Strategic economic relations in the Pacific region including the Western Hemisphere are transitioning rapidly. Exhibit A: China President Xi Jinping's November travel to South America. In Peru for the annual APEC leaders meeting, Xi celebrated a state visit and also went to Ecuador and Chile, declaring both to be “comprehensive strategic partners” of China. But this latest trip went well beyond a series of bilateral meetings and Beijing's continued methodical courting of Latin America and the Caribbean. Coupled with Washington's simultaneous pullback from the Trans-Pacific Partnership and perceptions of broader U.S. disinterest in international trade and investment promotion, Xi's travel consciously positioned China as the protector of open markets in the Pacific while offering a new framework for trade relations supplanting U.S. leadership.
This gambit is strategically significant. China's entry into Latin America since the beginning of the century has altered regional dynamics, providing opportunities for Latin American and Caribbean nations to diversify beyond a traditional reliance on the U.S. market. Indeed, several including Brazil, Chile, Peru, and others count China as their top trade partner and a major inbound investor. To this point, however, despite growing Chinese engagement, there has not been much serious consideration given to the potential for efforts by Beijing to seize the regional economic initiative away from Washington.
That is, until APEC leaders gathered in Peru on November 19 and 20, 2016, for their annual summit. Relaxed and confident, Xi delivered a speech to business and political leaders that can only be described as ambitious and expansive, promoting China's interests in a global trading system and promising to lead the effort against protectionism. He strongly supported renewed progress toward the long-mooted Free Trade Area of the Asia Pacific (FTAAP), an initiative subsumed by the TPP and which includes China, whereas TPP does not. He also worked to build momentum toward the Beijing-led Regional Comprehensive Economic Partnership (RCEP), a vision for trade and economic linkage within Asia that excludes the United States.
Perhaps most audaciously, given the immense, non-contiguous distances involved, he also invited Latin America to participate in China's signature international economic development strategy, the Belt and Road Initiative. And he offered the Asian Infrastructure Investment Bank (AIIB) as a partner for infrastructure and other initiatives in Latin America.
Subsequently, China has now issued its second Policy Paper on Latin America and the Caribbean, the first since 2008, reinforcing Xi's overtures to the region while laying out a comprehensive blueprint for cooperation in economic relations. Upping the intensity, the white paper includes explicit calls for cooperation on international issues including global governance. China has eyes for the region.
In contrast, the collapse of TPP and bipartisan campaign rhetoric about the supposed failure of NAFTA has fed a narrative of retreat and withdrawal inward by the United States, undermining confidence among U.S. trade partners of Washington's reliability. It also calls into question the desire and ability of the United States to underwrite the costs of global public goods such as the liberal international trade and investment regime, while relinquishing the power of the pen to write the rules of the international economy and giving up attendant policy seigniorage.
China has now stepped into the vacuum, offering more engagement not less, inviting the nations of the Western Hemisphere into a new paradigm for engagement. It remains to be seen whether this vision will be fully realized. But it is not a surprise that this should be an attractive option for nations that already trade with China, who are looking to identify new engines of growth to counteract the downside of the global commodities super cycle, and who now have reason to question a future U.S. orientation toward their region. Importantly, others too, including Mexico, which tends to be more of an economic competitor than partner with China, and also Canada, are actively looking for ways to enhance relations with Beijing anticipating potentially rocky relations with Washington under the new U.S. administration. As the United States pulls up hemispheric stakes on trade, China is already positioning itself to rush in.
Adding accelerant to the agenda, a decision by the incoming Trump Administration to re-consider Washington's long-standing One China posture, even if only for tactical bilateral purposes, will energize greater efforts by Beijing to rally Latin America and Caribbean nations in support of China's core security agenda. This has the potential to infuse heretofore primarily economic connections in the hemisphere with a significant political overlay, increasing the urgency to build relations apart from, and potentially opposed to, the United States.
In many cases Latin Americans and others in the Pacific region prefer the United States as a more natural partner than China, given history, economic opportunity, geography, culture, language, and values, but circumstances going forward will dictate policies and actions. As is often said, you can't beat something with nothing. The APEC meetings in Lima clearly showed that strategic economic and political realignment is underway. China is playing a multi-dimensional game. The United States must now decide whether and how to react.
