In the past five years, the trade dynamics between Latin America and its two largest external partners, China and the United States, have evolved significantly. This period has been marked by shifting geopolitical tensions, economic realignments, and strategic investments that have altered trade flows and economic dependencies in the region.
Trade Volume and Growth
China:
Over the last five years, China has rapidly expanded its presence in Latin America, driven by its Belt and Road Initiative (BRI) and the rising demand for Latin American commodities. China is now the region's second-largest trading partner, accounting for over 15% of total Latin American trade.
Key figures:
Between 2017 and 2022, China-Latin America trade grew by over 30%, surpassing $450 billion annually.
Exports from Latin America to China consist predominantly of raw materials, such as soybeans, copper, and oil. Brazil, Chile, and Peru are among the largest suppliers.
China has solidified its role as a critical importer of agricultural goods (soybeans, beef) from Brazil and Argentina, as well as metals like copper from Chile and Peru.
United States:
The U.S. remains Latin America's largest trading partner, but its dominance has weakened as China’s influence grows. The U.S. still holds a competitive edge in certain sectors, such as technology, finance, and manufactured goods.
Key figures:
U.S.-Latin America trade reached approximately $760 billion in 2022, though growth has been slower compared to China’s trade expansion, rising only by about 10% over the past five years.
U.S. exports to Latin America include machinery, electronics, chemicals, and services, while the U.S. imports a broad range of products from the region, including manufactured goods, agricultural products, and petroleum.
Investment Trends
China:
Chinese investment in Latin America has increased significantly, focusing on infrastructure, energy, mining, and technology. China has targeted long-term investments in sectors that align with its strategic interests, such as natural resources and logistics, essential for sustaining its industrial base.
The China Development Bank and the Export-Import Bank of China have extended billions in loans to Latin American countries, especially for energy projects.
China has financed and built key infrastructure projects, including ports, railways, and energy plants, solidifying its footprint in countries like Brazil, Argentina, Peru, and Chile.
The Belt and Road Initiative (BRI) has been a major channel for Chinese investment, with several Latin American nations joining the initiative, including Argentina, Chile, and Uruguay.
United States:
The U.S. remains a major investor in Latin America, particularly in industries like manufacturing, finance, and telecommunications. However, U.S. foreign direct investment (FDI) has seen slower growth compared to Chinese investments, especially in capital-intensive infrastructure projects.
U.S. investments have traditionally been concentrated in Mexico, with a focus on nearshoring, due to the U.S.-Mexico-Canada Agreement (USMCA) and Mexico’s strategic role in global supply chains.
In sectors such as telecommunications and tech, U.S. companies like Amazon, Microsoft, and Facebook continue to expand in the region, with investments in data centers, digital infrastructure, and e-commerce platforms.
Nonetheless, U.S. FDI has been outpaced by China in certain key sectors, especially energy and mining.
Sectoral Focus and Strategic Interests
China:
China's trade with Latin America is heavily weighted towards natural resource extraction and infrastructure development. Its strategic interest lies in securing raw materials to support its industrial economy and diversify its energy sources.
Commodities: China is the largest buyer of soybeans (particularly from Brazil and Argentina) and has increased its imports of iron ore, copper, and oil from the region.
Infrastructure: China has invested heavily in port infrastructure, roads, and energy projects that facilitate its trade routes and access to Latin American markets.
Technology and Digital Silk Road: China is making inroads in Latin American tech sectors, especially in telecommunications (with companies like Huawei and ZTE), digital payment systems, and e-commerce.
United States:
The U.S. has a more diversified trade and investment profile in Latin America, emphasizing not only natural resources but also manufactured goods, technology, and services.
Manufactured Goods: The U.S. exports machinery, automobiles, and electronics to Latin America, and it has a strong presence in Mexico’s manufacturing sector due to the USMCA.
Energy: U.S. energy companies continue to invest in the region, particularly in oil and gas exploration, as well as in the renewable energy sector.
Services and Technology: U.S. firms are dominant in the digital economy, with companies expanding their services in financial technology, cloud computing, and telecommunications across the region.
Geopolitical and Economic Impacts
China:
China’s growing influence in Latin America has raised concerns in Washington, as Beijing leverages economic ties to gain political influence. China’s investments, particularly in infrastructure, have solidified its strategic foothold in the region.
The Chinese model of economic diplomacy, through both trade agreements and concessional loans, has made Latin American countries more reliant on China for development financing.
Latin America’s export dependence on China (especially for countries like Brazil and Chile) increases vulnerability to fluctuations in Chinese demand and potential policy changes.
United States:
The United States has long viewed Latin America as part of its sphere of influence, but in recent years, China's growing presence has presented a strategic challenge. Washington has responded by re-emphasizing its economic and security relationships in the region, though with mixed results.
USMCA & Nearshoring: The U.S. has focused on strengthening ties with Mexico and Canada through the United States-Mexico-Canada Agreement (USMCA), which has reinforced its position in North American trade. Additionally, the nearshoring trend—where companies relocate production closer to home—has led U.S. firms to increase investments in Mexico and Central America. This strategy is meant to reduce dependency on China and secure more resilient supply chains
Foreign Aid & Development Initiatives: The U.S. has also increased foreign aid and development assistance through programs like the U.S. International Development Finance Corporation (DFC) and USAID. These efforts aim to counterbalance Chinese influence by offering Latin American countries alternative sources of financing, focusing on infrastructure, health, and energy projects.
Energy Diplomacy: In the energy sector, the U.S. remains a significant player in oil-rich countries like Mexico, Venezuela (despite political tensions), and Colombia. It has also promoted investments in renewable energy, aiming to compete with China's renewable energy initiatives and create opportunities for U.S. energy companies.
Economic Impact on Latin American Economies
The increasing competition between China and the United States in Latin America has had diverse effects on the region’s economies. Latin American countries have benefited from this rivalry, leveraging it to secure investment and diversify their trade relations, but there are risks associated with overreliance on either power.
Economic Diversification: Latin American countries have been able to diversify their trading partners due to the commercial rivalry. While China has become a vital destination for raw materials, the U.S. remains a key market for manufactured goods and services. This diversification allows the region to mitigate risks related to dependency on one country or sector.
Debt and Dependence on China: China's financing model has often included loans tied to infrastructure development projects, many of which are part of the Belt and Road Initiative. While this has been beneficial in the short term, some Latin American countries, such as Venezuela and Ecuador, have found themselves increasingly indebted to Chinese state-owned banks. This raises concerns about long-term financial stability and loss of political leverage in negotiations.
Trade Imbalances: The nature of Latin America's trade with China is heavily imbalanced. Most Latin American exports to China are commodities (e.g., soybeans, copper, oil), while China exports higher-value manufactured goods to the region. This has led to a situation where Latin America is stuck in a low-value-added export economy, which could stunt long-term development unless more industrialized sectors are developed.
U.S. Efforts to Regain Influence: The U.S. has taken steps to regain influence in Latin America, but its efforts have been less aggressive compared to China's investment push. Nevertheless, programs like the Build Back Better World (B3W) initiative, which aims to counter China's BRI by offering sustainable infrastructure investment, and America Crece (Growth in the Americas), a program aimed at enhancing private-sector investments in energy and infrastructure, are attempts to offer alternatives to Chinese financing.
Strategic Sectors and Long-term Implications
Technology and Telecommunications:
China has gained a foothold in Latin America's digital infrastructure, primarily through companies like Huawei and ZTE. These firms have provided low-cost technology for telecommunications networks, including 5G infrastructure, to countries across the region. This is a source of concern for the U.S., which has pressured its Latin American allies to avoid using Chinese technology due to security concerns. However, China's technological influence in the region continues to grow, offering cheaper alternatives to U.S. and European competitors.
In contrast, U.S. companies dominate Latin America's tech and digital services sectors. Amazon, Microsoft, and Google have expanded their cloud services and digital platforms throughout the region, and U.S. social media companies like Facebook and Twitter remain highly influential. However, the U.S. has yet to offer an alternative to the affordable 5G infrastructure provided by Chinese companies.
Energy and Green Technology:
The energy sector is another arena of competition. While the U.S. has historically been dominant in oil and gas projects in the region, China has increasingly invested in Latin America’s renewable energy sector. Chinese companies are major players in the development of solar and wind farms, as well as lithium mining—a critical resource for electric vehicle batteries.
Lithium Triangle: Bolivia, Argentina, and Chile form the "Lithium Triangle," which contains the world's largest reserves of this essential mineral for the electric vehicle industry. Chinese companies have invested heavily in lithium extraction and battery production in the region, ensuring China’s leading position in the global electric vehicle supply chain. The U.S. is also eyeing this sector as part of its strategy to secure critical mineral resources, but so far, Chinese companies hold the lead.
Conclusion: The Future of Latin American Trade with China and the U.S.
The commercial competition between China and the United States in Latin America is reshaping the region’s economic landscape. While the U.S. remains a dominant player, particularly in Mexico and Central America, China’s influence is growing, especially in South America’s commodity-rich countries.
In the next five years, Latin American countries will likely continue to balance their relationships with both powers, seeking to extract the maximum economic benefit from each while minimizing political risks. China's investments in infrastructure and technology will further solidify its presence in the region, particularly in critical sectors like energy, telecommunications, and logistics. Meanwhile, the U.S. will likely focus on reinforcing its ties with Mexico, promoting nearshoring, and offering alternative financing options to counter China’s influence.
Ultimately, Latin America's ability to navigate this complex geopolitical landscape will determine its long-term economic trajectory. By carefully managing its relationships with both China and the United States, the region can potentially leverage the benefits of trade and investm
ent from both sides while avoiding over-reliance on any single partner.
Sources: World Economic Forum, ECLAE, Boston University, White & Case
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