Jorge Silva / Courtesy Reuters Chinese President Xi Jinping in Caracas, Venezuela, July 2014.

East by Southwest

Latin America Holds the Keys to the U.S. Pivot to Asia

Speaking in Australia last fall, U.S. President Barack Obama pledged that "American leadership in the Asia-Pacific will always be a fundamental focus" of his administration. And the United States will make use of every element of its influence to strengthen it, he said, including military, economics, diplomacy, development, and soft power. 

Since the United States formally announced its rebalance to the Asia-Pacific three years ago, however, crises outside the region—ranging from the rise of the Islamic State to the turmoil in Ukraine—have sapped the initiative’s momentum. The United States’ regional approach has also notably diverged from China’s. Washington has focused on strengthening diplomatic and military ties with China’s neighbors, recognizing that most of them are wary of Beijing’s growing geopolitical assertiveness. China, meanwhile, has taken a tack that leverages its geographic centrality—it borders 14 other countries—and economic heft by launching an impressive roster of initiatives. Beijing is working to establish a Free Trade Area of the Asia-Pacific, has funded the newly launched Asian Infrastructure Investment Bank, and has pumped $40 billion into a Silk Road infrastructure fund that it hopes will build “comprehensive connectivity” in Asia. A recent column in The Wall Street Journal warned that “by the time China has hooked the region into its expanding economic grid, America’s position in the region will have shrunk without a shot being fired.”

While this prognosis may be overly grim, it suggests an important reality: the United States will likely find it difficult to sustain its rebalance if it does not step up its effort in the economic arena. For all their security fears, most of China’s neighbors strongly depend on their trade with, and investment from, the mainland—and this reliance is deepening. They cannot afford to favor strategic relations with the United States, particularly on issues that China sees as bearing on its core interests. To strengthen its position in the Asia-Pacific, therefore, the United States must convince countries in the region that it is economically resilient and capable of providing them with economic benefits comparable to those China offers.

To that end, there are at least three potential routes to making geoeconomics a more prominent component of Washington’s foreign policy. First, on a number of indicators—GDP growth, declining unemployment and inflation, and improved consumer sentiment, among others—the U.S. recovery appears to be gaining momentum. This progress means that Washington can pursue a more ambitious, diversified agenda abroad than it could in the immediate aftermath of the global financial crisis. Second, the United States is working to finalize two ambitious trade agreements: the Transatlantic Trade and Investment Partnership (T-TIP) with Europe and the Trans-Pacific Partnership (TPP) with a number of Asian and Latin American countries. And third, in partnership with Canada and Mexico, the United States is furthering North American integration; U.S. exports to Mexico and Canada outweigh its exports to China by a factor of five, and intraregional trade has roughly quadrupled since the passage of the North American Free Trade Agreement, reaching more than $1.1 trillion in 2013. 

But there exists a fourth potential avenue, which has not received due attention: rejuvenating economic diplomacy in the broader Western Hemisphere. In the years ahead, U.S. allies in the Asia-Pacific will keenly observe whether it can demonstrate sustained interest in and engagement with Latin America—specifically, whether it can be a catalyst of the region’s economic renaissance.

It is telling that the Obama administration's new national security strategy, released this month, cites the deepening of economic and security cooperation in the Americas as one of five key initiatives for strengthening world order. A fresh start with Cuba offers the United States a chance to reset a relationship that has undermined regional cohesion for decades. It’s about time; just as Washington has underinvested in Asia in the past decade and a half, so has it underemphasized Latin America, leading many countries in the region to fault it for its negligence.   

But while the United States was preoccupied elsewhere, China has charged ahead. The country has overtaken the United States as the largest trading partner of Brazil, Chile, and Peru, and the Asia-Pacific has supplanted the European Union as the region’s second-largest trading partner. Earlier this year, Chinese President Xi Jinping committed to investing $250 billion in Latin America over the next decade, expressing hope that two-way trade will reach $500 billion during the same period.

The fall in world oil prices has helped China cement its influence in the region. Argentina, Ecuador, and Venezuela in particular have grown dependent on Chinese financial support as their economies struggle. Argentina agreed to undertake an $11 billion phased currency swap with China this past July and has already received $2.3 billion. (It has requested the next tranche, worth $400 million.) Ecuador, too, is indebted to China, having borrowed more than $11 billion since 2008. It recently announced that it had obtained an additional $7.5 billion of financing, including a $5.3 billion credit line. Finally, Venezuela has borrowed some $50 billion from China since 2007 and recently secured more than $20 billion in Chinese investment for a range of domestic projects. 

The United States has been lagging behind, partly because it has tended to regard many Latin American  countries as either calcified antagonists—a view it holds of Venezuela—or low priorities. These narrow perceptions carry geopolitical repercussions far beyond the region. Although rapprochement with Ecuador, Venezuela, and others will likely be slow and tortuous, the United States would be misguided not to make it a focus.

The good news is that there are several straightforward ways the United States can expand its economic footprint in Latin America. First, for all China’s financial clout, its economic growth is undergoing gradual, healthy cooling, which has taken some of the steam out of the commodities boom that helped fuel Latin America’s development over the past decade. The United States can pick up some of the slack by deepening the bilateral economic treaties it has in the region, establishing others, increasing exports of natural gas, and tightening trade and investment linkages. Moreover, now that U.S.-Cuban relations are thawing, Latin America as a whole might show greater interest in the TPP. (Chile, Mexico, and Peru are currently the only countries from the region taking part in the negotiations, although Uruguay has recently signaled its desire to join.) The United States should present the TPP as an agreement that would complement Mercosur and other regional economic arrangements, not displace or subsume them.

The United States should also think creatively about boosting ties with Brazil. There have been a few promising signs on that front. Last fall, the two countries settled a decadelong disagreement over U.S. cotton subsidies, and U.S. and Brazilian business leaders agreed to research the feasibility of a bilateral free trade agreement. But these developments have not offset the overall cooling in relations that followed the revelation that Washington had tapped Brazilian President Dilma Rousseff’s phones. More diversified trade could help to revitalize the partnership. And a good place to start is the upcoming Summit of the Americas, to be held in Panama City this April, where Washington and Brasília could brainstorm ways to strengthen their manufacturing ties and resume their conversation on a possible bilateral tax treaty.

The bottom line is that economics matters. Having watched China’s astonishing resurgence over the past four decades, its neighbors appreciate more than most how fully a country’s economic strength defines its influence in regional and world affairs. As Singaporean Prime Minister Lee Hsien Loong explained last June, many countries in the Asia-Pacific “think that after the global financial crisis, you are done for, and well, suitable obsequies will be spoken, and then a new power will rise.” Perceptions do not exist in a vacuum; they influence strategic realities. The best way for the United States to counter the suspicions that it is a declining economic power is for it to hone its geoeconomic statecraft.

Sustaining its recovery at home, concluding the T-TIP and the TPP, and enhancing North America’s competitiveness would go a long way. So would unleashing a new era of economic diplomacy in the Western Hemisphere. For that reason, it would be a mistake to view Washington’s strategies toward the Asia-Pacific and Latin America as separate and unrelated. In fact, they are closely linked. If the United States proves successful in restoring its economic momentum in the Western Hemisphere, it would offer its friends in the Asia-Pacific more convincing assurance that it is capable of sustaining its rebalance—not only through diplomatic and military commitments but also through the economic strength that underpins them.

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