Latin America’s Trump Card

Shh…it’s Xi.

One of the most important meetings in Latin America’s economic and political calendar is happening later this week. It’s not happening in Latin America, and no Latin American leaders will be in the room. I’d bet money that nobody will even say the word “Latin”.

When President Trump and Premier Xi get together to talk at Mar-a-Lago on April 6th and 7th, Latin America won’t be on the agenda but, for the region, the stakes couldn’t be higher.

From Mexico down to Argentina, the state of the U.S.-China trade relationship is an important dynamic in individual countries’ own trade agendas. This is because, in the past decade, the United States has been eclipsed by China as principal trade partner in nearly every major Latin American economy except for Mexico. Along with these trade relationships has come on-again-off-again technical assistance, oil-for-loan agreements, and probably Cristina Fernandez’s worst tweet storm.

Most important, the budding relationships with China allowed Latin America an important bargaining chip against U.S. policy. And, unlike in the Cold War when the Soviet Union used aid and ideology to antagonize the U.S. in the region for strategic purposes, China’s engagement with Latin America is based on economic realities first and political interest second. The economic component has given Latin American governments an varying degree of leverage when negotiating with the United States. Uncle Sam dislikes political antagonism, but at the end of the day hates losing paying customers.

Now, a decade since the pivot towards Asia took place for resource-rich economies in the Western Hemisphere, the Chinese economy is arguably more interlinked than the American economy with Latin American prosperity. And the repercussions of trade frictions between the U.S. and China are likely to have important consequences across the region, but they can cut many different ways.

Here’s what’s on the table for the a selection of countries across the region:

Venezuela

Maduro and Xi

Friends with Benefits

As the owner of the world’s largest (proven and possible) reserves of crude, Venezuela was once a main focus of Chinese attention. Chinese oil demand in the mid-2000s seemed insatiable, and growth unstoppable. And China was willing to enter into convoluted, money-losing agreements with the Venezuelan government and state oil company PDVSA in order to guarantee long-term stability in their oil supply.  China’s political goals, initially a driver in the equation, have collapsed in recent months as the harsh reality of default comes into view. The fact that this withdrawal coincides with some of Venezuela’s worst months of economic, social and political crisis, cannot be a coincidence. In a different situation, China may have propped up the Maduro administration for political reasons, but a precarious economy is no time to be channeling money to profligate foreign friends. Barring a warm bear hug from Russia, Venezuela has nowhere to run now.

Chile

Bachelet and Xi

Michelle Leans In

Chile’s exports punch far above its weight for a country of 17 million people. Its edible commodities, including counter-seasonal produce (thank Chile for strawberries in March), wines, grains, and frozen fish, traverse ocean and land to reach supermarkets across the world. Its copper reserves helped power China’s construction boom in the mid to late 2000s, and continue to be an important source of revenue for the country. A trade chill between China and the United States could curb construction projects in China and dent Chile’s valuable copper exports. Although China could, theoretically, import more wine and winter berries from Chile, these comparatively luxury goods aren’t likely to be top of shopping cart if the economy slows down.

 

Argentina 

Macri and Xi

But can he still play?

Former President Cristina Fernandez famously courted China for investment, cooperation, and sources of lending while the country was shut out from international capital markets. Chinese companies bought banks, operated behind the scenes in YPF’s nationalization, and even launched ambitious global food pacts under Cristina’s watch. So confident was she of the inviolability of her relationship that she made a kooky Asian joke over Twitter while visiting Beijing on an official delegation. But after Argentines dealt her movement a death blow with the election of Mauricio Macri, and Argentina returned to international markets, the China-Argentina connection became far more pragmatic. Today, Macri and Trump’s nascent bromance is budding flowers, and Macri will visit the United States to see Trump in late April. There are clear points of commonality between Trump’s priorities and Macri’s, despite Argentines’ longstanding mistrust of U.S. intentions in the region and the world. Argentina’s current non-ideological, transactional stance on trade allows the country to profit from any eventuality in the U.S.-China relationship. Additionally, Argentina’s export base of wheat, soy, and beef products to China fare much better in a downturn than commodities or more value-added fruits and vegetables. Argentina’s exports to the United States of value-added products and services are complementary to exports to China, and a strong U.S. economy and dollar can only boost this good news for Argentina.  For the first time in more than a decade, Argentina is in a win-win situation.

 

Mexico

Enrique and Xi

Alien civilizations

In the time of Trump, Mexico and China are frenemies. In a pre-2017 world, they were trade competitors, wary developing-world cooperators, and just generally far away from each other in a lot of ways. But now, everything is different, and the political motivations for Mexico and China to play nice now outweigh the economic realities. I’m not going to try to do better than Andrew Browne’s WSJ sum-up of the situation, so I’m not going to try (republished in the Australian for your paywall-free pleasure). The brilliant former Mexican ambassador to China, Jorge Guajardo, tells you everything you need to know here.

Reading Mexico, China has badly misread Donald Trump.

Brazil

Do you think Xi’d like flowers?

In a parallel universe, somewhere in a Goldman Sachs fever dream the BRICs would be well on their way to powering the world economy of 2025, boasting a common market of nearly 3 billion people, with trade, political cooperation and a World Bank alternative driving the OECD into inevitable decline. But as commodity prices fell apart, and Brazil and Russia’s economies failed to diversify, BRICs became BICs and eventually now just became ICs (naturally pronounced “icks”). 

The promise of Brazil’s regional leadership in a new global movement anchored with China faded as Lula’s long shadow left the presidency, and collapsed as Dilma faced impeachment and Brazil entered into one of the worst recessions in its history. Brazil’s high-flying iron ore exports, combined with the potential of one of the largest oil finds in the world, made it seem not so long ago that Brasilia could call shots with China in a co-dependent economic relationship.

All through the bluster, the United States stood by diffidently and paid Brazil little mind. Now with a Brazilian administration much more favorable to U.S. leadership in the world (you know something’s up when Russia Today runs a piece entitled “Brazil’s acting president used to be US intel informant” and Fox News runs  “Dilma’s impeachment won’t impact U.S.-Brazil relations”), and a neverending economic crisis, Brazil does not have much agency to call any shots.

The ideological composition of the Temer government, the endless corruption saga compounded by recent missteps like JBS/BRF’s tainted meat exporting racket, make Brazil’s prospects for bringing back its erstwhile China relationship less plausible. For the foreseeable future, Brazil will have to take what it can get economically and politically,  from whoever will believe (in) them.

 

Cuba

Fidel and Xi

“Maybe I’ll be in power as long as you”

Pity Cuba, the place that just can’t get its timing right on anything these days. First, it began to open its command economy up slowly to entrepreneurship. Then foreign investors began to discover its potential as an offshore oil exporter, right before the prospecting wells sputtered out little more than a few drops. Then the United States started a rapprochement process which sucked the air out of any other non-US participation in the island’s glasnost. And Fidel Castro didn’t even get the pleasure of living to see Donald Trump become president. Cuba’s folly is China’s fortune, however, and the relationship between China and Cuba could take a dramatically friendly new turn as Republican America shuts the door to Obama-era executive reforms. China’s factories could produce the badly-needed consumer goods, from cars and buses to construction materials, that Cuba needs as it transforms. Cuba’s symbolism to U.S. politics, while not nearly what it was during the Cold War, does not escape Beijing’s notice. And if Chinese and American relations deteriorate, Cuba’s siren song as a foil to the United States might be too sonorous for China to resist.

Democracy

Tienanmen

One of these things is still in the square

And, finally, a word on democracy. Trump’s administration has proven far more flexible to democratic alternatives than many post-Cold War U.S. administrations. From El-Sisi to Putin, Trump is a clear supporter of strong executive leadership, and Latin American governments previously shunned for anti-democratic behavior would be less likely to cause consternation in Washington (as long as they didn’t direct this power against Trump’s immediate interests).

Five to ten years ago, this would have been a welcome development for Latin America, whose large countries swooned before the strong arms of Lula, Cristina, Hugo, Evo, and Rafael. It also would have been good news for China, who never cared much to enter into those discussions. China’s economic support, combined with a U.S. wary of driving human rights and free trade discussions, would have been a glorious moment if that moment were 2009.

But in 2017, after years of sloppy growth, social unrest, and dissatisfaction, Latin America’s democracies have swung back towards free expression, trade liberalism and away from Bolivarian brotherhood. This blunts China’s power to sign quick and hazy bilateral deals and makes business riper for American wheeling and dealing.

And just perhaps, Latin Americans, emerging wary from a decade of populism, might have a few important lessons to teach their northern neighbor.

 

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