China's Global Rise: Implications for Latin America and the U.S. - Americas Quarterly Winter Launch

Americas Society and Council of the Americas launched the Winter 2012 issue of Americas Quarterly in two events in New York and Washington, DC, discussing China’s growing role in Latin America.
 

Watch videos of the New York and Washington events.

February 13, 2012 - New York

Keynote Speaker:

• Carlos Gutierrez, Vice Chairman of the Institutional Clients Group, Citigroup, and former Secretary of Commerce

 Panelists:

• Gary Clyde Hufbauer, Senior Researcher, Peterson Institute for International Economics
• Eric Farnsworth, Vice President, Council of the Americas
• Pablo A. Goldberg, Managing Director and Global Head of Emerging Markets Research, HSBC
• Moderator: Christopher Sabatini, Editor-in-Chief, Americas Quarterly; Senior Director of Policy, Americas Society and Council of the Americas

Summary 

Over the last decade, China’s economic boom allowed the country to increase its global presence, challenging the United States as a world power. The launch of the Winter 2012 issue of Americas Quarterly addressed China’s ascendance on the world stage and its implications for Latin America and the United States. 

Wake Up Call for the United States 

In 1971, former President Richard Nixon told former Secretary of Defense Donald Rumsfeld that “people don’t give a damn about Latin America.” Former Secretary of Commerce Gutierrez said to some extent this statement remains true, but if the United States wants to maintain its position as a global power, its view toward the region needs to change quickly. Gutierrez noted that in contrast to Washington, Beijing’s foreign policy focuses on economic investment and aid. President Hu Jintao turned to Latin America to expand trade and prioritized development in the region. Some termed the Asian country’s interest in the region as a “peaceful invasion.” Furthermore, by working with regional trading blocs such as the Association of Southeast Nations, Beijing has been able to promote its economic and political interests worldwide and strengthen its regional ties to Latin America. China is now the number one trading partner of both Brazil and Chile, and the number two partner for other countries in Latin America. Improving relations with the region is vital for the United States from a geopolitical standpoint, as well as from an economic perspective. 

Next Steps for China 

Gutierrez discussed the various steps China took to increase its presence in the region. First, it became a regional agent. Large economies like Argentina, Brazil, and Chile heavily rely on exporting commodities to China, and in turn, China is now a major provider of military aid. Secondly, Chinese companies are rapidly expanding abroad. With subsidies and other forms of government financial support, state-owned companies are encouraged to grow beyond China’s borders. Third, though communist, the government of the People’s Republic understands the detrimental effects of business duplication and excess capacity on overall economic growth. As such, China embarked on a campaign to make the economy more efficient, using a “socio-capitalist” model. Finally, Beijing has been very cautious when dealing with the United States, trying not to alienate Washington. 

Next Steps for the United States 

Gutierrez and the panelists discussed recommendations for the United States to shift its policy toward Latin America from one of a neighbor to a close trading partner. First, they suggested the United States should begin paying more attention to a region it has long taken for granted by formalizing trade agreements. Eric Farnsworth noted that free trade agreements (FTAs) help create an economic presence and can be a successful tool for winning over local populations, since they often create jobs and foster economic productivity. FTAs can also be used to create cohesion between governments; the European Union began with a coal and steel agreement between France and Germany. Panelists said the United States should increase military aid to friendly democracies. They cited Plan Colombia and the Mérida Initiative as examples. Panelists recommended the United States invest in commercial infrastructure, since modern channels of trade will facilitate the expansion of local economies and foster commerce worldwide. Finally, panelists said the United States needs to expand its soft power and work to eliminate the resentment and suspicion that accumulated from years of neglect. 

A Mutually Beneficial Relationship 

Panelists agreed that the United States has much to gain from revitalizing its relationship with Latin America, and that the two regions should recognize the similarities in their agendas. For example, both regions share concerns about China’s currency. Throughout the Americas, economies have to compete against a devalued currency in China and its lenient working conditions, making it difficult to compete with Chinese businesses. The economic strategy of many Latin American countries to export commodities and import manufactured goods is only a short-term approach, which could lead to commodity bubbles that burst when demand falls. The United States could help with this issue that has long plagued the region by promoting value-added economic advancement. Finally, the panel concluded that the United States and many Latin American countries share democratic interests, which makes it easier to agree on political priorities.

February 15, 2012 - Washington, DC

Keynote Speaker:

• Thomas F. McLarty, III, President, McLarty Associates

Presenters:

• Christopher Sabatini, Editor-in-Chief, Americas Quarterly; Senior Director of Policy, Americas Society/Council of the Americas
• Theodore Moran, Non-resident Senior Fellow, Peterson Institute for International Economics; Director, Landegger Program in International Business Diplomacy, Georgetown University
• Barbara Kotschwar, Research Associate, Peterson Institute for International Economics
• Kimberly Ann Elliott, Senior Fellow, Center for Global Development

 Panelists:

• Arvind Subramanian, Senior Fellow, Peterson Institute for International Economics
• Inés Bustillo, Director, United Nations Economic Commission for Latin America and the Caribbean Washington Office
• Eric Farnsworth, Vice President, Americas Society/Council of the Americas

Summary

 Americas Society/Council of the Americas and the Peterson Institute for International Economics (PIIE) co-hosted a launch of the Winter 2012 issue of Americas Quarterly. This program examined China’s rise in Latin America and its implications for the United States. Participants agreed that China’s growing prominence highlights the need for the United States to play a more active role in Latin America. AS/COA’s Christopher Sabatini noted that the timing of the event coincided with Chinese Vice President Xi Jinping’s visit to the United States. 

The Power of Proximity 

PIEE’s Thomas McLarty commented on the burgeoning trade and investment relationship between China and Latin America. Between 2000 and 2010, exports from Latin America to China grew 1500 percent, and between 2003 and 2010, Chinese investment in the region increased from $1 billion to $44 billion. Citing data from an Americas Quarterly charticle, McLarty pointed out that China’s demand for raw materials especially benefitted natural resource producers. At the same time, Chinese imports caused a decline in market share for many value-added goods producers in the region. Recently, however, transportation costs and rising labor costs in China are making production in Latin America more attractive to firms selling to the United States. McLarty called this “the power of proximity.” He concluded that “Latin America is a natural market for the United States, but not one we can or should take for granted.” 

Chinese Mining Ventures in Peru 

The authors of the PIIE working paper “Chinese Investment in Latin American Resources: The Good, the Bad, and the Ugly” discussed the central question of their study: is China taking an increasingly larger share of natural resources with a zero-sum approach? One of the authors, Theodore Moran, said China is willing to engage in projects that established companies might avoid. Globally, 13 of the 16 largest Chinese investments in the extractive sector are identified as in the “competitive fringe.” Twenty-five of the 34 Chinese natural resource investments in Latin America fall into this category. The study indicates that Chinese investment expanded and diversified the global supply system, but Moran cautioned that the paper did not factor in negative externalities, such as tax evasion and corruption. The paper investigated two Chinese-operated and two Organization for Economic Cooperation and Development-managed mines in Peru. Moran, Barbara Kotschwar, and Julia Muir identified three variables in mining firm behavior in Peru: international mining standards; Peru’s legal and regulatory framework; and the standards of the firm’s home country. Kotschwar outlined three conclusions about the behavior of companies operating abroad: international financial markets bring accountability; the host country regulatory environment makes a significant difference; and foreign investment is a catalyst for change. Commenting on the paper’s findings, Kimberly Ann Elliott underscored the role of civil society in creating a stringent regulatory environment and the influence of home country laws and norms on corporate social responsibility. 

U.S. Strategy: China in the Global Context 

Inés Bustillo described a growing Chinese-Latin American relationship that brings “tremendous opportunities but also challenges.” Arvind Subramanian discussed the magnitude, scope, and imminence of China’s rise, which is “much greater than anyone imagined.” He speculated that the yuan might become the premier reserve currency in the next 10 to 15 years. Subramanian said that the United States’ larger goal should be the preservation of the open commercial system, even if it means ceding some influence to the Chinese. He recommended that the United States empower China through institutions such as the International Monetary Fund to ensure China’s commitment to the global financial system and to align its incentives with U.S. interests. Eric Farnsworth characterized China’s strategy in Latin America as “not a Chinese strategy toward Latin America but a global strategy to feed the 1.4 billion people in China.” Since China’s role in Latin America largely focuses on trade and investment, some in the region hail China as welcome competition. However, China’s investment in natural resources in Latin America is causing countries like Brazil to move down the value chain in what Farnsworth labeled a "process of deindustrialization." In addition, China’s investments in Latin America have undermined the United States’ ability to promote democracy, labor rights, environmental stewardship, and other similar values. The United States must actively demonstrate the benefits of such values to development in the region over the long term, said Farnsworth.