Latin America and the Caribbean: A Key Region for the United States and China

July 11, 2022 By Jessica Ritchie and Alejandra Casillas

As the United States seeks to bolster its partnerships with its southern neighbors, other countries have also taken an increasing interest in the region over the past decade, with China leading the way. China’s President Xi Jinping has embarked on an agenda of economic statecraft, altering its economic condition and foreign relations. In this time, China has quickly evolved into a dominant force in the international system and continues to expand its global activity, especially through its vast Belt and Road Initiative (BRI). China’s growing connections in Latin America and the Caribbean (LAC) are particularly of note, with some countries in the region pivoting away from U.S. support and instead forming close relations with China through trade and growing diplomatic ties.

Increasing Trade

While the Belt and Road Initiative was launched by China in 2013, its focus on Latin America did not arrive until late 2017. However, the initiative has moved at a rapid speed since, with 20 countries in the region now participating in the program. Although the United States remains Latin America’s top trade partner, China ranks second and has quickly increased its partner share, further economically intertwining itself with the region.

While China remains behind the United States in LAC trade, it has become the top trading partner for a select number of countries in the region, including Brazil, Chile, and Peru. Additionally, China has bilateral free trade agreements with Chile, Costa Rica, and Peru, and it is currently negotiating an agreement with Ecuador. In comparison, over the past 28 years, the United States has signed free trade agreements with 11 LAC countries.

Growing Diplomatic Ties with China

In addition to becoming further tied economically, China has also made diplomatic inroads with several countries in the region. Countries in Latin America were among the few in the world to maintain relations with Taiwan, but this has also changed over the past five years. For example, in 2017, the Panamanian government broke ties with Taiwan in favor of solidifying relations with China. Panama’s president at the time, Juan Carlos Varela, commented he felt this was the best decision for the country considering the size of China’s economy, China’s use of the Panama Canal, and the historically significant Panamanian-Chinese community.

In May 2018, the Dominican Republic severed diplomatic relations with Taiwan and formalized relations with China, and, in August 2018, El Salvador also announced it cut diplomatic relations with Taiwan and established closer relations with China. As part of this new union, China “gifted” El Salvador 3,000 tons of rice and promised $150 million toward infrastructure projects. In December 2021, Nicaragua became the latest Latin American country to end diplomatic relations with Taiwan. Days after it cut diplomatic ties, Nicaragua received 1 million COVID-19 vaccines from China.

China’s Increasing Interest & Investment as Cause for Concern

China’s increased economic and diplomatic activity in the region is cause for concern, as history has shown that Chinese investments are often saddled with consequences, which include but are not limited to surveillance implications, environmental destruction, slowed lending and increased debt distress, as well as debt sustainability struggles and crises.

In recent years, multilateral agencies like the World Bank have flagged the debt distress implications from Belt and Road Initiative recipients, estimating that nearly one-third of BRI countries were at high risk of debt distress prior to the COVID-19 pandemic. These investments also have severe climate implications as more than 60% of China’s BRI-specific energy financing has gone toward nonrenewable energy resources. Moreover, at least 13 BRI countries experienced double-digit growth in CO2 emissions, including countries that are already among the most affected by climate change, like Bangladesh, Myanmar, Pakistan, and Vietnam. Further concerning, China’s 2017 National Intelligence Law legally requires all Chinese technology companies, like Huawei, to conduct intelligence on behalf of the Chinese government. Huawei has shipped 70,000 5G base stations globally and has built 70% of 4G networks on the African continent. With this, the Chinese government has the capability to use these networks to collect intelligence, monitor critics, steal intellectual property, and disable networks.

What’s Next?

China’s growing influence has become a driving topic in Washington, DC , with lawmakers from both sides of the aisle and the Administration highlighting the need to compete in Latin America, the Caribbean, and around the world. U.S. agencies are also stepping up, making the following recent commitments in addition to their usual programming in the region:

  • The U.S. Trade and Development Agency (USTDA) renewed their partnership with the Development Bank of Latin America earlier this month to advance high-quality sustainable infrastructure projects in the region.
  • The Development Finance Corporation (DFC) announced they are providing more than $100 million in financing to support health, agriculture, and financial inclusion in LAC.
  • The U.S. Agency for International Development (USAID) will provide approximately $331 million in humanitarian and long-term development assistance to help address food insecurity and improve the quality of life for people across the LAC region.

These commitments not only strengthen the United States’ relationship with Latin America and the Caribbean, but they also renew the United States’ commitment to supporting its neighbors and leading the Western Hemisphere with values and solutions that bolster democracy, free and open societies, and economic opportunity for all.