Spearhead Analysis – 21.02.2018
By Shirin Naseer
Senior Research Analyst, Spearhead Research
As Washington continues to look inwards with its hard-edged ‘America First’ stance, Beijing is rapidly expanding its influence in regions beyond Asia. Since the year 2003, China has moved further into Latin America investing over $110 billion in local Latin American industries, including those involved in oil and metals extraction, information technology, electricity, and even infrastructure. By the year 2025, China is expected to expand its investment capital to $250 billion. China is presently listed as one of the top trading partners of Brazil, Argentina, Chile, Mexico, and Peru. Doubling down on its efforts, Beijing has also recently invited Latin America to join China’s Belt and Road Initiative (BRI). So far it seems all of China’s attempts at closing the gap between China and Latin America have been welcomed.
According to reports, next year the Inter-America Development Bank (IDB) will have its annual meeting in Beijing rather than Latin America—a decision that came as a shock to the US and visibly upset several officials in the country. The US is the biggest shareholder at IDB, while China’s stake is less than 0.01 percent.
In a letter to the IDB President Luis Alberto Moreno regarding this development, the US Under Secretary for International Affairs David Malpass said, “I have serious reservations about the bank’s process that led to that initial decision, and I do not think the 2019 meeting could be nearly as successful in Beijing as it would be if held in the region.”
Up until recently, the Trump administration has started pushing back against China’s efforts to increase economic ties with Latin America. The US Secretary of State Rex Tillerson in his speech at the University of Texas on February 1 was quoted saying, “China… offers the appearance of an attractive path to development… but, this often involves trading short-term gains for long-term dependency.”
Regardless, there has been a notable shift in rhetoric when it comes to Latin American countries considering enhancing economic cooperation with China. Trump’s tough immigration policies and aggressive stance on handling bilateral ties has a lot to do with this change in tone.
The US image has taken a major hit ever since the Trump administration came to power. According to reports, changes in the US’s perceived image are most obvious in Latin America; the median approval rating dropped from 49% in 2016 to 24% in 2017. According to a recent Gallup poll, only 16% in the Latin American region approve of the American President.
With China advocating free trade principles on all public forums and increasing its investments to promote growth and development regionally, it is only expected for the Chinese to be viewed as lying on the opposite end of the spectrum from the US position. Recently, the Chilean Foreign Minister Heraldo Munoz appreciated China for its “constructive role” in regional development. The Chilean Foreign Minister also spoke on how China has managed to hold its own against Trump’s ‘America First’ stance and tough protectionist policies.
While it is easy to confuse China’s public image with its actual trade policies it is important to note how in truth the Chinese position may be a lot different. The Chinese trade strategy is based on neomercantililsm, which in principle encourages exports and discourages imports. Upon closer examination it is obvious that China practices a policy based on import substitution and industrial exports which makes it arguably far more protectionist than the United States.
More recently, the former commander of the US Southern Command James Stavridis warned Washington against China’s outreach to Latin America and the consequences of America’s decision to distance itself from an important economic partner and security ally. Stavridis advised against taking the Latin American region for granted considering its significance to US interests. As competition between the world’s two largest economies intensifies, developments in Latin America further point to shifting power dynamics in the region.