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China, the U.S. and Economic Expansion in the Americas

Apr 16, 2019

The rise of China in Latin America during the first part of the twenty-first century has noticeable parallels, and some distinctive differences, with the United States’ expansion and penetration of the continent’s economies during the early twentieth century. The jury remains out as to whether history will repeat.

The U.S. industrial economy took shape in the late nineteenth century, with its factories churning out unparalleled production, while European markets were shuttered by protectionist tariffs. Surpluses of U.S. production and capital saw enormous opportunities in what became known as “America’s backyard.” In exchange for goods and financing, the countries of Latin America supplied commodities and raw materials to feed U.S. factories, while stimulating the growth of the automobile and many other industries.

The initial difficulty was in breaking into Latin America and the Caribbean’s (LAC) relatively weak economies and nations. For that, commercial walls had to be breached, and the U.S. Marines often played a nefarious role. As with their subprime loans that would trigger the 2007–2008 recession, U.S. banks in the early twentieth century made questionable loans to countries in the Americas. When debt became critical, diplomatic and military intervention began in Mexico, Central America, Central America, and the Caribbean and continued for much of the twentieth century. The mistrust that exists today between Latin American countries and the U.S. stems, in large measure, from different interpretations of those events and relations.

Its surplus of goods and capital meant that the United States helped develop LAC infrastructure and raise living standards while becoming a profitable market for raw materials and commodities. Indeed, foreign capital enabled many ventures and projects that were otherwise impossible, given the low savings rates and insufficient capital accumulation in the Americas.

For those below the Rio Grande, however, dollar diplomacy subverted the building of robust, independent republics and terms of trade between low-priced primary products and expensive finished products meant virtually permanent underdevelopment. Of course, the details are debatable, but the perception was crystalized in Eduardo Galeano’s Open Veins of Latin America, the work of Guyanese scholar Walter Rodney, and the dependency theory of Raul Prebisch, among others. U.S. economic and other interests dominated the conversation while Guatemala (1954) and Cuba (1958 to the present) added to a concern about the spread of communism in the hemisphere.

U.S. hegemony over economic relationships was seen by many throughout LAC as a primary obstacle to economic and political independence, and that mindset has persisted into the current century. It is thus all the more remarkable that those in the region who warned against economic penetration and unequal terms of trade have remained relatively silent regarding the rise of China as a significant economic partner in the Americas.

China’s presence is fairly recent, and its economic footprint still pales compared to that of the U.S. But China’s role is growing. For instance, with 45 percent of the world’s copper reserves, Latin America represents an invaluable source of raw materials for China. One 2006 research paper by François Lafargue argued:

Chile and Peru between them produce 44% of world copper output and for China, the world’s biggest consumer, half its imports. It is hardly surprising that China is building up its investments in the mining sector. Its giant steel-maker, Shougang Group, via its subsidiary Shougang Hierro Peru, has since 1992 been working several Peruvian iron ore mines, including the one at Marcona to the south of Lima.

The same report underscores that “Brazil is also one of the main targets for Chinese investment. After India and Australia, Brazil ranks as China’s third biggest supplier of iron ore, providing a quarter of all its imports.” Venezuela, with the world’s largest petroleum reserves, received an estimated $60 billion in Chinese loans and credits in exchange for oil shipments. In the decades that followed, China became the leading trade partner for Brazil, Chile, and several other LAC countries.

While visiting the region, China’s President Xi, Premier Li, and other central leaders regularly sign trade agreements, offer credits, and promote an increased presence of Chinese state-owned industries, private concerns, and prominent development banks. The Belt and Road Initiative, the People’s Republic of China’s (PRC) principal infrastructure development plan, is touted as an opportunity to extend Chinese-driven projects that will access commodities and raw materials for export to China.

Chinese goods have not overtaken imports from the United States and other longer-term trade partners, but there is no doubt that China sees the Americas as a growing market for its products. Attempts to establish manufacturing ventures in the Americas, however, have met with limited success, primarily due to domestic producers’ concern that Chinese industries might displace them.

Unlike the United States’ presence in the twentieth century, the PRC’s presence has not included military incursions to protect its assets abroad. The now-stalled Nicaraguan canal, however, raised the specter that China might establish military bases to secure its transportation routes in the region. Nicaragua’s confiscation of landowners’ property to accommodate the company building the canal generated serious local and regional worries. One especially troubling concern is that China’s checkbook diplomacy could suborn local governments and industries in the long run. Another more important worry is that debt will force the receiving countries to make territorial and other concessions.

The fundamental issue, however, is the perceived imbalance between an industrial powerhouse such as China and individually weak developing countries lured by generous loans and investments. Such imbalance, which mirrors the U.S.-Latin American dynamic of the early twentieth century, was underscored at a 2005 conference in Beijing by Moeletsi Mbeki, chairman of the South African Institute of International Affairs, who expressed his fears for his own continent:

Africa sells raw materials to China and China sells manufactured products to Africa. This is a dangerous equation that reproduces Africa’s old relationship with colonial powers. The equation is not sustainable for a number of reasons. First, Africa needs to preserve its natural resources to use in the future for its own industrialization. Second, China’s export strategy is contributing to the deindustrialization of some middle-income countries…it is in the interest of both Africa and China to find solutions to these strategies.

So far, the solutions have not been found. The PRC’s surplus capital and overcapacity in critical industries work as push factors for further inroads in the Americas. China’s generous checkbook and LAC’s lack of domestic capital serve as pull factors for cash-strapped governments and industries across the hemisphere.

History, argued Karl Marx, repeats itself: “the first as tragedy, then as farce.” So far, China’s presence in Latin America has been neither tragedy nor farce. The challenge, however, is how a major industrial power can avoid reproducing a set of dynamic relationships that have previously led an entire continent to resent and excoriate unequal trade and interference in its internal affairs. Whether China can create an alternative model or whether it becomes the “new imperialism with Chinese characteristics” will largely depend on how well it reads history and avoids the worst pitfalls of its predecessors.

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