China Sets Its Sights on South America

Western preeminence in Latin America was guaranteed absent Chinese competition. Advanced military technology and European diseases enabled the rapid conquest and colonization of the continent. After the great European powers weakened their grip on their Latin American colonies, U.S. power filled the vacuum. Through a combination of big-stick diplomacy, economic inducements, targeted politico-military support, and in many cases shared values systems, the United States has maintained its role as the primary external power in Latin America. The consistency of this position has led U.S. policymakers and academics, along with the general public, to assume that America’s previous actions will preserve its regional status.

Such assumptions are false. If the past indicates anything about political interactions, it is that changes in the balance of power lead to competition between great powers. China’s rise has ramifications for the global balance of power—ramifications that will directly challenge the U.S. position in Latin America.

Understanding China’s Latin American engagement requires examining Chinese strategy, particularly since the early 2000s. Although the Sino-American thaw began during the Nixon Administration, and the Reagan Administration established a significant military relationship with China to pressure the Soviet Union, the most consequential shift in Sino-American relations occurred in the late 1980s and early 1990s. After the Soviet Union’s collapse, China found itself the potential target of American concern, with its sizable GDP, nuclear arsenal, and future power projection potential.

Particularly after Tiananmen Square, China’s leaders feared Western retaliation in the form of sanctions and, potentially, military action. In order to allay American suspicions, the Chinese Communist Party (CCP) embarked on a policy of targeted integration into the global economy, opening markets to major Western companies, ostensibly privatizing a number of state-owned enterprises, and trumpeting grassroots liberal reforms. This strategy succeeded in binding American business interests to Chinese growth, while offering hopeful U.S. policymakers the tantalizing prospect of Chinese reform through economic and political liberalization.

However, China’s political leadership remains skeptical about global economic integration. The CCP has always been immensely concerned about its legitimacy amongst its subjects. Externally, the government based in Taipei stands as a constant alternative—a government that, in recent decades, has transformed Taiwan into a liberal capitalist democracy with a GDP per capita that is triple mainland China’s. In addition, China’s western regions contain multiple ethnic groups clamoring for greater autonomy. The continued existence of China’s current regime is predicated its ability to satisfy the economic needs of 1.4 billion citizens. Sensitivity to global economic shocks, therefore, is a significant threat to the regime’s security. Hence, China has retained a distinctively mixed economic model, using state-owned enterprises and other companies under CCP control to retain a grip on the economy.

More important, escalating tensions with the United States could lead America to use its command of the global commons to deny China the imports its economy and population require. China has been a net energy importer since the mid-1990s—despite domestic coal production and the increasing employment of nuclear power, China remains 60 percent import-dependent for its oil consumption, and hit import volume highs this past December.

Additionally, China’s massive population, combined with the pollution of arable land and dietary improvements engendered by rising living standards in urban areas, has made it one of the world’s largest food importers. Any sustained Sino-American economic tensions would inflict significant damage on the U.S. economy. But considering U.S. domestic food and energy resources, and its lower reliance on trade in its GDP (30 percent for America compared to 40 percent for China), a Sino-American trade war would favor America. China’s imports are particularly vulnerable to American naval power: 80 percent of its oil imports pass through the South China Sea alone. Considering the consistent potential for large-scale unrest, particularly in western China, a sustained Sino-American trade war could lead to a localized rebellion against the CCP, or worse, a popular movement that rejects today’s state capitalist social contract.

In response to this critical vulnerability, the CCP has designed a hedging strategy to mitigate the internal ramifications of international economic fluctuations and blunt the coercive politico-economic instruments the U.S. could wield against it. The most visible economic elements of this strategy include the One Belt One Road (OBOR) initiative, designed to link China, Central Asia, and Eastern Europe, and the China-Pakistan Economic Corridor. Both bolster Chinese security by ensuring overland access to markets despite U.S. economic pressure, and maintaining a sea line of communication that circumvents the South China Sea’s major chokepoints.

More subtly, Chinese shipping expansion and the acquisition of energy and food resources at the point of production increase China’s insulation from shocks and hostile coercion. China’s naval expansion represents the military dimension of these efforts, enabling Chinese power projection in the worst of circumstances.

China’s attempts to expand its influence in Latin America represent a critical, if understated, portion of this policy of hedging against the U.S. threat. Indeed, Latin America represents a glowing opportunity for Chinese planners to undermine U.S. power and reduce their own vulnerabilities. Latin American farms produce 11 percent of global food and agriculture production value. Moreover, Latin America retains immense resource wealth: The region’s mines extract significant portions of the world’s copper, silver, molybdenum, zinc, and lithium supplies. Additionally, Latin America can serve as an alternative energy supplier for China, given Venezuela’s sustained oil reserves and the increasing discovery of harder-to-extract resources like shale and oil sands.

Not only does Latin America provide an effective resource hedge—its markets will also become increasingly important as Chinese leaders attempt to change the country’s internal economic profile. Newly confirmed President-for-Life Xi Jinping has indicated that the next step in China’s development will be an attempt to change its economy from a low-skill, labor-intensive export juggernaut to a more balanced system, in which medium and high-skill exports are coupled with growing material imports, especially in China’s megacities. China’s departure from the ranks of producer-exporter nations will leave a significant gap in the global economy’s structure, as Chinese firms increasingly seek to compete with American refined goods producers rather than support the high-skill U.S. economy.

Latin America is poised to fill China’s void. Its high levels of income inequality and nearly 600-million population can support increasing economic industrialization, thus enabling China’s economic transition by serving as a base for Beijing’s increasingly sophisticated economy. Moreover, Latin America’s markets will become increasingly attractive to Chinese producers. Not only will Chinese medium-skill refined goods find their way to Latin America, but Chinese companies will also rely on the Latin American upper class to consume an expanding set of high-skill products.

The CCP has already begun working toward these long-term objectives. Chinese firms have purchased Chilean and Peruvian copper mines and obtained major stakes in Venezuelan oil fields. Between 2015 and 2019, China’s leaders plan to invest $250 billion in the region and reach trade levels of $500 billion. China’s investment is aided by its lax environmental and ethical standards, and the willingness of Chinese companies to accept higher levels of risk and extend more secure lines of credit.

The willingness to accept higher risk offers China a great deal of leverage. Sri Lanka’s experience serves as an example—the island nation had to surrender the major port of Hambantota to China on a 99-year lease in order to repay its debts to Chinese firms. Additionally, it is easy to envision the CCP supporting the small, elite classes of Latin American states to increase its regional influence, at the detriment of democratic governance throughout the continent. Colombia, Bolivia, Brazil, and Panama are particularly vulnerable to these actions, due to present income disparities within each country.

By slowly decreasing its export relationship with the United States, China’s leaders can steadily strengthen its political position and nullify the diplomatic and economic instruments that the United States possesses to counter China. Given Chinese naval expansion projections over the next two decades, it is essential to consider the possibility that Chinese aircraft carrier battle groups will project naval power across the Pacific to Latin American coastlines, forcing the U.S. government to accept the loss of global sea control, and by extension, the elimination of the international system it has cultivated for the past 70 years.

Growing Chinese influence in Latin America poses not only economic and security threats to U.S. interests, but an equally dangerous political one. China lacks the ideological commitments of the Soviet Union, as shown by its willingness to support North Korea’s totalitarian system, former President Robert Mugabe’s Zimbabwean military dictatorship, and the explicitly Muslim Pakistan and Iran. Authoritarian regimes are more pliable than democratic ones, especially when it comes to Chinese economic interests. They lack the ethical scruples that limit representative governments, allowing fundamentally predatory economic practices that benefit the ruling elite but harm all others. Over time, absent a counterbalancing force, Chinese pressure could progressively reverse Latin American democratization, creating states hostile to America in its geopolitical backyard.

During the first years of the 20^th century, the U.S. government gained control of the Panama Canal. In his characteristic manner, President Theodore Roosevelt combined targeted displays of American power with inducements to local authorities to obtain a prize arguably unparalleled in U.S. history. Much like its cousin in Egypt, the Panama Canal greatly shortened transit times between hemispheres. This facilitated international trade, and more important, enabled U.S. warships to travel between the Pacific and Atlantic fleets, giving America undisputed sea control over the Western Atlantic and Eastern Pacific. This forced Britain to accept America’s growing power, however begrudgingly, setting the stage for the steady rise of the United States to global preeminence.

China has abandoned its attempts to construct a Nicaraguan Canal to compete with its Panamanian counterpart. Nevertheless, the episode, combined with growing Chinese investment in Latin America, is illustrative. Equally revealing is China’s $65 billion investment plan in Latin America and the Caribbean states called the “Forum of China and the Community of Latin American and Caribbean States,” an important Chinese vehicle for controlling the region’s natural resources and raw materials. Surrendering control of these valuable commodities will diminish the independence of participating nations and prove antithetical to their interests, but the allure of Chinese investments may be too strong.

For the moment, Chinese political pressure is most apparent in the CCP’s attempts to shrink the pool of states that diplomatically recognize Taiwan. Out of the 20 states that maintain full diplomatic relations with Taiwan, 11 of them are in the Caribbean, Central America, or South America. There is a clear link between Chinese investment in Panama over the past decade and Panama’s recent decision to recognize Beijing rather than Taipei. China is a major trading partner for Honduras, Nicaragua, El Salvador, and Guatemala, four of the five Central American states that recognize Taiwan. Several states, including the United States and the majority of its allies, maintain unofficial diplomatic relations with Taiwan. However, by chipping away at Taiwan’s official pool of partners, China seeks to isolate Taiwan further. In the event of a military confrontation, Taiwan’s strategic partners, particularly the United States, will need to justify defending a state that lacks UN recognition and is only recognized by fewer than 5 percent of states.China’s involvement in Latin America will thus prove extremely useful, for its long- and short-term goals, and in both its own region and America’s.

Washington policymakers, whether elected or appointed, political or military, have safely assumed that the United States is secure from foreign powers’ adventures to its south. International communism posed an intermittent challenge to this proposition throughout the Cold War. Nevertheless, the Western Hemisphere has been viewed as a secondary, or even tertiary, theater of great-power competition.  Aside from infrequent applications of military force, law enforcement agencies have been the major implements of American power in Latin America since 1945. This demonstrates the security of America’s regional position. Or at least, it did up until now.

China’s moves threaten to transform Latin American nations into strategic liabilities for Washington. The United States has not faced a serious threat in its own hemisphere since the 19^th century. Beijing’s diplomacy and expanding economic influence in Latin America also seek to isolate Taiwan further, thus extending the threat of Chinese power at strategic junctures on both sides of the Pacific.

The Trump Administration’s national security strategy correctly identifies China as a global power that seeks to realign the international balance in its favor. Substantially greater U.S. engagement in Latin America equaled by significantly increased diplomatic and military assistance to Taiwan are two parallel steps that would back up the U.S. Administration’s words with action.

Senior Fellow Seth Cropsey began his career in government at the Defense Department as Assistant to the Secretary of Defense Caspar Weinberger and subsequently served as Deputy Undersecretary of the Navy in the Reagan and Bush administrations, where he was responsible for the Navy’s position on efforts to reorganize DoD, development of the maritime strategy, the Navy’s academic institutions, naval special operations, and burden-sharing with NATO allies. In the Bush administration, Cropsey moved to OSD to become acting assistant secretary, and then principal deputy assistant Secretary of Defense for Special Operations and Low-Intensity Conflict. Cropsey served as a naval officer from 1985-2004.