RIO DE JANEIRO, Brazil – The competition between the world’s two biggest economies for influence in Latin America is on display this week as U.S. Vice President Joe Biden visited Rio de Janeiro Wednesday near the end of a three-nation tour of the region with Chinese President Xi Jinping close behind.
The dueling visits — Biden departs Brazil May 31, the same day Xi arrives in Trinidad and Tobago to begin his first tour of the region since China’s political transition ended in March — underscore how Latin America’s natural resources and rising middle class are making it an increasingly attractive trade partner for the world’s top two economies.
Competing with China’s checkbook isn’t easy for the United States. Seeking South American soy, copper and iron ore, China boosted imports from Latin America 20-fold, to $86 billion in 2011 from $3.9 billion in 2000, according to calculations by the Inter-American Development Bank. By contrast, the U.S. policy of pursuing free-trade accords has been controversial, said Kevin Gallagher, a Boston University economist.
“If I’m a Latin American leader, I’m very happy because I now have more chips to play with,” said Gallagher, author of the 2010 book “The Dragon in the Room,” about China’s inroads in the region. “The onus is on the U.S. to come up with a more flexible, attractive offer but that’s not so easy because it doesn’t have the deep pockets like it used to.”
The Latin America visits come as the International Monetary Fund forecasts the region’s economies will expand 3.4 percent this year, almost three times the pace of growth in the developed world.
Biden’s tour, which began May 26 in Colombia, included a “frank” and at times “brutal” discussion about trade, economic growth and security with 15 Caribbean leaders in Trinidad Tuesday, Prime Minister Kamla Persad-Bissessar said, without giving more details. The leaders signed an accord to boost investment and economic cooperation.
“Our country is deeply invested and wants to be more deeply invested in the region,” Biden said in Port of Spain. Tuesday’s accord “will give us all a vehicle to overcome special, specific, practical barriers to trade and investment. Our goal is not simply growth, but growth that reaches everyone.”
In Colombia, Biden said a one-year-old free-trade agreement between the two countries is “just the beginning,” citing a doubling of the period for which entry visas are valid and efforts to expand trade ties further.
The outreach follows President Barack Obama’s visits in May to Mexico and Costa Rica and precedes talks at the White House in June with the leaders of Chile and Peru. In October, Obama will host Brazilian President Dilma Rousseff to a state dinner at the White House.
U.S. business with the region is brisk even in the absence of a region-wide free-trade agreement that the U.S. pursued for more than a decade and that anti-U.S. allies of the late Venezuelan President Hugo Chávez helped bury in 2005.
Buoyed by bilateral agreements signed since then with Peru, Panama and Colombia, U.S. exports to Latin America have more than doubled since 2000 to a record $400 billion last year. The region last year bought 26 percent of U.S. exports, an increase from 22 percent in 2000.
Trade with Brazil could rise to $500 billion from about $100 billion currently, Biden said Wednesday, citing biofuels, aviation and energy.
“We see greater Brazilian investment in the United States,” Biden said. “We welcome it, we need it. We want you investing.”
For Xi, his week-long tour of Trinidad, Costa Rica and Mexico precedes a visit to California for his first face-to-face talks with Obama since taking office.
The trip to Latin America and the Caribbean, coming so early in Xi’s presidency, reflects the rising confidence of the Chinese leadership as it pursues its strategic interests with little concern for U.S. reaction, said Evan Ellis, a professor at the National Defense University in Washington. China in recent years has ousted the U.S. to become the top trade partner for Brazil and Chile.
“In the past Chinese presidents were very deferential to the U.S., always making reference to Washington’s backyard,” said Ellis, the author of dozens of papers and a book about China’s penetration of Latin America. “You don’t hear any of that from Xi’s team, though you don’t find any threatening rhetoric either.”
Trinidad, the largest supplier of energy in the Caribbean and the one stop on both delegations’ itineraries, may be the best example of China’s newfound boldness, said Ellis.
While in Trinidad and Tobago, Xi will also meet with leaders from other countries in the region, including the Bahamas, Jamaica, Suriname and Antigua and Barbuda, Assistant Foreign Minister Zhang Kunsheng told reporters Wednesday in Beijing.
Any loan or investment announced by Xi has the potential to surpass the $200 million the U.S. spends annually on the entire region through the Caribbean Basin Security Initiative.
Biden Tuesday said the U.S. will seek to increase assistance through the security initiative, without giving more details.
“If the Chinese decide to unroll one of their little packages in Trinidad, they’ll win the entire Caribbean over,” said Gallagher.
Xi will bring a $400 million loan to help expand and modernize a highway in Costa Rica, newspaper La Nacion reported Wednesday, citing an interview with the country’s ambassador to China.
As China asserts itself more, the region’s leaders have also grown more wary.
The decade-long export surge has concentrated on a few raw materials, making South America more vulnerable to a slowdown in China. Driven by Chinese demand, stronger dollar inflows used to buy exports have also fueled the region’s currencies, making imports cheaper and hurting local manufacturers.
Rousseff in 2011 increased by 30 percentage points a tax on foreign cars after automakers complained about threats from competitors including Wuhu-based Chery Automobile Co. Colombia’s peso, Brazil’s real and Chile’s peso were three of the top four best performers over the past decade among 31 major currencies tracked by Bloomberg, each surging more than 40 percent.
In Mexico, Xi visits a nation that competes directly with China for sales to the U.S. market. China more than doubled its market share in the U.S. since joining the World Trade Organization in 2001, accounting for 19 percent of goods sold last year, up from 8 percent in 2000, according to the U.S. Commerce Department. That compares with Mexico’s 12 percent share, barely changed from 2000.
Still, Mexican President Enrique Pena Nieto, who visited Beijing in April, is looking to expand trade and investment with China, if only to diversify away from the U.S., buyer of 80 percent of the country’s exports.
Both the U.S. and China deny they’re competing with one another. The two countries “can play to their respective advantages” and contribute to the region’s development, Foreign Ministry spokesman Hong Lei said May 21 in Beijing.
In the case of the U.S., those advantages include its role as a purchaser of the region’s high-value manufacturing goods, an administration official said in a May 22 conference call with reporters.
Case in point: Brazil’s Embraer this month announced a $4 billion deal to sell regional jets to United Continental Holdings partner SkyWest after winning a U.S. contract in February to provide 20 Super Tucano turboprops to the Afghan military. At the same time, almost 90 percent of the $41 billion Brazil sold to China last year was derived from commodities.
Earlier this month, Brazil was the focus of a U.S. trade mission for 20 companies including Morgan Stanley, Cessna Aircraft Co. and Rapiscan, which makes airport screening devices. The delegation also visited Colombia and Panama.
“The Chinese still come with a lot of money and that’s tough to say no to,” said Eric Farnsworth, head of the Washington office of the Council of the Americas, a group representing U.S. businesses. “But increasingly these countries have a better understanding of who has what to offer and on what conditions. For the first time questions are being raised about whether the region pushed the U.S. too far away.”
With assistance from Eric Martin in Mexico City, Nicole Gaouette in Washington, Eric Sabo in Panama City, Raymond Colitt in Brasilia Newsroom, Randall Woods in Santiago, Adam Williams in San José, Costa Rica, Sunil Jose in Princeton, Michael Forsythe in Beijing and Peter S. Green in New York.
© 2013, Bloomberg News