Repairing U.S.-Latin American Relations

Michael Shifter asks whether the damage Trump has wrought on U.S.-Latin American relations can be repaired, starting from an anecdote about how a Mexican business leader said relations would be set back 20 years.

I think there are two things here that go well beyond even what a Biden administration would look like. First, history tells us that of course relations can be repaired. The relationship is just too tight, the interdependence so strong. If we can repair relations with Cuba after years of trying to destroy it, we can do so with Mexico. Even Daniel Ortega tried for a while to engage with the U.S. So this part is easy, and in fact many Latin American presidents are just waiting for someone else in the White House, in a similar way as the 2008 election.

But the second is more difficult. China is now a player like never before, a process that became stronger in the 2000 and then accelerated, pedal to the metal, under Trump. That cannot be reversed no matter what the U.S. does. Shifts in trade relations are not super likely unless something happens in China. These are long-terms trends that will not change just because someone new become U.S. president. Latin American countries looked for creative ways to find autonomy from the U.S., and restoration of trust may slow that but will not stop it.

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Podcast Episode 71: Latin America, the U.S., and China

Episode 71 of Understanding Latin American Politics: The Podcast is different, as it's a recording of a talk I gave last night on Latin America, the U.S., and China. This was part of the Great Decisions series, sponsored by the Office of International Programs here at UNC Charlotte.

You can find this podcast at iTunes, Google Play, Spotify, and anywhere else podcasts can be found. If there is anyplace I've missed, please contact me. Subscribe and rate!

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Podcast Episode 67: China & Venezuela

In Episode 67 of Understanding Latin American Politics: The Podcast, I talk with Jason Marczak,  Director of the Adrienne Arsht Latin America Center at the Atlantic Council. He’s been active in studying Latin America for a long time, previously with the Americas Society and Council for the Americas. Yesterday the council hosted an event “China, Oil, and Venezuela: Myths, Reality, and the Future.” (Here is the link to video of that event) In particular, we talk about what interests China has in Venezuela and what role it might play in an eventual political transition.

You can find this podcast at iTunes, Google Play, Spotify, and anywhere else podcasts can be found. If there is anyplace I've missed, please contact me. Subscribe and rate, even if just to tell me I am wrong about everything.

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U.S. Response to China in Latin America

Carlos Roa at The National Interest takes a look at China's relations with Latin America and what the U.S. can do. FYI, ignore the annoying headline--it's not about "losing" Latin America (just Google "losing Latin America" to see what a click-baity cliché this is).

He makes one point that is especially worth emphasizing:

Washington’s political establishment will have to confront its own ideological assumptions—particularly those that inform its approach towards geo-economics. Doing so will require overcoming a long-held aversion to state-led economic initiatives and the notion that the free market holds unquestionable authority over matters of economics and finance. 

This hits the nail on the head. U.S. economic policy has been driven by expanding the private sector as much as possible in Latin America, which often cuts against what Latin American leaders want. Plus, the U.S. long ago lost credibility in this area given the state-led response to the 2008 economic crisis, which stood in sharp contrast to prior U.S. insistence that Latin America allow markets to readjustment themselves while millions suffered.

Roa goes into the ways in which China has increased Latin American indebtedness to its own advantage, pushed to increase Latin American dependence on Chinese suppliers, and increased its export of manufactured goods. What's worth pointing out here is that this is exactly what the U.S. has done in the past. We're mad now because the Chinese are using our own model, which for years tightened dependent ties. Now, as they loosen and Latin America becomes more autonomous, it's a source of frustration and a sense of "losing." It's now not just about being friendly again. It's completely rethinking how the U.S. relates to the region, which needs to be much more on its terms.

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Qiu Xiaolong's Death of a Red Heroine

Qiu Xiaolong's Death of a Red Heroine is a political police procedural that takes place in 1990s Shanghai. The setting is important because the case revolves around the changing politics of the era, where capitalist reforms are underway and there is an uneasy relationship between high cadres, their children (HCCs), the average person, and those who had been imprisoned but were now rehabilitated politically. There is considerable distrust.

The victim is a model worker, by the 1990s an almost outdated phenomenon, which means a person deemed to publicly embody the best elements of the Communist Party. Inspector Chen is charged with investigating the murder, and before long he is taking on an HCC. The middle of the novel dragged for a me a little, with all the intricate political dances, but the latter half was really entertaining even though by that point there was no mystery anymore.

Chen himself is a published poet, and the book is loaded with snippets of classic Chinese poets, along with close attention to food and culture. They represent something solid in an otherwise shifting and uncertain political and social landscape. Chen himself is committed to doing the right thing--finding the murderer--regardless of the politics that surround it, and there is a twist at the end that leaves him pondering how hard that can be in China.

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China Invests More in Latin America

China set up a China Development Bank in Latin America. While the Trump administration says aid is a ripoff, globally the bank has financed $190 billion of projects globally as part of the Belt and Road Initiative.

Who signed on? Argentina, Ecuador, Mexico, Peru, Panama and Colombia. Notice these are all U.S. allies. China offers financing while the U.S. offers criticism and assertions that the "Monroe Doctrine is alive and well," which means the Trump administration believes it gets to choose who Latin America engages with. I wish I could be a fly on the wall as these speech and policy decisions are made. They seem almost intent on ceding influence to China.

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Pence Points at Russia & China Support for Maduro

Mike Pence published an op-ed in today's Miami Herald saying "Nicolás Maduro must go." Aside from keeping the issue on the front-burner (because Trump is preoccupied and not tweeting about Venezuela) it has a Chinese and Russian audience.

The truth is, he does so with the help of nations who refuse to acknowledge that he has no legitimate claim to power, and who continue to prop up his dictatorship. 

Even now, Cuban military and intelligence services train, support, and equip Venezuela's secret police as they bully protestors and silence opposition. Turkey continues to deal in Venezuelan gold, providing Maduro with desperately needed cash to sustain his regime. 

Last month, Russia vetoed a resolution at the United Nations calling for unhindered delivery of humanitarian aid to Venezuela. 

And once again, China is advancing its own interests at the expense of the Venezuelan people. Later this month, China plans to host the Inter-American Development Bank's annual meeting. 

But despite claims of friendship, the Chinese are undermining the hemisphere's progress towards democracy by refusing to grant an official visa to Ricardo Hausmann, the lawful representative of Venezuela – the first time in the bank's history that a host nation has refused to seat a member.

We know that Elliott Abrams is talking to the Russians. And there had already been news of the high-level dispute about allowing Ricardo Hausmann to represent Juan Guaidó at the IADB meeting in Beijing. The Chinese were considering not inviting anyone from Venezuela, which actually would be an acknowledgment that Maduro's legitimacy was in doubt.

The two countries constitute Maduro's lifeline and we just don't know at what point they are willing to cute him loose. Neither wants to appear to concede to the United States or to lose their investments. I assume the latter can be worked out but the former is tough.

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Chinese Organized Crime in Latin America

An article in U.S. Southern Command's magazine warns against the growing influence of Chinese organized crime in Latin America. This goes hand in hand with the popularity and smuggling of Fentanyl. Evidence is scattered but it's an obvious outgrowth of more Chinese presence in the region.

The big question is what kind of threat this poses, which is tied to how much it is growing and what connections it is making, which are still murky. As with hysterical responses to purported Middle Eastern terrorism on our doorstep, I remain skeptical until I am completely convinced. Since the Trump administration has been warning about Chinese influence, I can envision this issue making its way more into speeches, probably with unnecessarily inflammatory rhetoric.

Put this in the "keep a close eye on it but don't blow it out of proportion" category.

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Taiwan Keeps Daniel Ortega Afloat

The Trump administration has focused on pressuring Latin American countries to recognize Taiwan and push back against the Chinese presence. In Central America, Marco Rubio has been active in criticizing and trying to punish El Salvador for recognizing China. Both China and Taiwan use money as a carrot.

Enter Nicaragua. Daniel Ortega, ever the political chameleon, recognized Taiwan in 2017. That turned out to be a great move because Taiwan just loaned him $100 million to keep him afloat. Ortega desperately needed an influx of cash as he faces isolation and domestic upheaval. This comes just after Donald Trump said he wanted to come after Ortega.

The competition between Taiwan and China in Latin America gives governments greater autonomy. The United States alone cannot force regime change in Nicaragua solely with economic pressure because there are escape valves. In this particular case, Ortega is actually just doing what the U.S. wanted in the first place.

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Juan Guaidó and China

Juan Guaidó's messages to China are spot on. He recognizes that China's interest in Venezuela is overwhelmingly economic. So you do three things: you avoid all ideological references, emphasize how Nicolás Maduro has damaged your investments, and promise to honor every deal Maduro made.

“I will be very clear: all agreements that have been signed following the law will be respected,” Guaido said in a written interview. “If previous agreements were signed by adhering to the due process of approval by the National Assembly, they will be accepted and honored.”

And:

 "We want to establish a transparent relationship with China and put an end to the plundering of our resources that has prevailed under Maduro’s government, which has ultimately also affected Chinese investors,” he said. “China’s development projects in Venezuela have been falling as they have been affected and destroyed by corruption or debt default.”

And China is ready to listen:

 Asked three times last week if China still saw Maduro as Venezuela’s president, foreign ministry spokesman Geng Shuang simply noted that a special envoy of President Xi Jinping attended his inauguration in January. On Friday, Geng said China has “maintained close communication with all parties” and ties “shouldn’t be undermined no matter how the situation evolves.”

He also makes sure China knows he understands their initiatives in the region:

 “In Latin America and the Caribbean, China continues to promote trade within the framework of the Belt and Road Initiative,” he said. “This initiative gives China a natural space to foster development across the region.”

Guaidó has laid the groundwork for a smooth Chinese shift from Maduro to him. This will be in jeopardy if it comes via U.S. invasion, which would set alarm bells off in China. China would see this as a threat to its investments and would be wary of the image of the U.S. government pushing it around. Yet another reason to avoid it.

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Countering China in Latin America

A member of the Venezuelan opposition, Carlos Vecchio, published an op-ed in The Miami Herald about China. It is a more alarmist view than mine, but I agree with his overall point.

First, the United States’ top priority should be to ensure the triumph of democratic norms, human rights and the rule of law throughout the continent. 

Second, the United States should incentivize economic and social development in the region by leveraging its close technological, cultural and commercial ties with Latin America.

It is notable that the Trump administration is doing neither. Democracy is not a priority and in fact the administration is working against anti-corruption efforts in Guatemala. Meanwhile, Trump publicly calls for cutting development aid. Aid is just not MAGA.

To achieve this, the United States could promote summits and scholarships to attract Latin Americans to Silicon Valley and lean on its private sector to support promising technological enterprises abroad.

Bring in immigrants and promote foreign business? That's not MAGA either.

The United States could also promote social development by sponsoring sports partnerships across the region. 

Trump just said no to that in Cuba.

In short, none of these things will happen under the current administration. It is becoming conventional wisdom that the administration's Latin America policy is giving China a major boost in the region.

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Taking Aim at CAFTA

As Donald Trump went after NAFTA, I kept wondering why he didn't say much at all about free trade agreements with other Latin America. Now the administration is taking aim at CAFTA-DR. And it's all about China.

“We are very concerned with Nicaragua’s move toward authoritarianism, and El Salvador’s and Dominican Republic’s questionable ties with China,” the official said. “As the United States has made clear, we will not allow our trade agreements, including CAFTA-DR, to become back doors to benefit non-market economies and repressive actors in the region.”

By "questionable" the official means "we told them not to and they did anyway." It's dangerous to view Latin America primarily through a Chinese lens, however. As I've written countless times, the U.S. has to be cognizant of unintended consequences. Punishing Central America at the precise moment you're talking about trying to resolve the immigration issue is counterproductive, to say the least.

Kicking Nicaraguans when they're down will make their lives worse without necessarily hurting the regime enough to prompt any change. In the case of El Salvador, if the economy stagnates then people will come in greater numbers to the United States. One could imagine Nicaraguans eventually doing the same.

Unfortunately, Central America is long accustomed to being a pawn between large powers that don't care about its well-being.

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Ecuador Goes More Into Debt With China

For many years, the United States and then U.S. banks were deep in the loan business in Latin America. It's a great setup. You loan money to less developed countries and they often have a difficult time repaying on time. To ensure repayment, you loan them more money. As long as you keep friendly governments in power, you make a ton of money even if their economy falls apart. 

Now it's China. Rafael Correa borrowed about $6.5 billion from China between 2007 and 2017. Just as Mexico felt the pinch in the early 1980s, the fall of oil prices has made repayment more painful over time. So now Lenín Moreno felt obligated to go to China and get $900 million at the "lowest interest rate in history."

Rafael Correa, who is responsible for getting all this going, actually once said he thought Ecuador was being "ill treated" by China. Well, yes, countries that were heavily in debt to the U.S. or U.S. banks were ill treated too. What that means is that you are controlled and you have no leverage. When you owe huge sums of money, the loaning country is free to do as it wants.

Correa went that direction in large part to proclaim his independence from the United States. This was the same path Cuba took after the Bay of Pigs. All it means is shifting economic dependence from one great power to another. It does not lead to independence.

Moreno and Correa do not agree on much but apparently they agree that heavy indebtedness to China is the way.

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Russians Want Their Money From Venezuela

The head of a major Russian oil company, Rosneft, went to Venezuela to let Nicolás Maduro know he was not happy about delayed oil shipments that were repaying loans. Reuters estimates Rosneft loans to equal about $17 billion since 2006. The added twist is that he complained further that Venezuela was paying China on time, but not Russia. The Russian government also recently made it clear it would not loan any more money to Venezuela given the current situation.

The point here is one I have made before about both Russia and China, but it bears repeating. You need to look beyond the simple "They are in our backyard to cause mischief and threaten us." The fact of the matter is that they want their money back. They are doing this in large to make a profit and fuel their own economies. The more Venezuela collapses, the more concerned they get. There is every reason to believe that if the government falls, a new one will try to get debt relief. So they need to balance the urgency of getting money back with trying to keep the government just afloat. This becomes just as much a matter of money as it is politics.

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The U.S. is Losing to China in Latin America

China imposed a 25% tariff on U.S. soybeans in response to President Trump's launch of a trade war.  China's strategy is to wean itself off U.S. soy. A major part of this effort is to pay closer attention to Latin America, which I mentioned two months ago in a sort of "wait and see" kind of way. Now we are seeing. Here are some results this year:

• U.S. soybean sales to China dropped 94% this year.

• Brazil is in talks with China to boost its soy exports.

• Argentine soy exporters expect a deal with China soon.

• Chinese business has developed a strong soy export sector in Paraguay.

• China wants to import soy from Bolivia but this year announced there was something wrong with it, so was going only with quinoa and coffee. Stay tuned, I guess.

The implications here are obvious. The trade war has deepened and accelerated China's economic relationships with South America, which had already been growing rapidly in the last decade or two. Once those kinds of ties are forged, they do not disappear quickly. If Trump insists on dragging out the trade, U.S. soy farmers will eventually have to fight for re-entrance in a market they lost.

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Causes of Venezuela's Oil Implosion

Economist Francisco Rodríguez writes about the causes of Venezuela's economic implosion at WOLA's blog, centering on the decline of oil production. That in turn was caused by mismanagement and exacerbated by U.S. sanctions. In particular, the latter "toxified" transactions with Venezuela, thus raising the costs of doing business with the government.

This is not an exercise in blaming the U.S. but rather recognition that a lot of factors are working simultaneously. I had written for a while that Trump's policies seemed quite similar to Obama's in terms of targeted sanctions, but the more general sanctions against transactions are a step much further. Those now can also be accompanied by protests at the offices of financial institutions that loan money.

As we warned previously, these observations should not be taken as decisive proof that sanctions caused the output collapse. There are many other factors at play in the Venezuelan economy which can also be put forward as explanations. Maduro’s decision to appoint a general with no previous industry experience and the broad-ranging corruption investigation that led to the jailing of 95 industry executives, including two former PDVSA presidents, appear to have caused a paralysis in many of the sector’s professional cadres. The loss of the industry’s specialized human capital, part of the brain drain that accompanies large scale migration exoduses, also contributed to the deterioration of its operational capacity. 

The data, however, strongly suggests the need for much more in-depth research on the reasons for Venezuela’s oil output collapse and for the discontinuous behavior in the series. The fact that the acceleration of the decline coincides with the onset of the country’s toxification to international investors suggests that we need to closely explore this channel as a potential driver of Venezuela’s output collapse.

What we should also note is that these policies have increased China's influence significantly. Maduro just returned from a triumphant trip getting more investment promises. This is another example of Trump administration policies unintentionally boosting China's presence in Latin America.

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More Latin American Benefits From Trump Trade War

Because of Donald Trump's trade war, China is working to wean itself off U.S. soybeans.

The comments echo a growing confidence within China’s soybean industry and government that the world’s largest pork-producing nation can wean itself off U.S. soy exports – a prospect that would decimate U.S. farmers, upend a 36-year-old trading relationship worth $12.7 billion last year, and radically remap global trade flows. 

Just one prong of the strategy Mu detailed - to slash soymeal content in pig feed - could obliterate Chinese demand for U.S. soybeans if broadly adopted, according to Reuters calculations.

A bit breathless, I think, but the point remains that the Chinese government has a strategy here that will have long-term implications. As it turns out, those implications involve Latin America.

At the Kansas City conference, held by the U.S. Soybean Export Council, Mu highlighted reduced soymeal rations as part of a broader strategy, including seeking alternative protein sources such as rapeseed or cotton seed; tapping surplus soybean stocks, including a government reserve, and domestically grown soybeans; and continuing to boost soybean imports from Brazil and Argentina.

This is a recurring theme. Trump unsettles Latin America because he is unpredictable, but in some specific ways his economic policies benefit Latin American producers at the expense of the United States. In this case, U.S. farmers lose. I've been writing some variation of this in posts a number of times this year.

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Trump Administration Lectures Latin America on China

It is now conventional wisdom that the Trump administration's Latin America policy is accelerating China's diplomatic and economic overtures to the region. Latin America is also becoming more vocal about that fact. Jorge Guajardo:

No Latin American country right now feels in any way encumbered or indebted to the United States with President Trump referring to the region the way we know he refers to the region.”

The administration has two options for a response. The first is to reverse its protectionist policies and its racist statements, to find ways of facilitating investment and working in partnership with the region. The second is to lecture Latin America about how stupid it is.

You take a wild guess which option it is taking.

Latin America would prefer to work with the U.S. more than with China. The ties are deeper, the cultural gap much smaller, the language gap minimal. But this is a case where the U.S. is simultaneously shoving Latin America away and criticizing it for looking elsewhere.

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Jim Mattis on Latin America

Secretary of Defense Jim Mattis on China's role in Latin America.

“There’s more than one way to lose sovereignty in this world. It’s not just by bayonets. It can also be by countries that come in bearing gifts and large loans…piling massive debt on countries knowing they know will not be able to repay it,” Mattis said, in what appeared to be a jab at Chinese loans to countries like Venezuela and the Philippines.

My head is not big enough to give this the proper eye roll that it deserves. Let's set aside the obvious fact that the history of U.S.-Latin American relations is full of countless effort to undermine Latin American sovereignty through means other than military force.

But more importantly, this statement directly says that Latin American leaders are too stupid to know what amount of debt their countries should take on. The reporter mentions Venezuela but loans are going out all over the place. In other words, China is swindling the moronic Latin Americans, who will simply take on debt they cannot pay.

Hopefully the messages he carried to Latin American leaders during his trip the last few days were not this condescending.

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Trump Hurts Taiwan in Latin America

Latin American countries have been key allies of Taiwan for many years. But it occurs to me that the Trump administration's Latin America policy is especially hard on it. The president is heading to the region to shore up crumbling support.

Taiwanese President Tsai Ing-wen will head to Paraguay and Belize – two of the island’s remaining 18 formal allies – on Sunday, in her fifth state visit, described by her government as a “Journey of Joint Celebration”, but seen by analysts as cementing ties in the face of a growing diplomatic squeeze by Beijing.

Paraguay and Belize are not what you call diplomatic heavyweights but Taiwan is keenly interested in Latin America. China is using its financial might to lure countries to recognize it, and Taiwan has been doing what it can (including bribes) to counter that.

Trump's tariff policies give China a big boost in this regard because it reduces the need to woo so much. Latin American countries are consciously looking to China given the uncertainty of future trade relations with the United States. The logical next step is recognition.

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