America-China Economic Competition in Latin America is Not a Zero-Sum Game
Despite the dog-eat-dog mentality of international politics, the America-China competition in Latin America is not a game where there can be only one winner.
In his first official international trip as U.S. Secretary of State, Marco Rubio issued a stark warning to Panamanian President José Raúl Mulino: Reduce Chinese influence over the Panama Canal or face potential retaliation from the United States. In an op-ed ahead of his visit, Rubio emphasized the need for stronger economic cooperation in the Western Hemisphere, arguing that the United States’s withdrawal from the region has allowed China to exploit the vacuum by using economic and diplomatic leverage to “turn sovereign nations into vassal states.” This rhetoric reflects growing concerns among U.S. policymakers about China’s role in the region, particularly its investments in critical infrastructure and natural resources.
America-China Competition: The Shifting Balance of Power
China’s entry into the World Trade Organization in 2001 significantly strengthened its economic ties with Latin America. As China’s economy expanded, its demand for commodities such as copper, petroleum, lithium, and agricultural products drove a thirty-five-fold increase in trade between 2000 and 2022, making China the region’s second-largest trading partner after the United States. Beyond trade, China has utilized its development finance institutions (DFIs) to fund infrastructure and resource extraction projects across Latin America. Growing engagement has led twenty-one of twenty-six Latin American countries to formally join the Belt and Road Initiative. From 2005 to 2022, China’s DFIs issued 117 loans totaling $138 billion.
However, concerns over opaque loan terms and environmental impacts, and simultaneously slowing economic growth and concerns over debt sustainability in China, reduced DFI investments in the region. Chinese companies and banks have filled the gaps, prioritizing for-profit investment in digital technology, energy, and mining. For example, PowerChina has more than fifty ongoing projects across Latin America, and China is the largest investor in Peru’s mining sector, controlling a hundred perecnt of its iron production and twenty-five percent of its copper output.
Over the past two decades, the United States has launched several short-sighted development plans in the region. In 2001, the United States introduced Plan Pueblo-Panama, aiming to integrate the United States, Mexico, and Central America through investments in energy projects, highways, and other infrastructure. The plan ultimately collapsed due to corruption, but its successor, Plan Mesoamerica, continued many of the projects, while prioritizing new energy investments, despite local community concerns over social and environmental impacts. During the Obama Administration, energy projects were a central component of the Alliance for Prosperity Plan, which proposed $1 billion in investments for anti-corruption mechanisms and energy systems. However, the plan struggled to gain traction over five years due to unclear commitments and a lack of financing.
Under President Trump’s first administration, policies such as sanctions on Cuba, Nicaragua, and Venezuela, cuts to Central American aid, and withdrawal from the Trans-Pacific Partnership further strained United States-Latin America relations, pushing some regional governments closer to China. Simultaneously, the Trump administration established the U.S. International Development Finance Corporation and launched the América Crece initiative, both aimed at countering China by channeling private investment into Latin American and Caribbean infrastructure. However, similar to previous efforts, this plan faced criticism for failing to ensure projects respected workers’ rights, environmental standards, or good governance. The Biden administration attempted to improve cooperation with Latin American governments to address concerns through the Americas Partnership for Economic Prosperity, promoting high-level meetings while investing in infrastructure and critical supply chains, but these efforts also struggled due to limited funding and a lack of long-term commitment.
A Race to the Bottom?
One of the most pressing concerns is that heightened competition in Latin America is not promoting a “race to the top” in terms of equitable and sustainable development. Since 1990, mining, large-scale agriculture, deforestation, and development projects have caused 1,200 social and environmental conflicts in Latin America due to impacts on local communities and ecosystems. Rather than fueling a race to the top, increased competition between development banks, like the World Bank and Asian Development Bank, to finance energy and extractive projects has fueled an alarming rollback of safeguards designed to prevent social and environmental conflicts.
When it comes to directly comparing U.S. and Chinese investments in the region, experts note that there is little discernible difference in environmental and social degradation caused by projects from either country. Over four decades of development investments in Latin America, fifty-seven percent of projects incited social and environmental conflicts. Not only do these conflicts fuel volatility and lead to the loss of human life, but they are also bad for business. Social and environmental conflicts result in project delays eighty-one percent of the time, cost overruns fifty-eight percent of the time, and project cancellation eighteen percent of the time. In some cases, project delays and cancellations have added an additional price tag of $20 million dollars per week.
A Path Forward
The Trump administration has signaled a turn to bolstering the DFC’s investments in strategic projects around the world. This has come at a time where the administration has moved to dismantle the U.S. Agency for International Development. Rather than relying on threats and punitive measures, the United States could engage in good faith with regional partners, promoting economic policies that prioritize mutual benefit.
The Trump administration should utilize diplomacy to identify areas of economic need in Latin America through bilateral discussions on trade and investment. The Trump administration has already laid a strong foundation for this effort by appointing more ambassadors to Latin American countries than any recent administration. For governments to receive DFC funding, they must sign memorandums of understanding with the United States about key sectors of interest. Latin American leaders have expressed a desire to close infrastructure gaps, create value-added critical mineral supply chains, and develop regional energy grid integration—goals that overlap with the Trump administration’s desires for greater economic engagement and integration in the Western Hemisphere. By engaging directly with Latin American governments, the administration can generate targeted investments and trade partnerships that yield mutual benefits.
Simultaneously, the administration can learn from the shortcomings of prior infrastructure and energy investment plans. Plan Puebla-Panama collapsed due to corruption in governments and project development, while Plan Mesoamerica did not achieve the intended outcomes of reducing poverty in Central America or improving regionally integrated and low-cost energy markets. For example, the 2016 privatization of the Honduran Energy Company led to a 150% increase in the cost of energy. To make the most of investments into energy and infrastructure, the United States can use DFC grant mechanisms to provide funding that improves the judicial capacity to stamp out corruption, and that prioritizes local capacity building such as job training and improving land tenure regulations. Such mechanisms will improve the long-term sustainability of economic cooperation in the region and attract U.S. investors.
Lastly, the United States should lead by example and improve transparency and remedy clauses in project investment. In Latin America, lack of adequate consultation with impacted communities induced social and environmental conflicts in seventy-eight percent of projects while a lack of transparency in project information led to conflicts sixty-eight percent of the time. In Honduras, DFC financing of the Jilamito Hydroelectric Project led to widespread community resistance and the deaths of two community defenders. An eventual withdrawal of U.S. financing amounted to a loss of $37.5 million. Loss of human life and ineffective investments can be avoided with proper transparency and consultation safeguards, such as mandating free, prior, and informed consent (FPIC), publishing project information in a public manner, and developing oversight enforcement mechanisms.
Latin America’s political landscape is more dynamic than ever, with countries increasingly asserting their independence and seeking diversified partnerships. For the United States, this presents both a challenge and an opportunity. The competition for influence in Latin America should not be about choosing between the United States and China. Instead, it should involve spearheading productive dialogue and addressing the needs of both national and local governments. Going forward, the United States has an opportunity to adopt a pragmatic approach that spearheads responsible investment while enabling Latin American nations to pursue their own development paths.
Madelyn MacMurray is a Research Assistant with the Environmental Security Program at the Stimson Center.
Image: Shutterstock/Nicolas Ospina Soriano