China's trade dominance in South America tempers Trump's influence

The pragmatic U-turn by a natural U.S. ally underscores a challenge for President Donald Trump in resource-rich South America, where booming commerce in recent years has boosted China's influence.

Trump is looking to shake up global trade and get partners to promote U.S. interests using threats and trade tariffs. He has already pushed for concessions from Colombia, Panama and Mexico, while Brazil is in the crosshairs of new trade tariffs on steel.

Proposed 25% tariffs on Mexican and Canadian goods are due to take effect on Tuesday, with an extra 10% duty on Chinese goods.

But around South America, half a dozen officials, diplomats and trade experts said that China's huge and growing trade lead dulled the impact of Trump's measures - a warning sign of the potential limits more broadly of a punitive approach in a world where the United States has a growing number of economic rivals.

A senior Brazilian diplomat close to leftist President Luiz Inácio 'Lula' da Silva said Brazil's economy was not dependent on the United States, citing the country's $30 billion trade surplus with China last year as far more economically important.

He said Trump's trade tariff threats - coming after years of "neglect" from the United States - would push countries to look for less risky alternatives like China, Europe or the BRICS group including Brazil, Russia, India, China and South Africa.

Beijing, meanwhile, was "a pragmatic partner," and the Chinese "come here to do business."

Driven by commodities giants Brazil, Chile, Peru and Argentina, South America's exports to China have more than doubled in the past decade, while shipments to the United States have only inched up, a Reuters analysis of trade data show.

That's made China's huge market invaluable for regional leaders grappling with slow growth and high indebtedness, and strengthened Beijing's soft power in the region, even with governments not ideologically aligned.

'BULLY IN THE NEIGHBORHOOD'

U.S. Secretary of State Marco Rubio in comments in late January dismissed the risk of pushing South American countries like Colombia more towards China as "absurd", pointing to quick wins the administration has scored.

Tariff threats brought Mexico to the negotiation table on trade and to commit troops to reinforce the border, while a pledge to take the key Panama Canal trade route by force got that country to exit China's Belt and Road infrastructure plan. Colombia and the United States struck a deal after a block on deportation flights took the pair to the brink of a trade war.

Ryan Berg, a director at bipartisan Washington think-tank the Center for Strategic and International Studies, said Trump was actually giving Latin America more attention, with Spanish-speaking Rubio going there on his first overseas trip. But a balance between neglect and threat was needed.

The U.S. State Department did not immediately respond to a Reuters request for comment.

Congressman Raja Krishnamoorthi, Democratic ranking member of the House select committee on China, told Reuters Washington should avoid becoming "the bully in the neighborhood."

"Because, you know what happens to bullies. People stand up to bullies," he said. "And they do so in ways that could be very detrimental to our long-term national security interests."

BOOMING COMMODITIES EXPORTS

Across South America, China's trade lead has widened, driven by grains and key electrification metals copper and lithium. Washington remains ahead in Central America, but its lead has been trimmed.

A decade ago, copper giant Peru's largest trade partner was the United States. Now it is China, by far. The Asian country gobbles up Peru's supply of copper and has built a massive port on the country's coast to turbo-charge bilateral trade.

"The impact for Peru would be minimal," said Peru's former economy minister José Arista referring to potential U.S. trade tariffs. He cited Peru's free trade agreement with the United States and the make-up of the Andean country's exports.

Even in Argentina where libertarian Milei is a staunch U.S. ally, China's draw is clear. China is the top market for Argentine soybeans and beef, while it bought almost a third of the country's lithium exports last year.

A close adviser to Milei said late last year that the South American country had no problem working with China if it was in Argentina's best interests.

Colombia does have far closer trade ties with the United States but elevated diplomatic relations with China to a "strategic partnership" at the end of 2023.

Panama, meanwhile, saw exports to China surge far above those to the United States between 2021-2023 before a key copper mine closure led to a sharp drop off last year. Tensions are still simmering with United States over the canal.

'A GIFT TO THE CHINESE'

China has natural advantages as a trade partner for South America, despite the historical closeness and cultural overlap between the United States and its southern neighbors.

The relationship is not clouded by challenges over migration flows, crime or narcotics, while China's developmental stage means it naturally needs more of the commodities South America has to offer.

The Chinese foreign ministry, in a rare rebuke of Washington's policies in the region after Rubio's Latin America trip, issued a statement criticizing the United States for sowing "discord" between China and Latin American countries and pointed to an "irreversible" trend in deeper cooperation between the region and China.

Li Xing, a professor at the Guangdong Institute for International Strategies, said Trump's tough approach would benefit China as it would make countries hedge their bets

"The moment there is chaos among (U.S.) allies, that's good for China," he told Reuters.