World - Washington Says It's Not Scared by China's Inroads in Latin America

Washington Says It's Not Scared by China's Inroads in Latin America
Andres Oppenheimer

Arturo Valenzuela, the outgoing head of the U.S. State Department's Latin American affairs bureau, says he's not losing sleep over China's growing economic inroads into Latin America. Countries in the region are beginning to discover that they have much more to gain by trading with the United States, he said.

In an interview earlier this week, Valenzuela took issue with some of the points I made in my previous column, in which I stated that the United States is losing ground in Latin America -- economically and politically -- and that the Obama administration should start working on an ambitious cooperation plan with the region.

In that column, I cited the fact that the share of U.S. exports to Latin America has dropped from 55 percent of the region's total imports in 2000 to 32 percent of the region's imports in 2009, according to United Nations figures. In addition, the share of U.S. investments in the region has dropped significantly, the U.N. figures show.

Meanwhile, China has replaced the United States as the top trading partner with several South American nations, and is beginning to emerge as a major investor in the region, I wrote.

But Valenzuela, who has announced that he will leave his job to return to academic life this summer, told me that the overall trade and investment figures don't tell the whole story.

Latin Americans are beginning to realize that while China buys almost exclusively unprocessed raw materials from the region and refuses to buy sophisticated products, he said. By comparison, the United States is purchasing more sophisticated goods from Latin American countries, which is clearly in Latin America's best interest, he added.

"The Argentines are stuck: they are doing processed soy, but the Chinese are saying, 'We won't buy processed soy at all,' Valenzuela said. "The Chinese are just buying raw soy, because they want to employ their workers back in China."

Conversely, the United States does not look at Latin American countries as just sources of raw materials or destinations for U.S. exports, but also as places where companies from both sides can supply each other with parts and services to become more competitive, he said.

He cited the example of Mexico, in which 80 percent of its exports to the U.S. market are intra-company goods, such as mirrors for cars, or computer parts. Also, Brazil's giant Embraer aircraft manufacturing firm exports most of its planes to the United States and uses significant U.S. technology to build them, he said.

"So you are not terribly concerned about the dollar value of China's presence in Latin America?" I asked.

"No, I am not," Valenzuela said. "I think it's great that Latin America has new export markets for its raw materials. But if Latin America simply sticks to exporting raw materials, they will be going back to the past."

He added that Latin Americans are better off trading with the United States "because they can build into a high technology value chain that will benefit them for the future. Unless the Chinese change their model, and start buying value-added goods, Latin Americans are actually losing with China."

Asked about the Obama administration's failure to come up with a regional plan for revamping U.S.-Latin American ties -- even if it's not of the scope of the 1960s Alliance of Progress, or the more recent plan to create a Free Trade Area of the Americas -- Valenzuela cited several agreements by Obama with the leaders of Brazil, Chile and El Salvador during his recent trip to those countries.

My opinion: Valenzuela is right in that Washington is offering Latin America a more promising trade model than the Chinese, assuming that China keeps importing almost exclusively raw materials. According to U.N. figures, nearly 60 percent of what the United States buys from Latin America are manufactured goods, while only less than 20 percent of China's imports from the region are manufactured.

Still, there is no excuse for the Obama administration not coming up with a bold plan to increase regional cooperation. Even in difficult economic times, the United States could offer greater assistance in areas where it is still No. 1, such as science and technology. It could, for instance, offer incentives to U.S. multinationals to set up research centers in Latin America, which nowadays attracts only 3 percent of all world investments in research and development.

Valenzuela is right in that the United States has much more to offer than China. Now, it's time for the Obama administration to do something about it, and regain ground in the region.