Latin America Faces Challenges as China’s Economy Falters, Offers an Opening for the US
As Beijing’s economic troubles worsen, Latin American countries are starting to feel the impact on commodities, and harsher investment terms are likely to follow. China’s decision to end its “zero COVID” policy has led to an economic downturn, with slumping import and export markets, soaring debt, underperforming industrial output, and a declining real estate market. The country’s July data showed a significant year-on-year decline in foreign trade, with a 14.5 percent drop in exports and a 12.4 percent decrease in imports.
These economic challenges are compounded by a shrinking labor force and high youth unemployment rates. In April and June, the unemployment rate among 16- to 24-year-olds reached record highs of 20.4 percent and 21.3 percent, respectively. However, the Chinese government has limited the release of additional unemployment statistics, indicating its efforts to control the narrative.
Experts argue that China’s economic slowdown was inevitable due to the challenges of moving millions of people from rural agriculture to higher-productivity urban work. These economic difficulties will have far-reaching consequences, particularly for China’s partners in the developing world, including Latin America. Over the past two decades, Chinese companies have invested approximately $160 billion in the region.
However, much of Latin America’s engagement with China has been based on perceptions and hopes rather than practical considerations. Dubious infrastructure projects and risky loans given to governments with a history of debt default have characterized China’s involvement in the region. For instance, Argentina used a line of credit from the International Monetary Fund to repay a Chinese loan in August, highlighting its ongoing debt issues. China’s infrastructure projects in Latin America have faced numerous problems, impacting local populations.
The economic downturn in China will have a significant impact on Latin American economies heavily reliant on commodity exports. Falling demand from China, the region’s largest trade partner, is resulting in cooling commodity prices. Commodities represent 72 percent of total exports for countries like Brazil, Chile, and Peru. The Inter-American Development Bank has reported price drops in key Latin American commodities such as oil, coffee, iron ore, copper, and soybeans. Experts predict a protracted period of lower commodity prices and anticipate that China will have less money to invest in the region.
This economic downturn may tarnish China’s reputation in Latin America and lead to a reevaluation of the relationship by Latin American governments. If China fails to deliver on its promises, countries may look for alternative partners. However, analysts believe that China will not scale back its regional investments due to its interest in projecting power. They expect China to adopt a harder diplomatic line, setting stricter loan terms and deepening its politicization in Latin America.
This shift in China’s economic status presents an opportunity for the United States to strengthen its economic ties with Latin America. While China has become a top trading partner for many countries in the region, the United States remains a significant source of foreign direct investment. US officials must differentiate themselves as a reliable trade partner and capitalize on any economic difficulties faced by China. Failure to do so would mean missing out on a golden opportunity, as has happened in the past.
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