Competition between the U.S. and China has intensified since the imposition of tariffs in 2018, and can be observed across various sectors. The competition between the U.S. and China, originating in the trade sector, is now expanding into areas such as technology, ideology, and supply chains. As globalization progresses and the global division of labor continues to evolve, the impact of U.S.-China competition becomes increasingly complex and widespread due to the naturally established global value chain involving various stakeholders. This study examines the current state of U.S.-China competition in Latin America and analyzes its effects on the global value chain of the region.
Chapter 2 explores the different types of competition between the U.S. and China in Latin America. This is achieved by reviewing their investments in Latin America and public funds, as well as summarizing the recently announced U.S. initiatives in the region. The review shows that U.S. investment in Latin America and ODA aims to create forward links to the United States and China in the value chain of the region. Notably, while the U.S. has prioritized Official Development Assistance (ODA) through development cooperation agencies, China has focused on Other Official Flows (OOF) through state-run banks. However, the United States is likely to encourage private investment due to the limitations of securing ODA resources.
In response to China’s initiatives in Latin America, including the Belt and Road Initiative and the China-CELAC Forum, the Biden administration announced a new cooperation initiative for the region. Besides the ongoing challenges of economic growth, poverty, anti- corruption, and rule of law in Latin America, the Biden administration’s initiative aims to promote leadership in the areas of environment, labor, and digital economy. Furthermore, the initiative highlights the differences between China’s cooperation efforts and the value- oriented approach promoted by the United States. It serves to check China’s influence, emphasize partnerships with major allies, international organizations, businesses, foundations, and civil society, and promote a multilateral approach.
Chapter 3 examines the progress of U.S.-China competition in Latin America’s manufacturing and mineral resources sectors, which are key areas of contention between the two countries. The U.S. has taken steps to strengthen support for nearshoring in Latin America through bills, such as the Latin American Nearshoring Act (H.R.7579) and reshoring, which presents an opportunity for the region to become a major production location. However, in the manufacturing sector, it appears that there is no specific industrial policy in place for Latin American countries to leverage the U.S.-China competition to their advantage. The competition between the United States and China in the mining sector should be viewed in the context of the electric vehicle supply chain. Ultimately, the U.S. aims to establish domestic production for all stages of the electric vehicle supply chain, from mining core minerals like lithium to manufacturing finished cars. However, given the short-term impracticality of commercial lithium production in the United States, the U.S. plans to source it from a third country or one that has signed an FTA with the United States rather than from China. On the other hand, China is moving towards vertical integration, starting from raw material production such as lithium, and moving towards battery production, even in third countries like Latin America.
Chapter 4 examines the level of forward and backward linkages of major Latin American countries using the export value-added decomposition methodology developed in previous researches. It also analyzes the formation of the value chains in Latin American countries and the impact of U.S.-China competition on them. As a result of the analysis, first, Brazil, Chile, and Mexico have emerged as hubs in Latin America, and regional integration in Latin America has improved in terms of forward links. Second, it is noteworthy that during the U.S.-China competition, the proportion of intermediate goods from Latin America used for China’s exports to third countries increased. On the other hand, the fact that the proportion of Mexican intermediate goods included in U.S. exports has decreased slightly suggests that active incentives, such as investment incentives, must be supported in Mexico to turn the U.S.-China competition into an opportunity factor, such as near-shoring in Mexico. Third, the proportion of foreign value added included in Brazil and Chile’s exports to China increased. This result can be interpreted as the expansion of the input of intermediate goods from other countries, including China. Fourth, except for Guatemala, the proportion of foreign value added inherent in exports to the United States has increased in major Latin American countries, indicating that major Latin American countries have strengthened their backward linkages with the United States. In particular, it is noteworthy that the value added of the U.S. in exports to the U.S. by major Latin American countries has increased slightly. This supports the fact that U.S. companies attempted near-shoring to some Latin American countries during the intensifying competition between the U.S. and China, or that U.S. investment in Latin America increased slightly. Therefore, like China, the U.S. still remains an important partner for Latin American countries by forming a value chain with Latin American countries amid the intensifying competition between the U.S. and China. Finally, the value chains of Latin America and the United States are highly linked forward across various industrial sectors in Latin America, whereas the value chains of Latin America and China are primarily formed in the mining sector. Moreover, as the competition between the U.S. and China intensified, the value chain between Latin America and the U.S. has become more consolidated in various industries, while the value chain between Latin America and China has somewhat weakened around mining.
Chapter 5 presents implications based on the research results. The fact that Latin American countries, including Mexico, are mentioned as candidates for near-shoring for U.S. companies, suggests that Korean companies seeking to enter North America or increase their market share in North America need to watch changes in Latin America more closely than in the past. In particular, due to the enactment of the U.S. Inflation Reduction Act (IRA), it is necessary to pay attention to Latin American countries that have signed FTAs with the U.S. or so-called like-minded countries that pursue common values. Mexico and Brazil, with high backward links in U.S. trade, are base countries for entering or incorporating supply chains centered on North America.
Since 2013, the Korean government’s support for overseas resource development has declined, while Japanese and Chinese companies have continued their active overseas resource development with support from their respective governments. While the results of the value chain analysis indirectly confirm the influence of China and Japan in Latin America, the establishment of the value chain between Korea and Latin America is relatively weak compared to China and Japan. Taking into account the cases of China and Japan, and in light of the recent emphasis on economic security, it is imperative for the government to strengthen its role by regarding Latin American countries, which are major producers of minerals like lithium, as crucial partners in securing a stable and diversified supply chain for key minerals. In particular, considering that the trend of resource nationalism in Latin American countries such as Mexico, Chile, and Bolivia is strengthening, it is difficult for private companies to independently discover and promote development and exploration projects. Thus, the role of the government has become more important.