Time for the US to rethink its LatAm Strategy

Kevin P. Gallagher

This week Chinese President Xi Jinping will make his first official visit to Latin America since taking office. Xi will visit Trinidad and Tobego, Costa Rica, and Mexico. In a scramble the United States has sent Vice President Joseph Biden to the region on a goodwill mission at the same time.

The two leaders will spar over the airwaves, web, and blogosphere offering different visions of cooperation. The US should use this opportunity to strengthen ties with the region and take advantage of the fact that Latin America’s love affair with China appears to be cooling.

In just ten years China has gone from off the radar to the first or second biggest trading partner for all of the major Latin American countries – with China-Latin America trade surpassing $250bn in 2012. Chinese FDI is also on the rise with Chinese investment in Latin America totalling more than $30bn last year.

Perhaps most significant is the growth of Chinese lending to the region. In an updated study, colleagues and I estimate that China has lent Latin American governments $86bn since 2003, more than World Bank, Inter-American Development Bank, and the United States Export-Import Bank.

It is likely that Xi will ink a deal for a special economic zone in Costa Rica that will serve as an export platform for Chinese firms.

But the honeymoon for Latin America with China is over. Five years ago Latin American countries were excited that they had a new growth pole that wanted their goods while the US and Europe suppressed demand through austerity. Now however these countries bemoan a growing trade imbalance with China which sees them send commodities to China, with few linkages to the rest of their economies. In exchange they import light manufactured goods from China that undercut domestic producers and ignite discussions of de-industrialization across the region. What is more, many Chinese investments have met with stiff resistance from locals on both environmental and human rights grounds.

This leaves a window for the United States. But what can it offer? The US’s approach since the 1990s – to offer “trade not aid” – has lost its appeal in the region. The US has trade treaties with most countries that are willing in the region. However, they have been unpopular because of their mixed economic record. And obviously, the US can’t go back to “aid.” The US simply doesn’t have the ability to offer massive loans or special economic zones for US firms either.

So what to do? The US could begin by expressing that they want to move from being a patron to a partner. For too long the US has preached what Latin America needs rather than what Latin Americans say they want. More importantly, the US could broker deals to help the region industrialise in a manner that creates employment and that does not cause excessive environmental degradation the region. This would mean a big rethink and strong departure away from the now 25 year US foreign economic policy toward the region. It is time to stop flirting with the region and really get down with Latin American affairs.

Kevin P. Gallagher is a Professor at Boston University Where He Leads the Global Economic Governance Initiative.

This Piece First Appeared In the Financial Times © THE FINANCIAL TIMES LTD 2013

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