Sep 23, 2021 - World

U.S. friends in Latin America are turning to China

 Illustration of China’s flag casting a shadow over a smaller US flag.

Illustration: Shoshana Gordon/Axios

The U.S. is losing Latin America to China without putting up a fight, Ecuador’s ambassador to Washington told Axios, laying bare her frustrations with early inattention from the Biden administration.

Why it matters: Ecuador isn't alone. China has deepened its engagement in the region, and it's now the top trading partner for many of the region's largest economies. That gives Beijing considerable leverage in a region historically dominated by the U.S., and makes Latin America a major frontier in the global competition for influence.

  • Without more attention from Washington, even U.S.-friendly governments will conclude that “we’re still just the backyard,” Ambassador Ivonne Baki said in an hour-long interview in her office.
  • “And China is waiting, saying, ‘We’re here. We’re giving you money.’ They want control of course, but they don’t say that.”
Data: World Bank and Observatory of Economic Complexity; Chart: Kavya Beheraj/Axios

Zoom in: Ecuador’s new center-right president, Guillermo Lasso, currently has a 75% approval rating after a successful vaccination push. His top economic priority is to secure trade deals with all of the world’s biggest economies, first and foremost the U.S. — a responsibility that falls on Baki's shoulders.

  • “They don’t see the urgency of the problems that could happen if we don’t do something immediately,” Baki says of the administration.
  • Lasso’s sky-high approval won’t last long. The country is polarized and the economy was badly damaged by the pandemic. A signal from Washington could go a long way, she contends.

The other side: Beijing is prepared to move quickly on a free trade deal with Ecuador, which the governments hope to finalize by March.

  • "We don't want to go there, [Lasso] doesn't want to," Baki says of a shift toward China. But he might be "obliged to."
  • “Xi Jinping is calling the president. He wants to speak with him. [Vladimir] Putin wants to speak with him,” she adds. And they’re calling with concrete proposals.
  • Ecuador was thankful for Biden’s donation of 2 million vaccine doses in July, Baki says. But China had already provided 13 million.

Zoom out: Baki's comments may be unusually candid, but her sentiments are widely shared.

  • "It's a narrative that we're hearing across the entire region, and I think it's not without reason," says Margaret Myers of the Inter-American Dialogue.
  • Reflecting on the political turmoil across the region and what he saw as limited U.S. engagement, another South American diplomat told Axios the U.S. would look up one day and realize it had no friends left in the hemisphere.
Data: World Bank and Observatory of Economic Complexity; Chart: Kavya Beheraj/Axios

The big picture: Like Donald Trump and Barack Obama, Biden has looked to the Indo-Pacific to counter China’s growing influence.

  • Yes, but: “Great power competition has come to the Americas,” says Daniel Runde of the Center for Strategic and International Studies, even if Washington hasn’t woken up to it yet.
  • The U.S. needs friends in its hemisphere with whom to cooperate on issues like migration, or when crises emerge, as in Venezuela and Haiti.
  • China's trade dominance could allow it to thwart those U.S. objectives, peel countries away from Taiwan, influence the way politics and business are conducted, and, down the road, potentially even establish a military presence.

“The way they have found to do this is through trade agreements, but certainly China’s interests in the region go way beyond that," says Nicolás Santo, author of the China Notes newsletter on China-Latin America political and business dynamics.

  • “I am shocked by how little attention the U.S. has paid to this topic over the last 10 years, and even now," Santo adds.

Baki says she still has hope that Biden will take a more proactive approach.

  • “He believes in the region," she says, noting his work in the Senate and as Barack Obama's point man in the hemisphere. "So I thought he would put it as a priority.”
  • “What happens to our neighbors impacts the United States and vice versa, which is why we take an active interest in the safety, security, and prosperity of Latin America and the Caribbean,” a National Security Council spokesperson told Axios. 
  • Senior officials will soon travel to Latin America to meet with stakeholders "to better understand their needs and help deliver infrastructure to the people who need it," the spokesperson added.
  • A State Department spokesperson pointed Axios to a list of 20 meetings and calls between senior officials and their counterparts from the region.

How the trade winds changed

The U.S. was the top trading partner of nine of the 12 countries in South America two decades ago, and the top partner across the board from outside the continent.

Breaking it down: China has now surpassed the U.S. in all but Colombia, Ecuador and Paraguay, and it may soon be the largest partner for those countries as well.

  • China is mainly importing raw materials and building infrastructure. In terms of culture and tourism, and dealmaking in the region's growing tech hubs, relations with the U.S. are far deeper.
  • “It’s not as though the U.S. is no longer a critical ally for countries in the region. Myers says. "It’s just that China is very much present ... in sectors where the U.S. isn’t.”
  • China is willing to do business in authoritarian-leaning countries that are shunned by the U.S., and it has the advantage of speed, whether in delivering infrastructure or vaccines. Many of the same dynamics have helped China become a major power in Africa.

The U.S. is often left reacting to China's moves, rather than driving the agenda.

  • One exception is an unusual deal struck in the final days of the Trump administration, in which the U.S. International Development Finance Corporation agreed to invest in Ecuadorian oil and infrastructure if those funds were used to pay down the debt to China, and if Ecuador kept Huawei out of its 5G networks.

What to watch: It's unclear if Biden will pursue similar deals — or whether many countries in the region would be prepared to so explicitly side with the U.S. over China.

Choosing China, by default

President Luis Lacalle Pou of Uruguay spoke on prime time TV earlier this month to announce that his country would explore free trade talks with Beijing, despite concerns that it would undermine the regional Mercosur bloc.

Lacalle Pou. Photo: John Angelillo-Pool/Getty Images
  • The center-right, pro-business leader has also proposed trade talks with the U.S. but attracted little interest, Eric Farnsworth and Carlos Mazal write in Barron's.
  • "Montevideo would prefer to develop ties with Washington over Beijing. But so far, that option has been unavailable. And Uruguay is far from unique across the Americas," they write.

Between the lines: It may surprise U.S. observers that, in a climate of U.S.-China tensions, a U.S.-friendly president like Lacalle Pou would see political advantage in heralding a potential deal with China so prominently.

  • But since the announcement, "the only thing people talk about is China,” says Santo, who is from Uruguay but spent two years working for the government of the Chinese city of Foshan.
  • "The toxic political issues associated with China are not a concern for countries in the region," he says. When it comes to the "Yanquis," everyone has a political opinion, he says. Not so for China.

“Every single Latin American country is seduced by the potential of the China economic opportunity," he says.

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