China paves path for South America’s break from US

Asia Times – South America’s largest trading bloc, Mercosur (Brazil, Argentina, Uruguay, Paraguay), recently inked a comprehensive free trade deal with the European Union after more than 20 years of negotiations. The deal now awaits ratification and implementation.

On the other side of the Andes, Chile is negotiating a comprehensive economic partnership with India, the world’s fourth-largest economy.

Meanwhile, American trade policy is undergoing major shifts characterized by less free trade and more protectionism. But what’s striking is South America’s unchanged advance towards multi-alignment and away from a US-centered hemisphere.

When I visited Santiago in 2018, I noticed something I hadn’t seen before – Chinese cars. Brands I hadn’t heard of, such as Changan, Maxus, Great Wall, and Haval. Today, Chinese cars account for 40%  of automotive sales in Chile. What was once a budding trend is now an avalanche.

Who could have imagined such a rapid reversal of the United States’ position in the region 20 years ago? The US was simply too close, too big a market, and too powerful. It remained, in the words of more than one Latin American writer, “The Colossus of the North.”

Then came China’s meteoric industrialization of the early 21st century and its voracious appetite for copper, tin, oil, iron ore, timber and soybeans.

Strong Chinese demand raised prices for South America’s commodities and that boom helped pull millions out of poverty. Between 2000 and 2014, Latin America’s poverty rate decreased from 27% to 12%, according to the International Monetary Fund, an extraordinary achievement and one tied to China’s rising fortunes.

During the same 2000 to 2014 period, the American political system became significantly more dysfunctional and polarized amid two wars in Iraq and Afghanistan and an opioid epidemic that claimed 500,000 American lives.

Of course, the American market remains massive and indispensable for countries in the Caribbean Basin, but the United States isn’t the giant that it once was. And China is the principal reason why.

In 2013, Chinese leader Xi Jinping announced the Belt and Road Initiative, a massive campaign to build infrastructure worldwide, from bridges and power plants to stadiums and port facilities.

Today, Peru’s Chinese-funded Port of Chancay is poised to become the largest deepwater port on the Pacific side of South America, while Bolivia’s El Mutún Steel Plant is just the latest geopolitically significant China-funded megaproject in the region.

When China replaced the United States as South America’s largest trading partner in 2020, that tectonic shift received scant US media attention. Instead, immigration and drug cartels or flamboyant leaders like Jair Bolsonaro and Nayib Bukele dominated headlines. But sometimes impersonal, transformative processes are the real story.

China developed its position of strength over two decades and the rise of China has been broadly good for the region. What was once a rising trade in commodities between China and Latin America turned into a very different kind of relationship in which China builds hydroelectric dams and installs 5G internet.

Although a shadow of China’s presence, India aims to deepen economic ties with South America in pursuit of  “strategic autonomy” or avoiding overreliance on any single global power. And South America welcomes India’s push for diverse trading partnerships, as it wants the same thing.

During the 20th century, Latin American governments often viewed European or American capital with suspicion. There were ideological reasons for that position, but it also had to do with the lack of options.

In a multipolar world, trade and capital investments are no longer essentially Western, which makes for a far more balanced economic outlook.

To be sure, some things haven’t changed. South America is still reliant on commodity exports and foreign capital continues to raise issues related to national sovereignty (as it does anywhere else).

But it’s an era that looks remarkably different from the late 19th century when British capital prevailed or the mid-20th century when American capital predominated.

As the US-China trade war unfolds, South America’s economies seem destined to emerge more diversified and balanced. US tariffs have increased the impetus for EU countries to ratify their deal with Mercosur. Brazil’s exports of meat and grain to China have already surged in the wake of the new US tariffs.

Amid the current unpredictability of US trade policy, one thing seems clear: South America will continue to diversify its trade relationships and there are many new options for navigating the future.