The Taiwan Dilemma:

On March 14 of this year, the President of Honduras Xiomara Castro announced that her country would be establishing diplomatic relations with the People’s Republic of China. This move is very likely to bring to an end the Central American state’s long diplomatic relationship with Taiwan. While the US is one of Taiwan’s closest allies and biggest providers of weapons, the PRC considers this self-governing island to be a part of its territory, and President Xi Jinping hopes to consolidate his legacy by annexing it before the end of his third term in 2027 – by force, if necessary. It seems that Latin America and the Caribbean are about to witness an intensification of the Sino-American struggle for influence and support on international issues, the status of Taiwan among them.

Various Indicators

There are many indicators that China’s influence in Latin America is growing, sometimes to the point of outweighing US influence.

1. China has emerged as the number one trading partner of the countries of Latin America. Over the course of the last few decades, economic and trading links between Beijing and Latin America have grown steadily. China has managed to displace the US as South America’s leading trading partner, and is now the most important export market for Brazil, Chile, Peru, Cuba and Uruguay. In 2022, the volume of Chinese trade with Latin America and the Caribbean leapt from $18 billion to $450 billion, while that of US trade remained stagnant. By 2035, it is expected to reach $700 billion.

2. Beijing has become a major investor and creditor. In the last two decades, Beijing has invested heavily in Latin America, which is now the second largest recipient of Chinese investment after Asia. Between 2000 and 2020, total Chinese investment in the region grew from $12 billion $315 billion. These investments are concentrated in infrastructure projects and extractive sectors, with particular attention given to oil and strategic minerals such as lithium. Some 24 countries have also signed advanced telecommunications agreements with China, most of which concern 4G and 5G network provision.

The state-owned Chinese Development Bank and the Export-Import Bank of China are prominent creditors in the region: taken together, they issued around $137 billion in loans to Latin American governments between 2005 and 2020. China’s relatively generous terms and its relaxed attitude to issues of democratic standards and human rights have made it ever more attractive to Latin American governments as an alternative source of loans, investment and western products. US officials, meanwhile, have warned that the growing economic partnership between China and Latin America may lead some of these countries into a "debt trap."

3. China is strengthening its security partnerships with countries in the region. The US is the Latin American countries’ main security partner and maintains many military bases in countries like Colombia. Nonetheless, China has been a consistent provider of weapons and of other military equipment to regional armies and police forces, given in the form of "grants," as well as training courses and scholarships for military and security professionals. Beijing has also set up a satellite monitoring station in Argentina, close to the Magellan Strait and has deployed weather balloons in Latin American skies. All this has alarmed US officials, who are concerned that in the event of a clash with the PRC Beijing will be able to deploy ready-made "dual-use" infrastructure in South America alongside its regular military activities, increasing the likelihood that the region will become a theater of conflict. Beijing’s growing security partnerships might even allow it to deploy troops in some Latin American countries or to collect important intelligence on the US’s own military activities there.

4. Many countries in the region are showing an interest in warmer relations with China. The last few years have seen a steady tendency in this direction, with the most recent example being Honduras’s announcement that it will be establishing relations with the PRC. Brazil’s President Lula da Silva likewise announced a planned visit to China, originally set to take place this March 25. Although the visit was subsequently postponed after Lula caught pneumonia, it still reflects a new turn in Sino-Brazilian relations that has occurred within the last few years.

Strong Motives

There are a number of factors driving China to compete with the US "right in its own backyard."

1. China wants to push back against US influence. China is trying to exploit the decline of Washington’s traditional hold over Latin America in order to strengthen its own position as a global power and an alternative to the US that enjoys the acceptance and trust of local countries. In a speech given to the seventh summit of the Community of Latin American and Caribbean States (CELAC) in 2023, President Xi stated that the countries of this region are "important members of the developing world [that] play an active part in global governance and make important contributions to it." At the same time, China is responding to US maneuvers in the South China Sea – which it considers its traditional sphere of influence – by demonstrating its ability to increase its presence in Washington’s historical stomping ground.

2. China aims to secure economic benefits. There are many economic reasons for China to strengthen its ties with the countries of Latin America. The most significant is its quest to secure the raw materials (agricultural and mineral) it needs to continue its economic growth, materials that the continent is famously rich in. This is not to mention the importance of Latin America as a huge market for Chinese exports, with a population of some 657 million people as of 2021. China also hopes to expand its ambitious "Belt and Road Initiative" to South America, which occupies a key position in the flow of global maritime traffic because of its proximity to various international shipping lanes, including the Panama Canal. So far, it has succeeded in convincing 21 countries to join this initiative.

3. China hopes to isolate Taiwan diplomatically. In accordance with its "One China" policy, Beijing has a great desire to reduce the number of countries that recognize Taiwan’s independence, and this desire has been a major driver of its efforts to establish a greater presence in Latin America and the Caribbean. As it stands, eight of the region’s 14 countries maintain recognition of Taiwan.

While the Honduran President’s recent announcement that she would be establishing diplomatic relations with the PRC is in line with promises made before the elections, it comes only weeks after her government reported that it was in negotiations with China on the construction of a new hydroelectric dam. The Honduran foreign minister has said explicitly that this step was the product of economic necessity: Taiwan has refused to seriously consider Honduras’s request to double its $50 million annual aid bill and to reschedule its $600 million debt. And all this is part of a broader trend in the region. Nicaragua, El Salvador, Panama, the Dominican Republic and Costa Rica have all transferred their diplomatic recognition to Beijing after being offered economic incentives, including loans and infrastructure investment.

Determinants of Future Trajectory

There are various determinants that may shape the future of Sino-American competition in Latin America and the Caribbean.

1. The political trajectory of Latin American countries themselves. With various parties and figures of the left currently in power, the governments of the region are likely to show an ever-greater interest in good relations with China in order to increase their own margin of freedom. At the last Summit of the Americas, held last June in Los Angeles after a hiatus of around three years, there were clear indications that US power was on the wane. Four Latin American states, including Mexico, boycotted the event, citing Washington’s refusal to invite Cuba, Nicaragua or Venezuela – three left-wing governments hostile to the US.

2. The tenor of the US response. Latin America and Caribbean experts generally criticize the Biden administration for its lack of a comprehensive trade and investment strategy for dealing with the countries of the region. Decades of an aggressive and interventionist US policy favoring military dictatorships and oppressive governments have left their mark, and will not be easily forgotten by the Latin American public.

Rising disillusionment with and hostility toward the US, driven by these interventions, has allowed China to increase its influence throughout Latin America. If Washington continues to adopt a predominantly security-based approach (more aid for the militaries and police forces of the region) to the problems of Latin American countries while neglecting economic aid, trade connections or support for civil society and democracy, these countries will in turn be more likely to see Washington as just one partner among many – and not necessarily the most attractive partner, either, at least as far as economic relations go.

3. The nature of the Chinese strategy. Although the US is not going to lose its local military hegemony any time soon, China will encourage Latin American calls for a multipolar global system, and we are likely to see closer coordination between Beijing and Latin American countries in multilateral forums such as the UN Security Council in order to reduce US influence in the region. It is also probable that China will push on with its own agenda by concluding more trade and investment agreements with local countries via its state-owned companies, thereby furthering its own economic and strategic interests.

Against a backdrop of rapidly changing political and economic conditions and with the growing possibility of a multipolar world order, many Latin American countries are seeking to forge an independent path that does not favor one great power over another. As China and Russia continue their attempts to achieve multipolarity, these countries are likely to support their efforts, hoping to reduce US pressure and prevent further meddling in their internal affairs. Without a sustained drive by Washington to strengthen its partnerships with Latin American countries – as opposed to expedient short-term campaigns driven by international crises like the war in Ukraine or the growing Chinese presence in South America – Beijing will continue to expand its influence in the US’s back yard.