Factual · Powerful · Original · Iconoclastic
Step aside, EU! China is set to become Latin America’s second-largest trading partner in two years. And 13 years later it will be king of the hill according to the journal China Policy Review. Yes, having locked up Asia and Africa, the ever-hungry Chinese dragon is salivating over what the U.S. at least used to consider its “back yard.” (You know, the Monroe Doctrine and all that.)
“Time is running out,” warns America’s Quarterly. “China has quickly become the largest trading partner for many South American nations and Chinese trade deals are much more amenable to Latin Americans.”
That’s bad news for the U.S. Ultimately, though, it’ll also be bad news for all of the Americas.
The costs to the U.S. are obvious. It’s no exaggeration to say Latin American trade is critical to our survival as an economic superpower. “As recently as 2006, America was the larger trading partner for 127 countries, versus just 70 for China,” noted an article in RT.com. “By 2011, the situation had changed drastically: 124 countries for China, 76 for the US.”
It added ominously, “The U.S. passed the baton [as the world’s largest trading partner] after 60 years ahead of the curve.” It also appears China will also become the world’s largest economy by the end of this year.
The U.S. still maintains a big lead in Latin America, with $850 billion in combined imports and exports in 2013 versus $244 billion for China in 2012. But China has been closing the gap at a phenomenal pace. Since 2013 U.S. trade has increased about 250 percent, while China’s has increased about 25-fold–albeit from a much lower baseline.
Indeed, while last year total U.S. trade with Mexico did increase from $34 billion to $527 billion, in the rest of Latin America it decreased about $14 billion from $183 billion, according to the Census Bureau. Except for Mexico, the U.S. is performing dismally. That one nation accounts for over 60 percent of U.S. trade with Latin America. Yet Brazil’s economy alone is almost twice that of Mexico.
And five years ago guess who became Brazil’s largest trading partner?
But as I said, this isn’t just bad news for the U.S. Having lived and traveled in Latin America extensively for several years, I’ve seen the evidence first hand.
China sends Latin America junk it wouldn’t dare send to the U.S. or Europe, charging as much or more. Umbrellas break at the hint of rain. I bought two pieces of luggage that fell apart on their second use. Add the 21-speed bike that cost more than the same model in the U.S. but had only 16 working gears. Bike shops in both Mexico and Colombia insisted that was normal, meaning to them it is. Yet China can get away with this because it has a plan–a published one–while America seems intent on forfeiting the game.
Part of that plan is strategic loans, generating good will that Beijing then uses to leverage favorable agreements. Between just 2008 and 2012, China lent over $80 billion to Latin American countries, according to the Global Economic Governance Initiative. Since 2009, Chinese loans to Latin America have exceeded those of both the Inter-American Development Bank and the World Bank.
That included two years ago promising a $10 billion credit line to the region for infrastructure projects–just what the area needs most. When I visited Costa Rica a decade ago I thought, “If this country improved its roads, it could make a fortune in increased trade and tourism.” Last year, China announced a $400 million loan to Costa Rica to do just that.
The quid pro quo?
Ninety-two percent of manufacturing exports from Latin American were in sectors where China was increasing its market share while the region was decreasing its share, or where the share was increasing for both sides but at a slower rate in Latin America. This according to the 2010 book The Dragon in the Room: China and the Future of Latin America, by Kevin P. Gallagher and Roberto Porzecanski.
“As commodity prices slide and the terms of trade decline, the lack of ability of Latin America's manufacturers to compete with their Chinese counterparts poses a real threat to the long run growth of the region,” Gallagher told Forbes.com.
Growing Trade, Growing Fear
It’s not that Latino leadership is naïve. “We do not want to be China’s next Africa,” Neil Dávila, head of ProMéxico, Mexico’s federal agency to promote foreign commerce and investments, declared in a leaked cable. “In the past, we feared the predominance of the U.S. Now it’s the opposite,” said former Brazilian President Fernando Henrique Cardoso in a 2011 interview. “It’s better for us for the Americans not to retreat too much to keep the balance.”
There’s no reason the U.S. needs to retreat at all. It has all sorts of natural advantages including good will (nobody here likes China; they like gringos just fine), linguistic similarities, a progressively shared heritage, and vastly shorter trade routes. Colombia is closer to Los Angeles than Los Angeles is to New York.
But while China carefully implements its strategy, the U.S. remains clueless. Seriously so. When I was living in Mexico, I did a phone interview with the co-chair of the primary U.S.-Latin America free trade coalition. “How are things in South America?” he asked me (emphasis added.) You can bet the Chinese know where Mexico is located.
America needs an intelligent, aggressive, integrated policy of discovering what its southern neighbors want and accommodating them so that all sides gain. Or soon that heat wave coming up from the south will be fire from the mouth of the dragon.