U.S. Chins Relations: Should Washington Be Concerned Over Growing Chinese Trade in Latin America?

On March 16, the Inter-American Development Bank announced that it would receive $2 billion from China for an investment fund to grant loans to both public and private entities in Latin America and the Caribbean. The move is representative of China's increased efforts to boost investment in Latin America, sparking arguments that a "U.S.-China rivalry" over Latin America could be imminent.

Indeed, China's investment in Latin America has grown with impressive speed over the past few years, making it the fastest-growing investor in the region. In fact, the PRC has already overtaken the U.S. as Brazil's largest trading partner, and total trade between Latin America and China has been growing faster than trade between Latin America and the United States (in 2012, the values were estimated at 8% and 6.2%, respectively). Today, according to a report released by the UN's Economic Commission for Latin America and the Caribbean (ECLAC), China is Latin America's third-largest trading partner, behind only the U.S. and the EU, respectively. The same report predicts that by 2015 China will have surpassed the EU, remaining second only to the United States. 

Yet how worried should the U.S. be over these figures? One thing to take into consideration is the fact that the U.S. still retains a comfortable lead against China in absolute terms: Washington exchanges $800 billion in goods and services with Latin America annually, more than three times the region's trade with China. Moreover, the fact that most of China's confirmed investments in Latin America target the extraction of natural resources raises questions about the sustainability of China's investment in the region. It means that a sudden change in commodity prices could have serious consequences for Chinese foreign direct investment into the region. Finally, according to ECLAC data, most of China's trade with Latin America has been concentrated in a small group of countries, namely Argentina, Brazil, and Peru. This is a key fact that must be taken into consideration when evaluating China's involvement in the region as a whole. 

In this way, the U.S. has no reason to despair over China's involvement in Latin America yet. U.S. neglect of the region in the past decade is understandable, given the more pressing domestic and foreign problems it has faced. But the time to change this stance is now, or else this neglect may come to have a high cost. The political and economic consequences of China out-influencing the U.S. in Latin America could prove problematic for Washington, especially given the increasing economic and political clout that some Latin American countries, such as Brazil and Mexico, are growing to have.

Lastly, what about Latin America itself? What consequences might this Sino-American competition bring to the region? Economically, it will give Latin America more options, allowing it to diversify its FDI portfolio, and giving it more opportunities for business and therefore for economic growth. Politically, it may put Latin America back onto Washington's radar. Whether this will be appreciated or not depends on the approach Washington decides to take in this regard. U.S. deals with Latin America are notorious for their political side-notes, whereas the Chinese have come in with a more focused economics outlook. The U.S. may therefore have to curb its demands on Latin America, lest the Chinese have something better to offer.

All in all, the prospective advantages to Latin America in this new-found Sino-American competition over the region are numerous, and as Michael Shifter, president of Inter-American Dialogue, adequately puts it: "Latin America welcomes both." Whether Latin American countries will manage to reap the benefits of this competition, however, remains to be seen.