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Economy

US and China can work together in Latin America

Interests should be seen as complementary, which would benefit the region

Mexico has alternatives to the U.S., Ildefonso Guajardo, the country's economy minister, made clear in recent comments amid demands by Washington to renegotiate the North American Free Trade Agreement. He suggested his country could shift its trade focus to China from the U.S.

Though his words were hyperbolic, they reflect a new geopolitical reality: China is becoming a major trading partner of Latin America. There is increasing concern in the U.S. meantime that Beijing may be gaining influence in the neighborhood.

But the U.S. need not fear China's growing economic presence in Latin America. It should instead see this as an opportunity to cultivate a cooperative relationship with the burgeoning superpower. Washington should learn from its mistakes in Asia; botched attempts to contain Chinese influence lead only to antagonism. A much better alternative would be to develop a partnership.

While the U.S. refused to join the Chinese-led Asian Infrastructure Investment Bank, many of its allies became members anyway. When Washington withdrew from the Trans-Pacific Partnership, momentum continued for an alternative regional trade framework that includes China.

These two blunders have helped trigger a zero-sum mindset about geopolitics in Asia. Intentionally or not, Washington was signaling to countries in the region that they had to choose whether they were with China and against the U.S., or vice versa.

Such competition does not have to exist in Latin America. Countries in the region can choose to develop economic ties with both superpowers. In fact, they should.

This is because Chinese and American investment styles are complementary. If properly coordinated, the two approaches could pave the way for significant and sustainable economic growth in Latin America. China's sheer investment potential, particularly given its willingness to channel capital towards turbulent destinations, can fuel growth in a way that the U.S. simply cannot match. Washington's advocacy of economic reforms and transparency in return for development aid, on the other hand, can help open doors to the global economy.

Working together would help keep Latin America from becoming overly dependent on either superpower, making economic growth more sustainable. The drawback of Latin America's deepened ties with China, for instance, has been seen in the wake of slowing economic growth. Commodity prices dropped and demand for resource exports fell, a double impact for countries which had come to depend on Chinese investment and trade. With the U.S. as a counterweight, Latin America can better shield itself from fickle markets.

Indeed, Latin Americans have already recognized that both the U.S. and China play valuable but distinct roles. Mexico as well as Chile, Peru and Colombia have adopted more liberal economic policies that have improved trade with the U.S. and conferred benefits in terms of their global reputation. Venezuela, Argentina, Bolivia and Ecuador, which face more difficulty accessing international markets, have turned to China for much-needed capital.

Joint platform

The most obvious opportunity for the U.S. to cooperate with China is within the Inter-American Development Bank, of which both are members. In 2012, the IDB and the Export-Import Bank of China established a Latin America-focused joint investment platform with separate funds targeting infrastructure projects, midsized companies, and projects relating to agriculture and extractive industries; the funds were expected to receive up to $1.8 billion in combined funding. The following year, the People's Bank of China and the IDB created the China Co-Financing Fund, which has provided an additional tranche of development money for the region, expected to reach $2 billion.

The U.S. should use its membership in the IDB to coordinate with China on these two initiatives and to develop them into more robust multilateral development funds. It should dedicate capital to them and then use its stakes to put in place transparency and reform requirements that must be met for Latin American applicants to receive funding.

Washington should not make these conditions too stringent, however. Such strictness, after all, has been a source of consistent complaints in relation to American funding, and China's higher risk tolerance is what gives it a competitive advantage. But a happy medium should be reachable. If the U.S. joins forces with China, more money would be available than the U.S. alone could provide, but more safeguards would be in place than China alone would require.

There is little reason for the U.S. not to work with China on these issues. This is because a prosperous Latin America -- one that grows both quickly and sustainably -- would benefit both the U.S. and China. Cooperating with China today would set the stage for future access to investment and trading opportunities in the region. It would also be easier for the U.S. to influence China's behavior from within a cooperative relationship rather than as part of an antagonistic one.

For beltway strategists who remember bygone days of uncontested American global leadership, welcoming China's foothold in Latin America seems absurd. But Washington's ability to allow or stop China from engaging with the region is limited. Empires come and go, and only those that adapt survive.

This would not be not appeasement, as some in Washington might argue. This is about adapting in a manner that helps develop Latin America and in so doing makes the region a more valuable business partner for both the U.S. and China. Hardheaded refusal to accept changing circumstances is folly.

Nicholas Borroz is a Washington-based strategic intelligence consultant.

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