It has long been the case that almost everything that happens in the Latin American region has something to do with China.
This relationship began with commodity trading, when China became the world’s main buyer after putting its economy on steroids to protect it from the effects of the global financial crisis in 2008.
China soon managed to turn the tables by flooding Latin American countries with its exports of consumer goods, and more recently also of intermediate products such as machinery, electronic components, and many others, by competing directly with the United States and, above all, with a Europe that for decades had benefited from its global export power.
When most Latin American countries began to accumulate trade deficits with the Asian giant, China began to develop a second level of economic influence – direct investment.
Despite China’s competitiveness in the manufacturing sector, it has not been these companies that have started to produce in Latin America but rather the electricity sector, as well as the search for control of natural resources.
Beyond direct investment, China’s share of infrastructure construction in the region has been financed by loans from its big development banks, which have only increased Latin American debt, this time with China. In fact, in some cases the accumulation of debt has been so rapid that it has ended up in the need to restructure it, as the case of Ecuador shows.
Diplomatic advances
Having reached a much broader level of economic relations, we should not be surprised that China has also been able to advance its diplomatic relations with much of the region. Indeed, in recent years, of the Latin American countries that still had diplomatic relations with Taiwan, several have turned to Beijing, with Panama as a prominent case because of its strategic importance derived from the Panama Canal, and, more recently, Honduras.
The uncertainties about the future of diplomatic relations with Taiwan of the few remaining countries are enormous, as reflected in the evolution of the recent elections in Paraguay.
But it’s not just Taiwan. Political trends in the region are undoubtedly being influenced by China, as evidenced by Luiz Inácio Lula da Silva’s election campaign in Brazil and his foreign policy. More generally, the winds of left-wing populism are getting stronger, with a view to an alternative model of development in which the state plays a greater role.
While China’s influence may seem unstoppable on its own, the reality is that both the US and the European Union have made it very easy. Both economic blocs have not taken seriously enough the importance of reaching trade and investment agreements with Latin America and have been losing influence in the region.
In the case of the US, the financial crisis undoubtedly left a dent in the average citizen’s appreciation of the benefits of international trade. In the EU, the lack of an agreement with Mercosur after more than 20 years of negotiations is paradigmatic of the difficulties that an economic area, rather than a sovereign one, has in a world where international trade rules are broken and member countries are not willing to make the necessary concessions to move forward.
Beyond trade agreements, it seems difficult to think how the EU can maintain an influence commensurate with its economic size – which, incidentally, is also shrinking in relative terms – with an institutional framework so complicated that it opens us up to the status quo.
It is easy to blame China for Western powers’ loss of influence in the Latin American region, but the reality is that Beijing has only taken advantage of the opportunity the West has carelessly abandoned.
Looking ahead, the question is whether the West’s change of strategy toward China, which advocates reducing the risks inherent in its critical dependence on the Asian giant for some key sectors, such as the energy transition, could also have consequences for the West’s strategy toward Latin America, a region with very important ties historically and culturally, but also with abundant critical raw materials for the energy transition.
Alicia Garcia-Herrero is chief economist for Asia-Pacific at Natixis and senior research fellow at Bruegel. Follow her on Twitter @Aligarciaherrer.