Trump's policies in Latin America won't favorably impact China's status.

Revised Article:

Here's a more casual take on China's growing influence in Latin America and why it might not be as permanent as it seems

China has been waving its red banner across Latin America this century, replacing the US as the primary trade partner in South America and investing over $130 billion in all kinds of projects, from ports to copper mines. But don't count on Beijing sweeping up in what America used to consider its backyard just yet!

Trump's America-First policies, like tariffs, are shaking up the economic landscape and calling into question the logic of factory locations in neighboring countries. You'd think China would clean up, right? Wrong! While China might score a quick boost in trade with Latin America, the region isn't likely to cozy up to Beijing over the long haul.

Here are a few reasons:

1. Fear of Retaliation

Trump's been acting tough on what he perceives as China's shady moves in the region. Countries like Panama and Peru have already felt the heat, and others may follow suit. David Lubin, a research fellow at Chatham House in London, explains, "Trump's after an international order based on spheres of influence. The Monroe doctrine defined a sphere for the U.S. in Latin America 200 years ago, and the region hasn't changed much."

2. Trade Restrictions

Mexico, which depends heavily on the U.S. market, can't afford to play the China card in response to Trump's tariffs. Arturo Sarukhán, a former Mexican ambassador to Washington, warns that "boosting trade with China would be the kiss of death for Washington seeing Mexico as a worthwhile partner."

3. Dependence Anxiety

South American nations are already uncomfortable with their over-reliance on China, and tensions with the U.S. are the last thing they need. So, they're reluctant to increase their dependency further.

4. Slowing Chinese Engagement

Recent data suggests that China's rapid growth in trade and investment in Latin America might be cooling off. Chinese imports from the region decreased by 0.1% last year, and Chinese foreign direct investment hit a six-year low in 2022. Pepe Zhang, an expert on China-Latin America relations, predicts that "the structural decline in Chinese economic engagement won't change."

5. Cautious Moves by Brazil

Though Brazil may increase food exports to China in the short term to fill the void left by reduced US sales, the Brazilian government is careful not to depend too heavily on one partner. And Brazil's Congress recently granted the government sweeping new powers to retaliate against unfair trade practices—tools that could be used against China too.

6. Cultural and Ideological Differences

Most Latin American elites have been educated in the U.S. or Europe, and they don't feel much kinship with Beijing. This cultural divide might make it difficult for China to form lasting bonds with the region.

7. Diversification Goals

Instead of choosing sides, Latin American nations prefer to spread their trade to minimize risk. Chile, for example, recently sent its president to India to explore new export opportunities. Brazil is pursuing trade with Gulf nations seeking food supplies, and Costa Rica is even considering joining the Asia-dominated CPTPP trade bloc.

8. U.S. Cooperation Necessity

In the end, the Trump administration may realize it can't win against China and isolate its North American partners at the same time. Luis Oganes, JPMorgan's head of global macro research, notes that "when prices start to go up in the U.S., there will be massive pressure to reach a deal with North America to regain some appreciation for the concept of 'friendshoring' and nearshoring."

Stay tuned for updates, folks! Let's see how this story plays out.

Michael Stott for Our Website

Additional Insights:

While China's economic expansion in Latin America has been substantial, structural challenges persist:

Debt Sustainability Concerns: Chinese loans, often tied to commodity exports, have raised fears of debt dependency. Countries like Argentina and Venezuela already face pressure to prioritize exporting commodities like oil to service debt, creating economic vulnerabilities.
Trade Protectionism: Latin American nations have imposed tariffs on Chinese imports, particularly steel, reflecting resistance to overreliance on Chinese exports.
Geopolitical Pragmatism: Latin American nations prioritize diversifying trade partners to avoid dependence on any single partner. While China's FTAs and tariff-driven shifts offer short-term gains, countries remain wary of aligning too closely with Beijing amid rising U.S. pressure.
U.S. Competitive Pressure: Although U.S. tariffs and China's tariffs encourage China-LAC trade, the U.S. maintains influence through security partnerships and historical ties. Analysts note that absent comparable U.S. economic incentives, China's role grows, but not irreversibly.
Political and Structural Risks: China's focus on resource extraction often clashes with local environmental and labor concerns. Meanwhile, ideological shifts in LAC governments could recalibrate partnerships. In essence, while China's economic heft provides leverage, Latin American nations are likely to maintain a transactional, rather than strategic, partnership to preserve autonomy and mitigate risks.

Despite China's considerable investments in Latin America, there's an unlikely possibility that Beijing will fully dominate the markets that were once considered America's backyard.
The implementation of tariffs by the Trump administration in America-First policies has created a volatile economic climate, casting doubt on the rationale behind factory locations in neighboring countries, making China's prospect of sweeping up less likely.
Concerns over retaliation from the Trump administration, economic restrictions, dependence anxiety, and slowing Chinese engagement are factors that make it improbable for Latin American countries to cozy up to Beijing in the long run.
The structural decline in Chinese economic engagement, as shown by dwindling Chinese imports from Latin America and a six-year low in foreign direct investment in 2022, is not likely to change.