American and Chinese influence in South America

This article teases out some of the finer points of US-China economic competition in South America, a place that hasn’t seen this kind of geopolitical jockeying since the Old Cold War. In those days, the US and Soviet Union vied for influence across the continents.

Back then ideology and geography were everything. And communist parties with links to the Soviet Union were systematically weakened by the US, either diplomatically or through other means. So it will be interesting how competition in South America between the US and China plays out this time around.

The Bloomberg article notes, of course, that both the US and China aren’t actively competing.

Both the U.S. and China deny they’re competing with one another. The two countries “can play to their respective advantages” and contribute to the region’s development, Foreign Ministry spokesman Hong Lei said May 21 in Beijing.

While China’s demand for resources will surely keep many South Americans working, it shouldn’t be underestimated how much China needs those resources. The US, while in need of some new infrastructure and manufacturing, of course, has a less industrial economy. The Chinese, and the Japanese and South Koreans for that matter, all engage in resource diplomacy, the pursuit of natural resources partially as a political goal. The reason for this is that China needs many more resources than it is naturally endowed with to keep its economy ticking over. Japan and South Korea have few natural resources. It’s worth thinking about this for a moment, too. As the maritime nature of US-China competition becomes clear, many of the resources the Chinese need will be nearer the US. But that is only if the importance of the physical world reasserted itself, in say, an actual war. For now, across this web of resource deals that the advanced Asian economies are pursuing is another web of trade agreements. The most important one is between the US and Asia is the oft-scorned Trans-Pacific Partnership. The Chinese have proposed their own version, too. But what’s interesting is how instead of the fixed geographical borders and delineations that marked the Cold War, there will increasingly be overlapping bands of affiliation, with some countries consistent partners of the US and some of China, but many more countries somewhere in between, in flux.

The US has deep cultural links to Latin America, which it will have to play up, to bolster its influence. But the Chinese can portray themselves as comrades of the Global South. It will be interesting to see what images and themes the US sends out to try to blunt this advantage.

Cold War: What we know now

The emerging consensus seems to be that while the US and China are trade partners in the physical world, they are adversaries online. The “good” news, is that this cyber competition is not limited to the US and China. Think Iran. Think Russia. But the US-China cyber-tug-of-war likely has some dynamics of its own.

While both sides would snoop on each other’s military capabilities, China, because of its state-controlled capitalism, links its military-run industrial espionage with its state-directed capitalism. What’s new about this? If the US were doing it, you’d have direct linkages between say the CIA with Goldman Sachs. That’s not to say some CIA guys don’t know some GS guys. But it would be GS calling the CIA and asking for the insider investment information on coal mining deals in Myanmar, which the CIA would duly provide. Under US law, it doesn’t work this way. There are safeguards. And yes, there are violations. But as a rule, you wouldn’t have an overt linkage between the state spies and industry.

But in the Chinese model, it looks like a matter of industry needing plans of more efficient power grids, for example, and then turning to the PLA to secure those plans from abroad.

This is a game changer for the US, and the way US industries must plan and act in the current business environment.

In the near-term, I think this presents a huge, existential challenge for the US economy and government.

In the long-term, all things being equal, I see the seeds of China’s Japanification through this process. And so while China postures, it hides what is a structural, cultural fragility that will manifest itself more clearly in coming years.

In terms of Cold Wars, that is where we are: A US-China Cold War online, but US-China trade partnership in the physical world.

And if globalization dies?

What does it mean for China and US? This editorial poses the intriguing question of what comes next.

The globalization model of the past 30 years is cracking up. And there appears to be no new model to replace it.

The US still runs huge trade deficits with China but there is a growing awareness that they aren’t sustainable. If the trade balance were to balance, what would that look like in practical terms for the US?

I suppose if the notion of actual competition with China – rather than frustration and resignation – began to take hold in the US, there would be more economic incentive to even out the flows of goods and services. Those deficits blew out at a time when globalization’s loudest advocates insisted the US had no place in manufacturing. However, with China flexing its muscles with is neighbors, not to mentioning pirating as much Western IP that can be hacked, possibly the attitude in America will  change. No doubt, it’s what’s on Obama’s mind when he talks about China.

China is building faster trains and newer airports. Meanwhile, when our own engineers graded our nation’s infrastructure, they gave us a “D.”