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China’s growing power in Latin America

The United States and the European Union will become increasingly isolated around the world if they distance themselves from Beijing without strengthening ties to other countries

Chinese President Xi Jinping during the first China-CELAC Forum meeting held in Beijing in January 2015.ROLEX DELA PENA

Alicia García Herrero

Jun 01, 2023 - 20:26CEST

For some time now, China has been the driving force behind many developments in Latin America. It all started when China became the primary buyer of raw materials from the region and consequently strengthened its economy to insulate itself from the 2008 global financial crisis. China has flipped the script by exporting numerous consumer and intermediate products to the region, such as machinery and electronic components, which puts it squarely in competition with the US and Europe.

When most Latin American countries began to accumulate trade deficits with the Asian giant, China developed another level of economic influence – direct investment. Although China is competitive in the manufacturing industry, it has also been making major moves to secure supplies of natural resources and in the electricity sector. Regional infrastructure projects have been funded by loans from Chinese development banks, leading to an increase in Latin America’s debt to China. The rate of debt accumulation has been so high that countries like Ecuador have been forced to restructure its loan obligations.

As China broadens its economic horizons, it’s no surprise the country has also strengthened diplomatic ties with many nations in the region. Several Latin American countries, including strategically important Panama, recently broke diplomatic ties with Taiwan and established relations with China. Honduras soon followed suit. The future of Latin American diplomatic relations with Taiwan remains uncertain, as seen in the recent Paraguayan elections, with very few countries left to pick a side.

But it’s not just about Taiwan. Political trends in the region are certainly being influenced by China, as evidenced by Brazilian President Lula da Silva’s recent election campaign and foreign policy. The winds of left-wing populism are growing stronger throughout Latin America, and seem to be blowing toward alternative development models with more prominent government roles.

China’s growing influence appears unstoppable, yet both the US and the EU have left the door wide open. Neither one has taken Latin America seriously enough when it comes to forging trade and investment agreements, causing them to lose ground in the region. Economic uncertainty in the US has soured public opinion on international trade, while the European Union’s two-decade quest to secure a deal with Mercosur (the South American trade bloc consisting of Argentina, Brazil, Paraguay, and Uruguay) underscores the challenges confronting a non-sovereign entity in an era where trade is imperiled by countries unwilling to make concessions. The EU urgently needs to figure out how it can maintain influence commensurate with its economic clout, despite a complex institutional structure mired in the status quo and a shrinking economic pie.

While it may be tempting to point fingers at China for the EU’s waning influence in Latin America, the truth is that China has merely capitalized on the opportunity we have unwittingly provided. This fact is evident to the rest of the world. As we shift our focus to China, aiming to mitigate the risks of our reliance on the country in key sectors like energy transition, we must consider how this move will affect our policy towards Latin America. In a region with significant cultural and historical ties, changes in our strategy may have far-reaching consequences. It is imperative that European politicians and economic authorities acknowledge that reducing strategic dependencies on China, without cultivating relationships with other parts of the world, will only further isolate us. The sole means of alleviating the significant negative impact of Europe’s policies towards China is to reinforce economic ties with the rest of the world, particularly those that are complementary for demographic and sectoral reasons. Latin America undoubtedly meets these criteria. With Spain as president, the EU Council appears resolved to pursue this admirable goal, but one wonders whether it can reverse the decades-long inertia.

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