $83.3 billion in 2013.  While Washington still dominates exports to Argentina, Beijing’s share is growing at a faster rate.  Whereas Chinese exports to Argentina totaled $447 million in 2003, they amounted to $8.8 billion in 2013—a nearly twenty-fold increase.  Compare that to U.S exports to Argentina, which totaled $2.4 billion in 2003 and $10 billion in 2013.

As China continues to increase its economic and diplomatic ties with Latin America, it’s critical that the United States pay more attention to the region.  The ongoing crises in the Middle East and Eastern Europe, however, have made it difficult for Washington to dedicate enough time, energy, and attention to America’s southern neighbors.  For one, U.S. policymakers and lawmakers need to engage more with Latin America on its most difficult challenges, including the proliferation of drug cartels, the resurgence of anti-democratic governments, and growing violations of human rights in the region.

For another, Washington needs to do much more to strengthen U.S. trade ties with Latin America.  For example, concluding negotiations for the Trans-Pacific Partnership (TPP)—a proposed agreement to liberalize and integrate trade among the United States, Chile, Mexico, Peru, and seven countries in Asia—would bolster U.S. economic growth on both sides of the Pacific.

However, movement on the TPP and any other future trade agreements will require strong leadership in Washington.  In particular, the White House and Congress will need to enact a new law for Trade Promotion Authority (TPA), which would empower the president to negotiate trade agreements and guarantee that lawmakers can only vote to approve or reject them without further amendment or filibuster.  It’s unclear, however, whether Capitol Hill will take up TPA before the year ends.  But it should.

China is projected to surpass the European Union and become Latin America’s second largest trading partner by 2016.  At the same time, the United States still has important opportunities to sustain and expand its economic and diplomatic leadership in the region.  Seizing these opportunities, though, will require U.S. policymakers and lawmakers to advance a serious agenda to improve trade and regional engagement.

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The Foreign Policy Initiative seeks to promote an active U.S. foreign policy committed to robust support for democratic allies, human rights, a strong American military equipped to meet the challenges of the 21st century, and strengthening America’s global economic competitiveness.
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