Latin America caught between the U.S. and China
Central and South America with the Caribbean face growing geopolitical pressure as Washington and Beijing compete for dominance south of the U.S. border.
In a nutshell
- President Trump uses tariffs and threats to counter Chinese influence
- Beijing offers trade and investment without conditions to attract partners
- Brazil leads a non-aligned strategy, balancing U.S.-China ties for autonomy
- For comprehensive insights, tune into our AI-powered podcast here
China is now the top trading partner for much of Latin America and a major source of both foreign direct investment and lending, including through its massive Belt and Road Initiative (BRI). Although prior administrations in the United States have sought to push back against Beijing’s influence, the second administration of President Donald Trump has taken a more confrontational approach, including – but not limited to – the repeated threat and application of tariffs, sanctions and even military action.
These policies and uncertainty around their permanence is already reshaping Latin American foreign relations, with some countries aligning with the U.S., others drifting toward China, and a third group staking out a tentative middle ground.
U.S. policy in Latin America under Trump 2.0
Since returning to power, the Trump administration has widely relied on coercive diplomacy, which uses the threat of force or actual force to try and dictate the behavior of adversaries and allies alike as the chief means to pursuing its foreign policy objectives. Nowhere is this more true than Latin America. When President Trump was asked on his inauguration day about Latin American relations, he responded by saying: “They need us much more than we need them. We don’t need them. They need us – everybody needs us.” So far, the administration’s policy has reflected that belief.
Since his inauguration, President Trump has made repeated claims that China operates the Panama Canal, and has threatened to “take back” the waterway from the Panama Canal Authority, which has controlled it since 1999. He has also called for U.S. military strikes in Mexico to dismantle criminal organizations, saying he wants to “wage war” on powerful Mexican drug trafficking organizations. Economically, the White House has threatened slapping tariffs of 25 percent on Colombia after the country refused to allow U.S. military flights carrying deported migrants to land there, and then subjected Mexico to 25 percent tariffs on steel, aluminum and auto imports. As part of his “Liberation Day” tariff decisions, President Trump also imposed a baseline 10 percent tariff on many Latin American and Caribbean countries, with higher levies for Nicaragua (18 percent) and Venezuela (15 percent).
Migration and narcotrafficking are certainly hemispheric concerns, but his actions seem focused on a different risk: China. Over the past two decades, Beijing has rapidly expanded the country’s economic footprint in Latin America through trade, foreign direct investment and lending, as laid out in this GIS report. This has made China the top trading partner for several countries in the region, expanding its soft power and challenging America’s historic dominance.
While Latin American governments increasingly view China as a pragmatic and attractive economic partner, the U.S. has responded reactively, risking further erosion of its influence amid rising geopolitical competition.
Migration and narcotrafficking are certainly hemispheric concerns, but his actions seem focused on a different risk: China.
The Trump administration looks to be using tariff negotiations to pressure U.S. trade partners to limit their dealings with China, forcing countries to choose between the two hegemons. The logic of this is to extract commitments from allies to isolate China’s economy – from disallowing China to ship goods through their countries, preventing Chinese firms from relocating in their territories to rejecting China’s cheap industrial goods – in exchange for reductions in their tariff barriers with the U.S.
In other cases, such as Panama, the pressure is not limited to the threat of tariffs. In 2017, Panama became the first Latin American country to join the BRI, following its switch in diplomatic recognition from Taiwan to China. This move was part of a broader strategy to attract Chinese investment and enhance its role as a logistics hub, given the strategic importance of the Panama Canal.
Perhaps because of this, President Trump mentioned Panama several times in his inaugural address, complaining that the U.S.-constructed canal should not have been given away and criticizing China’s presence in the canal zone before concluding by saying that the U.S. would take the canal back. After a visit from U.S. Secretary of State Marco Rubio, Panamanian president Jose Mulino withdrew Panama from the BRI, consented to audit a 25-year port concession held by a Hong Kong company, CK Hutchinson, and agreed to allow the U.S. to rotate troops into Panama.
Coercive diplomacy does, however, carry risks for the U.S.: While Panama caved to U.S. demands in the short-term, other countries may look at this behavior and prefer to choose China. This is especially true of South American states, which are less tethered economically, historically or culturally to the U.S.
Chinese reaction
The Chinese government has been clear in warning countries against signing deals with the U.S. that exclude or restrict trade with China. Indeed, Beijing has issued public notices that any country considering such agreements would face consequences. This response underscores China’s broader strategy of positioning itself as a counterweight to U.S. pressure, leveraging its massive market and the appeal of its “no-strings-attached” aid and trade model. As Latin American governments navigate the competing demands of Washington and Beijing, China continues to push for the maintenance of open markets for its goods, especially as U.S. buyers become increasingly closed off due to protectionist policies.
China’s response to U.S. pressure on Panama over the canal has been even sharper and more revealing. The sale of CK Hutchison’s stakes in the ports at both ends of the canal to a consortium led by U.S. finance giant Blackwater triggered an unusually aggressive backlash from Beijing, signaling deep concerns over U.S. strategic encroachment.
Read more by U.S. Naval Academy Associate Professor Dr. John Polga-Hecimovich
- Implications of an EU-Mercosur trade deal
- El Salvador’s Bukele consolidates unchecked power
- Bolivia’s political chaos signals an economic meltdown
A pro-Beijing columnist’s critical article was amplified by official Chinese outlets, reflecting state endorsement of the message that the sale betrayed Chinese interests and could enable Washington to disrupt Chinese shipping routes. This public outcry illustrates the high strategic value China places on the canal, as well as its growing willingness to contest U.S. influence in what has traditionally been considered America’s sphere of influence. Despite the transaction being preliminarily agreed, the U.S. has not relaxed its pressure on Panama, and Beijing’s strong reaction reveals an anxiety that Washington’s maneuvers could threaten China’s physical access to key global trade routes.
With that said, Washington’s heavy-handed tactics in the region may also serve to bolster China’s diplomatic position. By uncritically casting itself as a partner that avoids conditionality, China may be able to contrast its approach with the increasingly transactional nature of U.S. diplomacy. Importantly, China is aware that no Latin American country has successfully negotiated preferential treatment from the Trump administration in exchange for changing its policies toward China.
While Beijing remains alert to the possibility that some states might accept Washington’s offers, it is also acutely aware that most governments, particularly commodity exporters, are unlikely to jeopardize lucrative Chinese markets without firm and tangible benefits from the U.S. In this way, America’s pressure campaign may inadvertently be reinforcing the narrative Beijing seeks to promote: that China, not the U.S., is the more reliable global partner.
The Brazilian model
The largest economies in Latin America are trying to avoid picking sides. Even before the arrival of the second Trump administration, for example, Brazil had chosen to pursue a path of strategic non-alignment and autonomy, characterized by selective engagement in trade and investment. Its rejection of the Belt and Road Initiative is evidence. In November 2024, Chinese President Xi Jinping visited President Luiz Inacio Lula da Silva to court Brazil for the BRI. However, Mr. Lula politely declined and instead offered to discuss how China and Brazil could cooperate on “mutually agreeable terms.”
Strategic non-alignment is a path that has long been successful for India, which has been cautious about Chinese-led initiatives and sought to maintain its economic sovereignty while selectively engaging in trade and investment with Beijing. Brazil’s reluctance to join the BRI dovetails with this philosophy in a few key ways.
First, like India, Brazil has sought to balance relations with multiple global powers (such as the U.S., European Union and China) rather than aligning too closely with any single one.
Second, Brazil under President Lula has emphasized domestic-led infrastructure investment, often through public-private partnerships and institutions like the Brazilian Development Bank. Although this may be less viable in other parts of Latin America, it is worth noting that both Colombia and Mexico, two of the three next-largest economies in the region, have echoed Brazil’s strategy: They have closely followed the BRI but have not signed on.
Third, Brazil has exhibited some strategic caution toward China. While China remains Brazil’s largest trade partner, the Lula government has avoided deeper dependence on Chinese financing for infrastructure.
Scenarios
Likely: More non-aligned countries
Paradoxically, the modal response from Latin American states to demands from the U.S. and China to choose their preferred ally may actually be to avoid definitively picking a side, a la Brazil. This “third path” is most expected for states whose governments would not benefit from choosing China, yet are not natural ideological allies of the Trump administration (Brazil, Colombia), or, conversely, are traditional allies of the U.S. who wish to push back against Trump administration threats (Mexico, Panama).
In a vacuum, this strategy is the one that offers the greatest possible benefits to Latin America, since states can theoretically play the U.S. and China against each other while maintaining relations with both. Most countries in the region will wish to keep their options open as long as they can.
Brazil’s rejection of the BRI in favor of a flurry of bilateral agreements with Beijing is one example of this strategy in action. Following this example, most places in the hemisphere would prefer strategic non-alignment, since it allows them to benefit from both the U.S. and China. Of course, the U.S. may actually consider this a small victory, since countries relying less on BRI may possibly turn to Western and domestic financing mechanisms, though at potentially higher costs.
For more developed Latin American countries, this strategy might incentivize value-added industries and diversification at the expense of deepening reliance on China for exports.
Lastly, if the U.S. were to roll back tariffs, this developmental approach would promote supply chain adjustments as more Latin American countries potentially integrate into U.S.-led initiatives like nearshoring. Of course, punitive tariffs and shifting U.S. policy in the region under President Trump have so far undermined this possibility.
Possible: Countries take sides as coercion yields results
If, however, the global hegemons are successful with their coercion, Latin American states will be forced to sort themselves into the U.S. or Chinese camps. In this case, Mexico, the Dominican Republic and Central America (except Nicaragua) would be most likely to break for the U.S. These countries have stronger historical, economic and cultural ties to the U.S., and their geographical proximity and current economic dependence on the U.S. makes them more susceptible to pressure from the Trump administration. Uncertainty around U.S. tariff policy makes it difficult for China to move more production facilities to Mexico and the Caribbean, further weakening those economic relationships.
Yet, most South American states, plus Cuba and Nicaragua, are likely to choose China. As discussed in this GIS report, South America now has stronger economic ties to China than the U.S., with the former continuing to gobble up the region’s commodities. Some countries are harder to gauge. Colombia and Venezuela have historical ties to the U.S. but their current leaders are ideological opponents of the Trump administration. Meanwhile, Argentina has weaker historical ties to the U.S. but is currently governed by a Trump-leaning president.
Unlikely: A coordinated, region-wide response
By far the least likely outcome is one in which Latin American states act as a coherent, unified actor, the way EU member-states might. Institutionalized regional integration has long been difficult for Latin America and the Caribbean, with non-overlapping, ideologically-based regional blocs dominating – including trade blocs like Mercosur and the Pacific Alliance.
Bodies such as the Community of Latin American and Caribbean States (CELAC) would be the proper forum to craft a coordinated response, but the organization’s institutional weakness and acute ideological differences among leaders make this difficult. To wit, when Honduran President Xiomara Castro called for a regional meeting under CELAC to respond to President Trump’s threats of sanctions against Colombia in late January, the response from other member-states was tepid.
In April, the organization responded to region-wide tariffs from the U.S. with a statement but little else. It is therefore hard to imagine a coherent regional response in the near or even medium term, especially when leaders like El Salvador’s Nayib Bukele or Argentina’s Javier Milei are attempting to cozy up to President Trump, while others like Ms. Castro of Honduras attempt to steer clear of him for fear of provoking his ire.
Contact us today for tailored geopolitical insights and industry-specific advisory services.
Sign up for our newsletter
Receive insights from our experts every week in your inbox.
