Biden tries to curb China's growing influence in Latin America: Is it too late?

President Joe Biden hosted the Summit of the Americas this week hoping to improve relations with the leaders of Latin America and the Caribbean – the ones who showed up – offering a series of economic, health and migration initiatives designed to meet mounting new challenges in the region.

The White House olive branch to the region comes at a time of loss of prestige and influence in a region it once dominated but where China is now emerging as a powerful economic and political rival.

But, Biden's message of attaining economic prosperity through a hemispheric recommitment to democracy, human rights and commerce, may be a case of too little, too late, according to some observers of Beijing's rapid expansion in the region. Since Biden came into office early last year, China has widened its trade advantage over the U.S. with Latin America, according to a Reuters analysis of U.N. trade data from 2015 to 2021. (China’s trade with Latin America surpassed $400 billion in 2021, compared to $295 billion for the U.S.)

When Mexico, the top U.S. trade partner, is excluded, analysis of the latest available data shows that total trade flows — imports and exports — between Latin America and China reached nearly $247 billion last year, well above the $174 billion with the U.S. Twenty-one out of 24 Latin American and Caribbean countries have signed on to China’s so-called ‘Belt and Road Initiative’, a global infrastructure investment project. Meanwhile, Washington's counter to Beijing, dubbed ‘Build Back Better’ has yet to take off since its launch in June 2021.

Biden says democracy is the path to prosperity; China has other ideas (and more money)

In a speech in Los Angeles, Biden sought to set aside political differences over some of the absences at the summit, saying he believes that in the next 10 years the Western Hemisphere will be the "most democratic in the entire world."

He added: "We have it all. We have the people, we have the resources. And we have more democracies in this hemisphere than in any other hemisphere.

But that objective is increasingly running into China undemocratic goals, which have been effective in winning over populist regimes in the hemisphere, especially in places like Brazil and Venezuela. In fact, China’s state-run, autocratic political and economic system, now lubricated with vast wealth, is tough to compete with.

“The fact that China does not bring ideological factors to the negotiating table with Latin American countries is well-received in the region,” according to Thiago de Aragão, Director of Strategy at Arko Advice, a Brazil-based political risk analysis firm.

While the U.S. stresses the importance of democratic institutions and rule of law, “China counter-argues this historical narrative by emphasizing that economic prosperity does not need to be entangled with the US-based democratic values,” he told a congressional panel last year.

Instead of "uncomfortable issues" like drug trafficking and corruption, "China's focus is all about cash," Aragão told Univision Noticias. "Basically, they say, 'I don't care what you do with this money. I don't care if you're corrupt or not. I don't care if you're left-wing or right-wing. All I want to know is can I buy 70% of your wheat or your soybeans, and that's it,'" he added.

The White House is looking for ways to incentivize U.S. companies to move their manufacturing operations closer to home, in Latin America, rather than operating from China. But, U.S. policy depends on the private sector which lacks the muscle of China's investment in Latin America which is made largely by state-owned firms.

“It’s a disconnect. China can direct its own economic activity, we can’t,” said Eric Farnsworth, vicepresidente del Consejo de las Américas, un grupo empresarial hemisférico en Washington. While Biden highlighted government funded tools, like the United States International Development Finance Corporation, which partners with the private sector to finance energy, healthcare, and infrastructure projects, it’s budget pales in comparison to China’s wallet.

“Tools like the USDFC have underperformed in Latin America, to put it mildly,” said Farnsworth. “Until we really get serious about competing with China in the Americas based on our own built-in advantages we will continue to lose ground,” he added, stressing better quality U.S. products, labor rights, and legal business practices.

China has made massive investments in Latin America over the past 15 years.

China’s principal two policy banks, China Export Import Bank and China Development Bank alone have made $136 billion dollars in loans to the region since 2005, according to Evan Ellis, a research professor at the U.S. Army War College, who testified before Congress in March. China-based companies have invested more than $160 billion dollars in the region since 2001, while China trade with the region in 2020 was $314 billion, more than 17 times the level in 2001, he added.

“In terms of such commerce alone, [China] is now the number one partner with every country south of Costa Rica, or number two behind Brazil,” he said. “Reflecting the lure of [China] for our neighbors in Latin America and the Caribbean, since 2017, 21 states in the region have pledged themselves to the PRC “Belt-and-road Initiative. The most recent was Argentina, which formalized its membership in February 2022 during a state visit to China by its President Alberto Fernandez.

As part of its increased focus on China, the State Department last month announced the creation of the so-called China House, a team of diplomats will coordinate U.S. policy to confront China on its global ambitions.

China the new challenge for Biden administration

Biden came into office identifying China as the greatest challenge facing the U.S. in the 21st century, and officials long described the administration’s strategy toward Beijing as cooperation, competition and confrontation.

“The scale and scope of the challenge posed by the People’s Republic of China will test American diplomacy like nothing we’ve seen before,” U.S. Secretary of State Antony Blinken said in a long-awaited speech on May 26 articulating Biden’s China strategy.

One of the areas of most concern, telecommunications, has seen Chinese firms Huawei and ZTE play a major role supplying phones as well as building wireless and fiber optic networks, surveillance architectures and smart cities.

“Such presence by Chinese companies in these telecommunications architectures raises particular risks, for both the US and our partners,” said Ellis, since the Chinese law obliges its companies to turn over data in their systems to the Chinese State thus giving the PRC important opportunities to capture and exploit such data.

The long-term result of China’s pursuit of its objectives in Latin America “is evolution toward a region ever more economically dependent on [China], with ever fewer democratic regimes, increasingly less disposed to cooperate with the United States on shared interests regarding security, rule of law and good governance, democracy and human rights,” warned Ellis.

China is a big buyer of Latin American commodities that the U.S. doesn't need

He noted that populist regimes in Venezuela, Ecuador, and Bolivia benefited heavily from Chinese loans that were important to their survival as they consolidated power, changing rules to decrease transparency and otherwise undermine democratic institutions.

China’s investments in ports and other major infrastructure projects, also gives it a major tool for influence in critical areas such as logistics, energy and production, according to Aragão, Director of Strategy at Arko Advice, In the energy sector, China has also become an important player in Brazil, while also trading with Argentina for grain and investing heavily in the mining sector in Chile and Bolivia.

The U.S. has another disadvantage as it is self-sufficient in many of commodities that are produced in Latin America, such as grain and minerals. Therefore, the U.S. market has difficulties in absorbing Latin American commodities in order to replace what China consumes. Nor does China have to deal with illegal immigration from the region, or problems regarding narcotics.

The United States needs to be more flexible and less bureaucratic if it wants to compete with China, say Ellis and Aragão, while offering more access to the things the country has to offer, such as a university education. "The dream of most Latin Americans is to study at U.S. universities," Aragão said.

But above all, to challenge China, "you have to splash money," he said, noting how much easier it is for Latin American countries to obtain lines of credit from China compared to the onerous conditions imposed by U.S. and other countries' lending institutions.

"The Chinese approach is fast and long-term," he said. "You can't be boxing with someone and complain that the other is fighting tae kwon do with you," he added.