Commentary: When I was in graduate school, I had a professor in my Latin American Economics class who used to always say that when a void is left in a particular economic sector, a new element would step in to ‘sop up the gravy.’ I often think of this phrase when I see the reversal of the long-standing U.S. position of promoting free trade. While the U.S. has reversed course in fomenting trade ties in with the rest of the world, other nations are stepping in to fill the void. Based on the latest figures published in the 2017 China-Latin America Economic Bulletin, published by the Global Development Policy Center of Boston University, this is exactly what China is doing in Latin America.
According to the report, Latin American exports were approximately $104 billion last year ($84 billion in 2016), while its imports from China rose to $140 billion ($122 billion in 2016). China continued in its role of being the most important export market for South American countries, and the second-most important for all of Latin America. As the Trump administration second guesses its withdrawal from the Trans-Pacific Partnership (TPP), Latin American countries Mexico, Peru, and Chile are forging ahead to strengthen trade ties with Asia. China, which was not one of the original negotiators of the TPP, continues to be the wildcard. If it makes a move to join the TPP, or forms its own free trade agreement which includes Latin American countries, its trade with Latin America could greatly increase.
In 2017, Chinese companies invested more than $4.4 billion in new projects in Latin America, up sharply from the $2.7 billion they invested the year before. The most popular sectors include mining/extraction, metals, and manufacturing. China’s massive population and economy are demanding more and more raw materials to keep it growing, and as it has been doing the past two decades in Africa, China is becoming more involved in these sectors in Latin America.
More than $17.7 billion was spent by Chinese firms in Latin America on mergers and acquisitions in 2017. In the Brazilian energy sector alone, the State Grid Corporation of China and the State Power Investment Corporation invested more than $14.5 billion. China has been focused on energy sector projects throughout the world, and it is following this course in Latin America.
One area in which the Chinese factor dropped slightly was in loans to the region, which in 2017 fell to $9 billion, the lowest level in five years. However, continuing China’s energy trend, Chinese loans became more focused on energy projects in Latin America, including wind, solar, and oil, which accounted for $8 billion of the total. The report concludes that the Chinese presence in Latin America’s energy and infrastructure sectors is expected to grow in the future. New projects have been inked and financing from China is already committed for projects such as highways and water projects.
I don’t think that it is a coincidence that China’s economic presence in Latin America is expanding at the same time the U.S. is either ignoring or bashing the region. Trump’s attacks on Mexico, not only for the immigration issue, but also for the North American Free Trade Agreement, have sent reverberations throughout the hemisphere. His decision not to attend the Eighth Summit of the Americas, held April 13 and 14 in Lima, Peru, to deal with the conflict in Syria and other personal legal issues, will not help bolster the image of the U.S. in Latin America. Although U.S. Commerce Secretary Wilbur Ross, who did attend the Summit, stated that, “Latin America benefited more from value-added exports to the United States than rising sales of raw materials to China,” and that the U.S. had no intention of ceding leadership in Latin America to what he termed, “authoritarian states,” the U.S. treatment of Latin America suggests otherwise.
China’s growing interest in Latin America appears not to have been lost in certain strategic quarters in the U.S. Recently, after attending trade shows in Mexico, I received calls from U.S. federal agents asking me how large the Chinese presence was at these shows. In the nearly thirty years I have been working with Mexico, this is the first time that this has occurred.
Through a friendlier diplomatic approach, in which Latin America is not treated as a problem, but as a partner, and by focusing on building greater trade ties to the region, the U.S. can remake its image, and thus remain an influential force south of our border.
Jerry Pacheco is President of the Border Industrial Association. His columns appear in The Albuquerque Journal.