Margolis: Trump opens doors for China in Latin America

Mac Margolis

Since November 8, free traders around the world have been in a lather, not least in Latin America. After all, U.S. president-elect Donald Trump had stumped to scrap regional trade deals, build a wall on the border with Mexico and deport undocumented immigrants, up to 3 million of them right away. “Trump’s election is an unmitigated disaster for the region,” commented Jorge Castaneda, a former Mexican foreign minister.

But Latin America has an escape valve: China. And as pundits and economists gauge the words out of Washington, indications are that the region’s pivot toward Asia is about to become even more acute. “As the U.S. takes a step back from Latin America, China continues to bound ahead,” said Boston University professor Kevin Gallagher, who has tracked Chinese interests in the Americas. “This is an opportunity and could actually help the region’s bargaining power.”

Chinese President Xi Jinping landed in Ecuador on Thursday to kick off a tour that will include state visits to Peru and Chile. The centerpiece of his South American swing will be his meeting in Lima with heads of state from 21 countries in Asia and the Pacific region; together the so-called APEC nations account for half of global trade and a third of its population. President Barack Obama will also be there, but as a lame duck with a dead duck in tow: his late great proposal for a Trans-Pacific Partnership trade pact killed off by Trump’s victory. Instead, attentions will turn to the Chinese delegation. Australia has already anticipated the trend, backing a made-in-China trade deal with 16 countries in the Asia and Pacific region, but excluding the United States.

China actually laid out its vision for a “cooperative partnership” in the western hemisphere in a widely noted 2008 white paper on Latin America and the Caribbean. Since then, China has become the region’s second largest commercial partner, commanding 13.7 percent of Latin American trade last year, according to the Inter-American Development Bank. Just four countries – Brazil, Chile, Colombia and Peru – accounted for more than half of the more than US$263 billion in two-way trade by 2014.

Peru and Chile have bilateral agreements with China, and Colombia and Uruguay are mulling similar deals. Newly seated Peruvian President Pedro Pablo Kuczynski made China his first state visit. Now, China watchers expect a second policy paper to be issued in the coming days. “And this one is supposed to be even bigger, aiming to incorporate Latin America into China’s global strategy,” said Margaret Myers, a China expert with the Inter-American Dialogue, a research group in Washington, D.C.

Most of the two-way trade has been Latin American grains or metals for Chinese manufactures, and while that arrangement has reaped plenty of export revenues, it has generated few jobs for Latin America. That may be changing. China has invested or committed US$125 billion in South America alone in the last decade – the lion’s share (US$110 billion) since 2010. Although most of that money has been earmarked for energy and metals, “the Chinese have pledged to work to diversify their investments and build industrial parks in Latin America,” said Gallagher.

Plenty of obstacles still divide east and west. Chinese companies can be intimidated by the regulatory thicket in Latin markets, even as their hosts are wary of the heavy footprint and trade barriers that come with Chinese developers. “It’s up to Latin America to make sure that the new partnership works to their advantage, as well,” said Myers. Encouragingly, Chinese seem to have learned some lessons from Africa, where they were often seen as environmental predators and most of the plum engineering jobs went to Chinese ringers.

For now, the view from the Americas is one of cautious optimism. “With Europe closing up and the U.S. a question mark, China has played its hand well,” former Brazilian ambassador to China, Luiz Augusto de Castro Neves, told me. “Now they’re the ones who are global players while the other guys look like protectionists and aggressors.”

Margolis writes about Latin America for Bloomberg View. He was a reporter for Newsweek and is the author of ‘The Last New World: The Conquest of the Amazon Frontier.’ © 2016, The Washington Post