US Economic Hegemony in Latin America

News ID: 66177

Date: 24 July 2016 - 12:05

Contemporary world economic order is experiencing a phenomenon called new-emerging economies. The rise of the BRIC’s countries (Brazil, Russia, India and China) not only has changed the map of the global economic order, but also has introduced new issues in terms of projecting hegemonic power. China as one of the fastest growing economies of the world is extending its trade routes across different regions of the world including Latin America where is long involved with US hegemonic presence, both politically and economically

China’s New Silk Road and its Extension to Latin America

China under One Belt, One Road (OBOR) initiative, proposed by Chinese leader Xi Jinping and composed of two arms: land-based “Silk Road Economic Belt” (SREB) and oceangoing “Maritime Silk Road” (MSR), aims to promote partnership and cooperation among different countries of the world. In fact, this project is planned to bolster China’s strategic and economic interests around the globe and offer opportunities like reducing transportation costs and securing access to key markets and commodities in order to undertake a determining role )(in global affairs (Schuman, 2015.

In spite of being initially established to reinforce the links with rest of the Asian Pacific, China’s new Silk Road is extending its links to Latin America. For instance, the Tinaco-Anaco railway line in Central Venezuela was launched in 2009 by China Railway Engineering Corporation with a $7.5bn (Tinaco- Anaco Railway Line, Venezuela, 2007). Moreover, in mid-2014 when the China South Railway won the tender for modernizing the metre-gauge Belgrano Cargas network in Argentina, the two countries signed a $ 2.1bn loan agreement during the visit of Chinese president Xi Jinping to Buenos Aires (Barrow, 2014).

This investment in physical infrastructure is still continuing, as China is trying to realize the old dream of Brazil and Peru for joining their Atlantic and Pacific coasts (Ortiz, 2014). In other words, in an effort to extend its links with Latin America, China has planned to construct a 5300 km railway infrastructure between Brazil and Peru throughout the Amazonia and the Andes Mountains. Estimates suggest that this inter-oceanic project will cost between 10 and 30 billion US dollars and will be inaugurated by 2020 (Rodríguez, 2015).

The trade and commercial transactions between China and Latin America provide more details about China’s new Silk Road. Indeed, China has been active in financial sector and Sino-Latin American trade relations between 2000 and 2009 increased from $10 to $130 billion (Koleski, 2011). Additionally, in response to the China’s rising demand, between 2000 and 2013 Latin America’s trade with the country

rose 27 percent per annum, while the region’s trade with the world increased just 9 percent annually. According to the Latin American Economic Outlook 2016, since 2000 Latin America-China partnership has multiplied 22 times; compared to a 3 fold increase with the world at large (Latin American Economic Outlook, 2016).

Brazil, Mexico, Argentina, Chile, and Venezuela are the top five nations trading with China (China’s trade with Latin America grew in 2011, 2012). China’s largest trade partner in Latin America is Brazil which accounts for over 40 percent of the Brazilian trade transactions. Brazil exports primarily soybeans and iron ore, which comprise 70 percent of its exports to China. Moreover, Argentina exports soybeans; Chile, copper; Venezuela, oil; and Peru copper and fishmeal. Similarly, Mexico’s third biggest export market in 2015 was China and the aggregate value of their transactions amounted to $7.89bn (Latin American Economic Outlook, 2016). China’s trading base in Latin America is principally located in South America, not Central America or the Caribbean, which is the outcome of geographical resource distribution in the region (Onis, 2014). Besides, the bulk of Chinese export to Latin America consists mainly of industrial and manufactured goods, particularly high-tech ones (Berger, 2012). Chinese commodities are popular because of their low costs and Chinese firms are trying to establish themselves as brands among the new middle class, for example, in Brazil

However, the coin of China-Latin America relations has another face. According to the National Bureau of Statistics, imports from Latin America in China 89 averaged 9708250.47 USD THO from 2014 until 2015 and in 2014 Latin America supplied 8.92 percent of China’s imports, up from 1.11 percent in 2000 (Latin America & Caribbean Exports by Country and Region, 2000). Although there is a dramatic increase in the China’s import from Latin America, these figures show that there is an asymmetry in Sino-Latin America relations: China is of significant importance for Latin America, but the reverse is not true. This point has led to the debates that argue that Latin America is re-becoming a raw material exporter to the newly industrializing China. Based on the classic dependency theory, Latin America sends raw materials to China, and China exports finished products, ranging from laptops, cell phones, textiles, footwear, to various low-tech, low-cost manufactured items, to the region.

US Economic Hegemony in Latin America

Irrespective of the question how much win-win is the China-Latin America relation, it should be considered while China’s trade and commercial transaction with Latin America has increased, the U.S. presence in the region is still more prominent. The United States of America, as the Northern overbearing neighbor of Latin America has long been number-one economic partner of the countries of the region. This partnership has its roots in history; since the US independence in 1776, an “inferior Latin American” mentality led to different doctrines, policies, and approaches of US government towards the people who live beneath its southern borders. This hegemonic strategy that began with Territorial Expansionism continued through economic policies like Dollar Diplomacy in the early decades of twentieth century to provide the actual economic map of the US-Latin America relations.

It is clear that in Western hemispheric affairs, trade is one of the more noticeable issues in U.S.-Latin America relations. Latin America is not only the largest U.S. regional trade partner, but also is the fastest growing one. According to Congressional Research Service, between 1998 and 2009, total U.S. merchandise trade (exports plus imports) with Latin America grew by 82% compared to 72% for Asia (driven largely by China), 51% for the European Union, 21% for Africa, and 64% for the world. Mexico, as the largest Latin American trade partner, accounts for 11.7% of total U.S. merchandise trade in 2009 (58% of the region’s trade with the United States) which is the result of a long history of economic integration between the two countries (Hornbeck, 2011). In 2014 the U.S. received 42.91 percent of Latin America’s exports; China 8.92 percent (Latin America & Caribbean Exports by Country and Region, 2014). In 2014 the U.S. supplied 31.83 percent of Latin America’s imports; China, 16.62 percent (Latin America & Caribbean Imports by Country and Region, 2014). Additionally, the United States has signed and implemented various bilateral or multilateral reciprocal trade agreements with its important trading partners in Latin America, for example, the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), and bilateral FTAs with Chile and Peru (Hornbeck,2011). All these statistics indicate that although anti- imperialist and leftist ideologies of Latin America are continuing their struggle against US capitalism (even by appealing to emerging economies likeChina), US maintains its economic superiority.

؟US Hegemony Challenged by China

However, the main question remains can China’s new Silk Road eclipse US economic hegemony in Latin America. This question should be analyzed taking into account different factors. From political economic perspective, all these Sino-Latin America interactions have been taking place under US prominent presence. Strictly speaking, every bilateral relation between China and countries of Latin America fails to that with the United States of America (Locatelli, 2011). China is Latin America’s second largest export market, after the United States (Hearn & León-Manríquez, 2011). Similarly, the arguments such that China is trading more with Latin America and the resulted decreasing share of US trade is making the United States not feel longer at home in its well-known “backyard”, are driving from globalization-induced fears and hopes. The US still continues to be the largest source of FDI into Latin America. In spite of economic globalization and emergence of various regional and global economic clusters, the US is preserving its superior economic position in the region. As a result, the anxiety is not based on the reality, but on a hypothetical future which provides China with sufficient leverage to control the behavior of Latin American countries against US hegemonic ambitions. Furthermore, as Rhys Jenkins indicated, “China’s exports to the USA, Europe and the rest of Asia are far more significant than its exports to Latin America” (Bárcena, Prado, Rosales, & Pérez, 2015). So, US-China relationship is another criticalfactor that can be discussed in another paper.

Finally, US prominent position in Latin America cannot be easily replaced by China’s emerging power. Sino-Latin America relations are taking place along with China’s economic foreign policy aimed at promoting strategic and economic interests in different regions of the globe. However, the issue of US economic hegemony in the region that goes beyond the economic calculations is closely bound up with the Washington powerful foreign policy toward its Southern neighbors. Furthermore, there are a lot of barriers including social and cultural ones (e.g. language) that China is required to overcome in order to be considered as a threat to US economic hegemony. In sum, China’s new Silk Road has a long way to go to challenge the USeconomic hegemony in its well-known backyard.