On April 5, 2023, leaders from Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Cuba, Honduras, Mexico, Venezuela, and Saint Vincent and the Grenadines met virtually to discuss measures that could potentially contain inflation in the region. According to Mexico’s presidential office, other topics such as improving the conditions for trade were also discussed.
This virtual summit is the precursor for an in-person summit that is set to take place on May 6-7. However, one of the most shocking developments that came from this summit was the comments Argentine President Alberto Fernández made about a potential plan to ditch the dollar. A Twitter user highlighted Fernández’s comments:
At virtual Latin America anti-inflation summit, President of Argentina points at currency swap deal with China as example to follow: "What we should be looking at is finding common policies that facilitate trade between us. And there we can look for some innovative things. For… pic.twitter.com/VF9ePCst52
— COMBATE |(@upholdreality) April 6, 2023
The dollar dominates commercial transactions in Latin America. In the Americas, from 1999-2019, the dollar was used in 96% of transactions per data from the Federal Reserve. However, with the rise of China as a prominent military and economic actor, such American dominance in economic affairs may not be as strong in the decades to come.
A look at some of the most prominent Latin American countries who will be attending this summit shows a strong reliance on trade with China. According to Santander Trade’s analysis, China is Argentina’s second largest export market. As for imports, China is ranked #1, with it supplying 21.4% of Argentina’s imports in 2021. For Brazil, China is the leading recipient of its exports at 31.3% and it’s also its principal importer at 22.8%. Chile is one of the Latin American countries most reliant on Chinese trade. 38.6% of Chile’s exports go to China, while China is Chile’s #1 supplier of goods at 29.8%.
China is Colombia’s second largest export market, with the South American country recording nearly $3.7 billion in exports to the East Asian giant in 2021, per figures from Michigan State University’s International Business Center. Currently, China is Colombia’s largest importer at roughly $14.8 billion. Mexico is not as reliant on Chinese trade like its South American counterparts. China is Mexico’s third largest destination for its exports, with $9 billion of Mexican exports reaching China’s shores in 2021. As for imports, Mexico exported $101 billion in Chinese goods that same year.
Inflation has been a perennial scourge in Latin America for the past 50 years. Countries such as Argentina (2,600% from 1989-1990), Bolivia (60,000% in 1985), and Venezuela (65,000% in 2018) have experienced frightening levels of hyperinflation. While not as bad as the aforementioned cases, countries such as Colombia (34% in 1977) and Mexico (131.83% in 1987) have experienced their own bouts of mass inflation. Overall, the issue remains salient in Latin America due to the persistent nature of inflation in the region.
As a result, Latin American countries have every reason to pursue mechanisms to tackle inflation. And that perhaps could come in the form of an alternative currency system that China is spearheading. China has already demonstrated a high level of diplomatic competency in how it was able to facilitate the normalization of diplomatic relations between Iran and Saudi Arabia — two bitter Middle Eastern rivals. As the US grows more unstable domestically and internationally while China continues its economic ascent, the latter will likely be viewed as a more attractive partner for countries in Latin America.
China already has a solid economic foothold in Latin America. As time goes on and it continues its upward economic trajectory, China could potentially exploit any relative decline in US influence to make further inroads in Latin America. Should China dent the dollar’s status in Latin America, this could be a harbinger of a profound decline in American influence in the region.
At that point, we could be watching the beginning of the end of the US playing the roles a major power on the global stage.
