China slowly undercutting US influence in Latin America with 5 ‘new factor’ trade deals
- Beijing has made progress over trade deals with Ecuador, Uruguay, Panama, Colombia and Nicaragua, having already penned agreements with Chile, Costa Rica and Peru
- The US is seen to have ‘effectively lost its key role with every country south of Costa Rica’ having counted much of Central and South America as political allies
China stands to secure prized natural resources while vying with the United States for allies through five potential new trade deals with countries in Latin America, which was once mainly a US backyard, analysts believe.
Officials from Beijing kicked off talks with Ecuador in June, the government’s trade ministry said, and South American media reports point to Uruguay pursuing its own trade agreement with China – despite blowback from the Mercosur or Southern Common Market negotiating bloc to which it belongs with the likes of Argentina, Brazil and Paraguay.
A deal with Panama is “under negotiation”, according to the Chinese Ministry of Commerce website, and China is conducting a joint feasibility study toward a pact with Colombia. China and Nicaragua last month signed an “early harvest arrangement” for a free-trade deal, the ministry said.
Chile, Costa Rica and Peru have already signed trade deals with China, starting from Chile in 2005, with the pacts potentially offering a reduction in import tariffs while also opening key sectors to the other country’s investment.
China’s presence in the region in the new century is perhaps the most significant new factor in Latin America’s international political economy in its two centuries of independent history
“China’s presence in the region in the new century is perhaps the most significant new factor in Latin America’s international political economy in its two centuries of independent history,” said Jorge Heine, author and a former Chilean ambassador to China.
The US was Latin America’s chief trading partner until just after China joined the World Trade Organization in 2001, which placed all Chinese trade deals into an internationally-recognised legal framework.
Washington had counted much of Central and South America as political allies from the start of the Cold War in the late 1940s through until the collapse of the Soviet Union in the early 1990s.
By 2015, the US had “effectively lost its key role with every country south of Costa Rica,” said Evan Ellis, a research professor of Latin American studies at the US Army War College’s Strategic Studies Institute.
02:23
Brazilian state of Sao Paulo builds plant to make China’s coronavirus vaccine candidate, CoronaVac
Latin American leaders are now attracted by China’s large, fast-growing market for exports such as minerals and agricultural products, he said.
Countries with left-leaning governments have embraced China more quickly than neighbours with more conservative heads of state, Ellis added.
South and Central America plus the Caribbean carried out US$10 billion in trade with China in 2000 and US$451 billion last year, Heine said.
Stronger relations in South and Central America has also allowed China to vie with the US for world influence amid their four-year-old trade dispute, which has hobbled Chinese exports and other economic decoupling between the two powers.
‘Not a game changer’: how massive RCEP deal has left trade barriers in place
If the US ever pressured Latin American countries to choose between their ties with Beijing or Washington, trade deals would tilt them towards China, said Nick Marro, lead Asia-Pacific trade analyst with The Economist Intelligence Unit market research firm in Hong Kong. The US does not currently ask countries in Latin America to shun deals with China.
In the Americas, China would gain access to minerals, new jobs for Chinese infrastructure developers such as Huawei Technologies Co. and new markets for Chinese-made goods, experts said.
They just don’t have enough to support the fast growth, so that’s why China has been trying all sorts of ways to try to get natural resources
It could get oil from Ecuador, according to Ellis, and wool from Uruguay. China, as a manufacturing hub with 1.4 billion people, needs a range of resources for economic development as well as sustaining its population.
“They just don’t have enough to support the fast growth, so that’s why China has been trying all sorts of ways to try to get natural resources, including from Africa, for example,” said Edwin Lai, associate director of the Centre for Economic Policy at the Hong Kong University of Science and Technology.
Latin American countries look mainly at China’s market, analysts believe.
“Beijing is hoping that, if the US ever pressured Latin American countries to choose between their ties with China or America, trade deals would help tilt them towards the former,” Marro said.
With Western trade ties taut, China cosies up to 16 of world’s poorest nations
In Ecuador, the trade ministry said non-petroleum exports topped US$3.6 million last year, making China the No. 2 destination. China-bound, non-petroleum exports of more than US$2.3 million from January to July this year marked a 110 per cent growth over the same period of 2021.
Ecuador and Uruguay approached China first to suggest trade agreements, Heine said.
“Beijing responded favourably, very much in keeping with China’s commitment to free trade,” he said. “As it happens, both countries have also proposed such [free-trade agreements] to the United States, but were rebuffed by Washington.”
But some Latin American leaders expect too much from China, Ellis added.
They might assume, based on a trade deal, that Chinese consumers will snap up their country’s banana crop tariff free, he said, while China in fact can save on transport costs by sourcing the fruit from a nearby Asian country.
Chinese trade negotiators have more experience with trade deals than many Latin American counterparts, he added. He said some Latin American leaders sign deals that allow only small wealthy segments of their countries to benefit.
In Chile, Ellis said, the most-talked about exports are cherries and grapes, but the most valuable is copper – so valued that China has tried to penetrate further into the sector than Chile is willing to allow.
The South American country’s copper exports to China reached around US$8.2 billion last year, according to the United Nations COMTRADE database.
Chile-China bilateral trade has increased from US$8 billion in 2005 to US$55 billion last year, according to Heine’s calculations.
