Is China Eating America's Lunch in Latin America?

Long accustomed to its role as the dominant player in the Americas, the United States is now seeing that position eroded by the increasing footprint of China in the Americas.

Since then-President Jiang Zemin’s 13-day trip to Latin America in April 2001 and the subsequent visits of President Hu Jintao in 2004 and 2011, Chinese engagement with the region has exploded. Today, China is the top trade partner of Brazil and Chile and Peru, and the second trade partner of Argentina.

By the end of 2010, Chinese enterprises had invested almost $44 billion in the region, almost a quarter of which was invested in 2010 alone. That is a marked change from 2003, the year before Hu’s first visit, when China invested just $1 billion in all of Latin America.

This is consistent with broader Chinese strategy. As part of the dash for economic growth that the Chinese Communist Party believes will help to maintain its legitimacy, Beijing is on a global quest from Southeast Asia, to Africa, to Latin America and beyond to lock in the natural resources that are fueling growth.

At the same time, Latin American nations that have been the primary trade and investment partners with China have also gained handsomely, at least in the short term in the sectors that produce primary goods. Of course, nations that are not supplying significant amounts of commodities to China, including Mexico and Central America, view China more as an aggressive competitor than as an economic partner.

Nonetheless, to the extent that commercial exchange and investment dominates the China story, implications for the United States are minimal. A rational response would simply be to promote a level, transparent playing field for U.S. business and investors to compete effectively with a new, well-financed competitor. Still, China’s entrance into the Americas does have foreign policy implications for the United States, and from this perspective Washington has been complacent.

The reason is this. Since the end of the Cold War, Latin America has struggled to develop a regime of democratic behavior that is intended to prevail in the hemispheric community of nations. It is unquestionably in the U.S interest to promote such an outcome, because open market democracies that broadly share values tend to make the best long-term partners of the United States in the promotion of shared interests. Freedom of the press, labor rights, environmental protections, anti-corruption and good governance: it is difficult to implement such standards unless leverage exists to promote certain behaviors, and at least one nation or regional organization is willing and able to enforce the regime effectively. (This is one reason why the ongoing assault across the hemisphere on the OAS as an institution is so damaging.)

How does this play out in practice? Efforts to promote labor and environmental reforms through trade agreements are undermined when nations sign agreements with China that do not include similar provisions. Multilateral lending agencies like the IMF, World Bank, and the Inter-American Development Bank that promote financial reforms and good governance become less relevant if borrowing nations can receive funds from China without conditionality. China’s huge purchases of commodities and the provision of credits on favorable terms potentially allows regional leaders the flexibility to postpone necessary economic and political reforms consistent with open market, democratic governance.

At the microeconomic level, the behavior of Chinese firms has not always followed the Western model which includes corporate social responsibility activities, payment of taxes and job creation in the local economy, environmental mitigation, anti-corruption, and the like. This should especially worry those in the NGO community who have worked tirelessly to promote a more effective model of corporate social engagement.

The bottom line is this: Chinese engagement in the Americas is growing, and it has brought important if unequal benefits to the region. Nonetheless, the implications of Chinese engagement go well beyond commercial exchange. In foreign policy terms, the ability of the United States to effectively pursue its core regional interests is being compromised because China’s engagement has not proven at this point to support the institutions and norms of democracy. It’s a higher class dilemma that requires that we begin to contend more diligently for the Americas.

Eric Farnsworth is the Vice President of the Council of the Americas in Washington, DC. This essay is based on a forthcoming article in the Winter 2012 Americas Quarterly, China’s Global Rise: Implications for the Americas.