Xi’s Costly Obsession With Security
How a Quest for Control Threatens China’s Economic Growth
Donald Trump’s focus on Mexico during his first weeks as president must have pleased his base. Harking back to the start of his improbable campaign, when he blasted Mexico for sending “rapists and criminals” across the border and eviscerating American industry with the “worst deal ever,” Trump railed against trade agreements in his inauguration speech, claiming that these pacts had made other countries rich at the United States’ expense. He also pledged to “bring back our border,” a reminder of his campaign promise to build a “beautiful wall” on our southern flank. In the days that followed, Trump signed an executive order to start construction of the border wall, got into a Twitter tussle with Mexican President Enrique Peña Nieto about who would pay for the wall, and goaded the Mexican president into canceling a scheduled trip to Washington. Trump then announced that the United States would speed up talks for a new trade deal to replace NAFTA, and last week sent Secretary of State Rex Tillerson and Secretary of Homeland Security John F. Kelly to Mexico to start discussions. Along the way, Trump found time to withdraw from the Trans–Pacific Partnership, which included three Latin American signatories.
But in his haste to fulfill campaign vows, Trump has lost sight of the fact that nowhere is the United States better poised to gain more with less effort than in Latin America. To put it in Trumpian terms, the region is ripe for a deal. Under President Barack Obama, U.S. trade with Latin America boomed, growing by nearly 50 percent from 2008 to 2015. Contrary to Trump’s campaign rhetoric, the United States enjoyed a nearly $15 billion goods and services surplus with the region in 2014, the last year for which such figures are available. The U.S. surplus with Brazil in 2015 was second only to its surplus with Australia (excluding markets such as Dubai, Hong Kong, and Singapore because they serve as transit points for merchandise forwarded elsewhere). The United States sells twice as much to Mexico as to China, twice as much to Chile as to Russia, and as much to Colombia as to all of sub-Saharan Africa.
However, in the last decade the United States began to lose its regional market edge to China. Chinese trade with Latin America skyrocketed from $12 billion at the start of the century to $289 billion in 2013. In Argentina, Brazil, Chile, and Peru, China leapfrogged the United States as the principal trading partner. Its annual lending to the region recently exceeded that of the World Bank and the Inter–American Development Bank. In turn, Chinese demand for natural resources helped fund the “pink tide” of left-wing nationalist (and sometimes anti-American) rulers who governed Argentina, Bolivia, Brazil, and Venezuela for most of this century.
But Beijing’s luster has dimmed in the last few years as the country’s appetite for soybeans and precious metals waned and Chinese imports have displaced some local industries in Latin America. By the middle of Obama’s second term, many of Latin America’s populist rulers either had been voted out of office or realized that dealing with China was as much a Faustian bargain as a panacea. Nevertheless, the allure of easy credit from China and the country’s 1.3 billion consumers remains strong, and Latin American presidents—most recently Peru’s Pedro Pablo Kuczynski, who just visited Trump in Washington—regularly make Beijing their first foreign destination upon taking office. Following Trump’s decision to withdraw from the Trans–Pacific Partnership, Chile announced that it would begin separate trade talks with China.
Despite China’s encroachment, however, the stars are aligned for a renewed U.S. focus on economics with Latin America. Most of the region has ended its fling with populism and elected centrist presidents who adhere to orthodox economic policies. Brazil, which nearly single-handedly scuttled former U.S. President George H.W. Bush’s dream of a hemispheric trade bloc, is now hobbled by an interminable corruption scandal that has already toppled one president. Her replacement seeks a closer relationship with Washington and was among the first to congratulate Trump on his election victory.
In Argentina, President Mauricio Macri is a businessman eager to attract foreign investment. In Bolivia and Ecuador, long-time U.S. antagonists Evo Morales and Rafael Correa may soon give way to less confrontational successors. And along the hemisphere’s Western spine, four of the United States’ closest allies have formed the Alliance of the Pacific to promote trade and slash regulatory hurdles to integration. That credit goes to Obama’s patient diplomacy, and his willingness to remove Cuba as a convenient foil for regional adversaries, should not preclude Trump from capitalizing on the opportunity.
After all, a quarter century after its inception, NAFTA could use a facelift. Digital trade, clean technologies, and Mexico’s opening of its petroleum sector were not on the table in 1994, and regulatory harmonization was too ambitious to discuss at the time. Even the more recent trade agreements with Latin American nations, such as CAFTA–DR and the Chilean FTA, are more than a decade old and could be updated. But instead of approaching trade relations as a zero-sum game Trump should look to expand our commercial partnerships in a region that today buys more from the United States than it exports to it. Deepening our commercial ties with Latin America could have the added benefit of strengthening the security and stability of our borders, which has long been the envy of both friends and adversaries around the globe.
Although Washington stresses Latin America’s struggles with drugs, thugs, and security, the region’s leaders speak of poverty reduction, trade, and investment. They will surely welcome a conversation with the United States that is centered on economic growth and job creation. If Trump chooses to negotiate, he will find willing partners. But if, instead, he opts to build walls and tear up trade agreements, the self-professed master deal-maker will have left easy money on the table.