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Economic Displacement: China’s Growing Influence in Latin America

China just signed its fourth free trade agreement in Latin America, this time with Ecuador, a country with close ties to the United States that had fruitlessly tried to negotiate a similar deal with the Biden administration. L”

The United States has an extensive web of trade agreements in this region, including the United States-Mexico-Canada Agreement; the Dominican Republic-Central America agreement; and bilateral arrangements with Chile, Colombia, Panama and Peru. But the Biden administration is not pursuing new free trade agreements, giving China an advantage in the larger geopolitical competition in Latin America.

The United States has become increasingly alarmed by China’s expanding economic influence in Latin America, and has taken some measures to counter it. In 2021, the White House launched the Build Back Better World program, alongside other members of the G7. The following year, it announced the Americas Partnership for Economic Prosperity, unveiled at the Summit of the Americas in Los Angeles.

However, the United States faces significant challenges mobilizing private sector capital for foreign policy purposes. That is in contrast to China’s success channeling state-owned enterprises, private companies and public and private financing to strategically important overseas projects. That is a problem for the United States; after all, the stature of the United States in the Western Hemisphere has always had a material dimension: U.S. private investment, foreign aid and access to the biggest market in the world generate economic growth, improve infrastructure and win friends in Latin American and the Caribbean.

Starting in the early 2000s, China began offering alternatives to the United States in all of these areas. In doing so, it gained influence at the U.S. expense and began to erode the American order in the Western Hemisphere.

Economic Displacement

This phenomenon is evidenced by the rapid changes in China’s lending, investment, trade and foreign aid in the region. In 2001, only two countries in the region were more reliant economically on China than on the United States: Cuba and Dominica. By 2020, there were 12. In 2000, about 3 percent of the region’s population lived in a country where the economic weight of China was greater than that of the United States. Two decades later, that percentage had grown to 60 percent.

This dynamic is seen in many parts of the globe, but it is most pronounced in Latin America and the Caribbean. In 2020, China’s economic weight in this region was 17 times greater than in 2001, with the most substantial growth occurring between 2010 and 2020. It is strongest in South America, where China buys vast quantities of commodities, including minerals and food. That pattern carries significant implications. South America accounts for 82 percent of the region’s GDP and 67 percent of its population.

Political (Re)alignment

There is evidence that this economic shift is undermining U.S. leadership in the region, as seen by voting partners in international organizations such as the UN General Assembly, the UN Human Rights Council and the Organization of American States (OAS).

At the UN General Assembly between 2001 and 2020, 33 Latin American and Caribbean countries saw an almost 2 percentage point decrease in their alignment with the United States as China’s economic engagement surpassed that of the United States. Something similar has occurred at the UN Human Rights Council, which the United State rejoined in 2021. The Human Rights Council passes an average of 121 resolutions annually, some through votes, the rest by consensus. Countries in the region that experienced economic displacement by China tend to align less frequently with the United States, voting differently than Washington more than 30 percent of the time, compared to just 2 percent for countries more reliant on the United States economically.

At the OAS, where China is an observer, an analysis by George Meek, a former OAS secretary general, showed that between 1948 and 1974, the United States influenced 75 percent of the 297 roll-call votes. That influence has clearly diminished. Between 2001 and 2021, countries in which China has displaced the United States economically were 26 percentage points less likely to vote in alignment with Washington than other member states.

Path Ahead

These voting patterns demonstrate how China’s relative increase in economic influence has translated into geostrategic power, regardless of whether that was China’s intention. This transformation has reshaped the foundations of the American order in the region. But even now, the trend is not inevitable. There are several steps the United States could take to slow or reverse its relative decline in regional economic engagement and the resulting relative decline in influence.

  1. Strengthen Economic Engagement: By enhancing economic engagement in Latin America and the Caribbean, including through free trade agreements, investment and foreign aid for infrastructure, the United States would offer alternatives to Beijing’s support and resume the traditional U.S. role in the region.
  2. Foster Regional Cooperation: By fostering regional cooperation and integration,  the United States could promote collective engagement with China that would diminish the asymmetries in its relationships in the region. This could be achieved through joint initiatives such as infrastructure projects and regional trade agreements.
  3. Strengthen Public-Private Partnerships: By better mobilizing the U.S. private  sector, including through new incentives, the United States could facilitate public-private partnerships aligned with U.S. national interests, and allow U.S. companies to compete with their subsidized Chinese counterparts.

Source: Wilson Center