The United States maintains close cultural, economic, and security ties with countries in Latin America and the Caribbean (LAC). While the United States remains the largest economic and security partner in LAC, in the last decade China has rapidly deepened its economic, diplomatic, and military engagement to become the region’s largest creditor and second-largest trading partner. China’s efforts in the region are driven by four key objectives: (1) ensuring its access to the region’s abundant natural resources and consumer markets; (2) gaining LAC support for its foreign policies; (3) shaping LAC perceptions and discourse about China; and (4) gaining geopolitical influence in a region geographically close and historically subject to U.S. influence. Closer ties with China may reduce U.S. influence in the region; they can also reinforce the region’s overreliance on highly cyclical exports and create unsustainable debt burdens for some LAC countries, which China could use for political leverage. This report examines China’s objectives in the region, its economic, diplomatic, and military and security engagement in Latin America and the Caribbean, and the implications of its expanding regional presence and influence for the United States.
Highlights of This Month’s Edition
• Bilateral trade: In August 2018, the U.S. goods deficit with China hit $38.6 billion, an increase of 10.5 percent year-on-year, and the highest monthly deficit with China on record.
• Bilateral policy issues: On September 24, the second and most recent round of tariffs went into effect: the United States imposed a 10 percent tariff on $200 billion of U.S. imports from China; Beijing responded by imposing a 5 to 10 percent tariff on $60 billion of U.S. exports to China, releasing a white paper criticizing the Trump Administration; tariffs increase manufacturing costs and hurt U.S. farmers and automakers, but niche manufacturers and metal producers reap benefits, labor groups offer qualified support.
• Policy trends in China’s economy: At the 2018 Forum on China-Africa Cooperation, an official forum between China and its 53 diplomatic partners in Africa, Beijing pledged $60 billion in financing commitments.
• In Focus – U.S. Supply Chain Risks from China: Increased reliance on China-based manufacturing and strategic materials worsens U.S. vulnerabilities to a supply disruption and Chinese government tampering of products and services.
Highlights of This Month’s Edition
• Bilateral trade: The U.S.-China goods trade deficit reached $36.8 billion in July 2018, the highest monthly deficit on record.
• Bilateral policy issues: President Trump signs FIRRMA into law, expanding CFIUS’s authority to screen foreign investment for national security threats; midlevel U.S. and Chinese financial officials meet to resume trade negotiations but accomplish little.
• Policy trends in China’s economy: Beijing is shifting toward monetary stimulus, stepping up efforts to boost bank lending amid cooling economic growth and fears that an intensifying trade conflict with the United States might trigger a sharper slowdown; China introduces new measures to curb risks from peer-to-peer lending in response to rising defaults across the industry; Chinese regulators enhance controls on currency movements, stabilizing the renminbi exchange rate after months of rapid depreciation against the dollar; although the Hong Kong Stock Exchange’s revised listing rules have improved its global competitiveness, the number of Chinese firms listed and the amounts raised are below initial expectations.
• Sector Focus – Pork: According to the U.S. Department of Agriculture, U.S. pork exports to China fell by 27 percent in May, then 19 percent in June relative to the previous year; Chinese tariffs on U.S. pork were raised to 62 percent in early July.
China uses “United Front” work to co-opt and neutralize sources of potential opposition to the policies and authority of its ruling Chinese Communist Party (CCP). The CCP’s United Front Work Department (UFWD)—the agency responsible for coordinating these kinds of influence operations—mostly focuses on the management of potential opposition groups inside China, but it also has an important foreign influence mission. To carry out its influence activities abroad, the UFWD directs “overseas Chinese work,” which seeks to co-opt ethnic Chinese individuals and communities living outside China, while a number of other key affiliated organizations guided by China’s broader United Front strategy conduct influence operations targeting foreign actors and states. Some of these entities have clear connections to the CCP’s United Front strategy, while others’ linkage is less explicit. Today, United Front-related organizations are playing an increasingly important role in China’s broader foreign policy under Chinese President and General Secretary of the CCP Xi Jinping. It is precisely the nature of United Front work to seek influence through connections that are difficult to publically prove and to gain influence that is interwoven with sensitive issues such as ethnic, political, and national identity, making those who seek to identify the negative effects of such influence vulnerable to accusations of prejudice. Because of the complexities of this issue, it is crucial for the U.S. government to better understand Beijing’s United Front strategy, its goals, and the actors responsible for achieving them if it is to formulate an effective and comprehensive response.
Highlights of This Month’s Edition
• Bilateral trade: In the first half of 2018, the U.S. goods trade deficit with China reached $185.7 billion, up about 9 percent year-on-year; in the month of June, U.S. agricultural exports to China declined 34.4 percent and livestock declined 39.2 percent year-on-year; in services, the United States reached a record high trade surplus with China in Q1 2018, but exports of travel—the main driver of U.S. service exports to China—slowed to their lowest year-on-year growth in 14 years.
• Bilateral policy issues: Following tariffs imposed July 6, the United States initiated WTO cases against five trade partners, and published a list of tariffs on $200 billion worth of additional Chinese imports, as China threatens retaliation; Chinese regulators fail to approve Qualcomm’s proposed acquisition of NXP.
• Quarterly review of China’s economy: China’s officially-reported GDP growth slowed to 6.7 percent year-on-year in Q2 2018 as fixed asset investment, industrial output, and retail sales lose steam; Chinese policymakers implement measures to increase credit growth and spur economic activity despite pledges to focus on deleveraging; the RMB’s value falls due to trade tensions and signs of an economic slowdown in China, raising concerns Beijing could use currency devaluations to offset the impact of U.S. tariffs.
Since joining the World Trade Organization in 2001, China has leveraged relatively cheap labor, large economies of scale, industrial policies, and the manufacturing capabilities of neighboring countries to become an export powerhouse in an increasing range of industries, while often limiting market access for foreign products. China’s scale as a trading power coupled with its protectionist policies have contributed to rising tensions in bilateral trade relations. This report describes and analyzes patterns in the U.S.-China trade relationship in 2012–2017 and is an update to a staff research report published by the Commission in November 2012 which covered trends in trade in 2000–2011.
The U.S.-China Economic and Security Review Commission was created by the United States Congress in October 2000 with the legislative mandate to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action.