Posted in: World

Won’t Get Fooled Again

By | April 2, 2012

In December 2011, Hugo Chavez gave the opening address at the first conference of CELAC, the Community of Latin American and Caribbean States. This nascent Latin American regional bloc includes all countries in North and South America with the notable exception of the United States and Canada, a scope that suggests its potential as a successor to the U.S.-dominated Organization of American States (OAS), an existing organization including all countries in the Americas other than Cuba. In his address, Chavez stated, “Let us lay the cornerstone of South American freedom without fear… The Monroe Doctrine was imposed here: America for Americans, the Yankees. They imposed their will during 200 years, but that’s enough.”

The United States has seen an increasing number of leftist leaders elected to the head of Latin American countries in the past decade, many of whom openly reject the idea of a market economy along the lines of the Washington Consensus. In terms of foreign affairs, Latin American countries are forming strategic partnerships with external powers such as China and Iran, an open challenge to the increasingly irrelevant Monroe Doctrine.

The U.S. share of Latin American trade has dropped significantly in the past decade, a victim of intensive Chinese growth. Even if Chavez does not live out his self-proclaimed role as the soothsayer of a continent, his observation of the United States’ loss of dominance has significant merit. His assertion of an independent Latin American future is more questionable. The accusations of exploitation levied for decades at the United States are now drawing comparisons to the current relationship between Latin America and China, which has fueled much of Latin America’s sense of independence from the United States. From the acquisition of large quantities of Latin American commodities to investment into local resource-extraction companies, the trade practices of China illustrate that despite rhetoric claiming the contrary, Latin America’s goal of political nonalignment is impossible in light of its economic interests.

Feeding the Phoenix

In recent years, the rise of China has been seen in the United States as the harbinger of shuttered mom-and-pop stores and factory towns in decline. Economic competition between China and the U.S. is just as significant in Latin America, where China recently surpassed the United States in its volume of trade to both Brazil and Chile. According to the Inter-American Development Bank, the share of the United States in Latin American trade has dropped from 53% to 39%, the difference largely attributable to China. The vast majority of this trade has been in the form of commodities, a necessity given the rate of Chinese growth, ranging from raw materials to agricultural products, trade that has provided both parties tremendous returns from their partnership. For China, this involves significant strides in securing its energy future. For example, Bloomberg reports a $10 billion loan from China’s Development Bank to Petrobras, Brazil’s state-controlled oil company, in exchange for guaranteed access to Brazilian petroleum. Meanwhile, by feeding China’s insatiable growth, many of China’s most significant trading partners in Latin America have been able to fend off the negative effects and even grow during this global financial crisis. The UN reports that the GDP of Latin America grew at 4.3% in 2011, notable when compared to sluggish growth elsewhere.

Left Behind

Although the immediate effects of trade between Latin America and China show a win-win situation, the long term picture is not as rosy for the former continent. Trade with China has played an integral part in the current growth of many South American countries, yet this trade can also hinder the further development of diversified economies and regional networks. From a historical perspective, the exportation of commodities and importation of manufactured goods was frowned upon by policymakers in Latin American countries. Eric Farnsworth, the Vice President of the Council of the Americas, explained to the HPR that the theory held by Latin Americans claimed that “Latin America was poor because the United States and European countries exploited the commodities and didn’t allow the region to grow.” This mentality had pushed Latin America to focus on manufacturing and value-added production as a means of development during the late 20th century through Import Substitution Industrialization, a policy of macroeconomics that seeks to replace imports with domestic production, a policy that has seen mixed results in the region. This has changed dramatically through the increasing commodity trade to China—what was once seen as anathema to Latin America is now a driver of its growth.

In addition, by involving itself in the promotion of Chinese growth, Latin American states run the risk of damaging their own manufacturing sectors. John Maisto, former ambassador to Nicaragua, Venezuela, and the OAS, poses a dilemma for the HPR: “U.S. imperialism was defined as the imperial state sucking out raw materials and agricultural products, turning them into manufactured products and selling them back. What do you call it when China comes in and buys soy and minerals, takes them to China…and sells manufactured Chinese goods back to compete with Latin America’s own manufactured products?” Farnsworth extends his historical critique by drawing a distinction between sectors, noting that “commodities production is very capital intensive,” while “manufacturing is more labor intensive”. As a result, much of the job creation is actually going to China as opposed to Latin America, a perverse reflection of the imperialism demonized by Chavez and anti-West leaders before him. This new reality has not gone unnoticed. In the last year, Brazil and Argentina have enacted laws restricting foreign ownership of land, reflecting a fear of China and its neocolonial model. A Wikileaked memo from a Mexican official was much more direct, stating “We don’t want to be China’s next Africa.”

Searching for Independence

The growing role of China in Latin America over the past decade has strong ramifications for the United States, a country that long thought of the region as its exclusive backyard. While it is difficult to argue that China will stop growing, pushback within Latin America and rumors of an economic slowdown in China are signs of a slowing commodities trade between the two. Farnsworth extends this by explaining that “if countries depend on [the commodities trade] as their long term economic development strategy, they will be disappointed in the end, just like they were disappointed in previous waves of economic growth and investment.”

The perceived slowdown of China has once again reintroduced the United States into the discussion. Maisto claims that “Latin Americans feel much more comfortable dealing with us and the globalized community with Western standards than they do with the Chinese,” implying that its current relationship is driven primarily by an economic understanding. In terms of expanding this relationship, Farnsworth observes that “in Latin America, we don’t have a lot of tools we can use to promote U.S. interests…but trade is one of them, one that links economies together.” He suggests that Free Trade Agreements are being used to combat Chinese involvement in the region. This is corroborated by another Wikileaked statement from a Colombian diplomat, stating “Colombia is wary of Chinese motives and what it sees as lax Chinese environmental and labor standards. However, Colombia needs new economic partners, particularly given the lack of progress on a U.S.-Colombia Free Trade agreement (FTA).”

The goal of Latin America is to avoid dependency. In this regard, Maisto suggests that it is important for Latin American countries to develop markets among themselves as opposed to coalescing behind the rhetoric of leaders such as Chavez or becoming reliant on trade partners that are good for Latin America’s balance sheet, but not its development. Given a Latin American psyche that is bitterly imprinted with memories of imperialism and exploitation, it is easy to see history being repeated in this current relationship. How Latin America negotiates this relationship will be essential to its development into the 21st century.

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