China’s South America Move Threatens US Dominance, Here’s What You Need to Know

The upcoming free-trade agreement between China and South American nations, such as Argentina and Brazil, is expected to bring economic benefits to all involved parties. However, it will also intensify the competition between China and the United States in the latter’s “backyard”. The new Brazilian President, Luiz Inacio Lula da Silva, sees the agreement as a way to modernize and expand the South American trade bloc to other regions. Discussions for the agreement will commence after the Free-Trade Agreement with the European Union is completed. A professor from the Chinese Academy of Social Sciences’ Institute of Latin American Studies pointed out that this agreement contradicts the unilateralism and hegemonism of the US, promoting instead multilateralism and open regionalism.

The election of Lula has sparked optimism for a long-awaited agreement with the European Union and it is believed to be ratified this year. Brazil and Uruguay’s main trading partner is China, and Argentina’s second largest is also China. However, there is no official relationship between China and Paraguay due to Paraguay’s support for Taiwan. Paraguay is one of a few countries that still have formal ties with Taiwan, and the President of Paraguay is scheduled to visit Taiwan next week.

An expert in international politics, Santiago Bustelo from Fudan University, states that Lula’s election presents new opportunities for relations between Brazil, the largest country in Latin America, and China. China’s economic influence in the region has greatly increased in recent years and this has resulted in the emergence of opportunities for Free Trade Agreements (FTAs).

The central banks of China and Brazil have agreed to set up yuan clearing arrangements in Brazil to strengthen their relationship and promote the use of the Chinese currency. Analysts believe that the move will be driven by pragmatism, as the Mercosur tries to remain neutral between Beijing and Washington. According to Bustelo, a free-trade agreement will have a positive effect on South America, positioning China as a leading economic partner for the region. He also noted that most Latin American countries, regardless of political ideology, prefer to take a pragmatic approach and avoid taking sides in the US-China competition.

The growing economic and strategic connections between China and South America are causing concern for the US, as this is the first time in over a century that a foreign power is challenging its dominance in the region. The US has traditionally seen South America as its own territory, but as trade between China and Latin America increases, many countries in the region are looking to balance their relationships with both the US and China. The World Economics Forum reports that trade between China and Latin America increased from $12 billion in 2000 to $315 billion in 2020, with projections of reaching $700 billion by 2035.

Trade between China and Latin America reached a value of $486 billion in 2022, according to a senior fellow at Renmin University. Beijing has been working to establish trade relationships with South American countries since the 1980s and has already signed free-trade agreements with Peru and Chile. Meanwhile, Uruguay is currently in negotiations with China for a free-trade agreement, however, the other three members of Mercosur – Argentina, Brazil, and Paraguay – do not agree and believe it should be a deal between the entire Mercosur and China.

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