China has risen to a position of dominance in Latin America which is surprising given the geographic and cultural proximity the region has to America. A pushback from Washington DC seems imminent which represents an opportunity for some investors and strategically positioned countries.
China's ascent in South America has been gradual and not something occurring overnight. In 2017 China overtook the USA in total trade in South and Central America and the gap has only widened since. Much of the increase has been China looking to Latin America to fill its seemingly neverending appetite for soy, corn, copper, lithium and other materials.
Peru's trade between the two nations over time is illustrative of the wider trend. A decade ago, Peru traded slightly more with America than China, but today China has a whopping $10 billion more in bilateral trade. Copper is a major driver of the worsening picture, from the American perspective, as Peru is the number two producer in the world.
Not only is China defeating America on trade in absolute terms, but it's also doing so in terms of trade balances. America is doing less trade with Latin America and more often than not it's export-driven, with few reciprocal purchases in return. In contrast, China's trade relationship with the region is much more advantageous.
Beyond trade, China is also investing. Between 2005 and 2020, it invested more than $130 billion in the region, including $60 billion in Brazil, $27 billion in Peru, $27 billion in Chile, and $12 billion in Argentina of Chinese FDI. An area of concern is that most of these investments are extractive investments. Starting in 2013, many were in the form of loans through the Belt and Road Initiative to build infrastructure China deems important with works usually carried out by Chinese contractors and labor.
At some point, Washington DC will likely consider strong actions to repel China from certain types of trade and activities in Latin America that it finds too threatening to continue. Geopolitically, the stage is set for robust countermoves. The most offensive of the activities starting to be noticed are the dominance of South American ports, increased military entanglements, and control of strategic minerals in the region by Chinese companies.
China's continued success in Latin America may seem certain to continue, but one must remember that all of this has occurred in a vacuum where America largely ignored the region instead focusing on the Middle East and Asia. A slowdown in the global economy will exacerbate "debt traps" ready to spring which could sour new deals. China's economy is struggling to find its footing, and as such will have less capital to throw around. What capital is available will be more expensive to lend making projects less feasible and likely to succeed.
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