Over the past two decades, there has been a marked shift in the global economic epicenter from the North Atlantic to East Asia, propelled with remarkable intensity by China’s state-led mobilized globalization (Figure 1.1). This shift has not only altered economic dynamics but also redefined the locus of international power.1 While the twentieth century was characterized as the “Atlantic century,” the twenty-first century is shaping up to center on the Pacific.
Note: The “economic center of gravity” is determined by calculating a weighted average of global locations based on their GDP in three dimensions and then projecting this point onto the nearest land surface. This method offers a tangible way to visualize the shifting focus of global economic activity. For future projections, such as the one for the year 2025, analyses have been conducted by organizations like the McKinsey Global Institute.
Figure 1.1 The global economy’s shifting center
China, as the world’s second-largest economy, has emerged as the predominant influence in this newly established gravitational core. In 2000, only ten Chinese companies were listed among the 500 largest multinational corporations worldwide. The United States led the list with 179 companies. By 2020, this landscape had shifted dramatically; 124 of the world’s largest 500 firms were Chinese, surpassing the United States (with 121) and Japan (with 53).2 A similar trend is observable in the banking sector. In 2000, three of the top five global banks were American (Citigroup, Bank of America, and Chase), with only one Chinese bank, Industrial and Commercial Bank of China (ICBC), making the top ten. By 2020, ICBC had ascended to become the world’s largest commercial bank, and the top four spots were dominated by Chinese institutions (ICBC, China Construction Bank Corporation, Agricultural Bank of China, and Bank of China).3 Citigroup and Bank of America dropped to sixth and seventh positions, respectively, while Chase fell out of the top ten entirely.4 Another notable indicator of China’s ascent is that, since 2012, it has surpassed the United States in the annual number of intellectual property technology patents filed.5
Pivotal policies drove the globalization of Chinese state capital starting in 1999: the Western Development Program, initiated in 1999; the Going Global policy, launched in 2000; and the Belt and Road Initiative (BRI), introduced in 2013.6 These Chinese strategies catalyzed a significant transformation in most of the country’s large state-owned enterprises (SOEs).7 They also expanded globally, marking the rise of transnational state capital; a phenomenon denoting the ability of states to become global owners and investors, penetrate international markets, and control substantial assets beyond their national borders.8 However, China’s state-led and mobilized globalization did not unfold with uniform intensity across all target nations. While the country’s economic expansion has been less intense in Europe and Oceania, it has been readily identifiable in other regions, including Africa and Asia. Over the past two decades, Chinese investments and financing have been particularly successful in addressing unmet development needs in the Global South. Due to market forces that enabled hundreds of Chinese actors to take advantage of the capital outflow following US retrenchment from 2001 to 2020, as well as the creation of economic opportunities in abandoned markets, China has capitalized on the huge demand to find substitutes for goods and services previously offered by Western actors.
This dynamic has been a prime example of what I term “economic displacement,” a phenomenon where one country’s economic influence surpasses that of another. In this book, I am discussing economic displacement in regard to the world’s two leading economies: China and the United States. Economic displacement considers a comprehensive set of factors – total investment, trade, foreign aid, and credit – making it a robust proxy for gauging the economic weight that China and the US hold over each continent. Although measured as a dichotomous phenomenon (it either occurs or it does not occur), it is in fact a simplification of a gradual process that depends on the increasing economic weight of China and the erosion of the economic weight of the US in each country. Indeed, it is not enough to tell the story of China’s rise.9 My research shows that we must bring the concomitant contraction of the US to the front of the analysis.
As will be further explained in Chapter 2, I have developed a composite index based on trade, investment, financial flows, and aid relative to each target country’s gross domestic product (GDP). This composite index enables us to measure the economic weight of both countries. If we look at the global trend, China is narrowing the gap relative to the economic weight of the US and generating displacement in much of the Global South (Figure 1.2). As China’s economic weight increases and that of the United States declines, Chinese economic actors have become more significant in offering alternative economic goods. The concept of displacement thus simplifies what is actually a gradual process of alternative goods provision. For example, when a country crosses the threshold at which I consider economic displacement to have occurred, it signifies that China has become more economically influential than the United States in that specific country. At that point, China has become the primary provider of economic opportunities in the country.
Note: Annual averages estimated by ordinary least squares in a global sample of 185 countries. Ninety-five percent confidence intervals in gray. The economic displacement figure on the right is calculated as the difference between the US economic weight and the Chinese economic weight for each country in each year; as indicated by the dotted line, values below it indicate that displacement has occurred.
Figure 1.2 Global trend of US–China economic weight and displacement in the world
Latin America and the Caribbean (LAC) presents a unique case study for understanding these global dynamics. Traditionally considered the US’s sphere of influence, or “backyard,” during the twentieth century, LAC yields exceptional insights as a “hard test” for understanding the ramifications of the United States’ economic displacement by China due to its distinct characteristics when compared to other regions of the Global South: It is geographically and culturally distant from China, logistically challenging to access, and traditionally considered the US’s sphere of influence. Moreover, it arguably has even less historical precedent for Chinese involvement than Africa or Southeast Asia. Over a period of twenty years (2001–2021), China has economically displaced the US in ten of the twelve countries of South America, a subregion that accounts for two thirds of LAC’s population and roughly 80 percent of the region’s GDP (Figure 1.3). By exploring the case study of US–China economic influence in LAC, this analysis sheds light on a critical puzzle: Why has China, without surpassing the United States in global economic rankings, succeeded in economically displacing the US within its traditional sphere of influence? Moreover, what are the long-term economic and political implications of this development?
Note: The figure shows which is greater, the economic weight of China (black) or the US (gray).
Figure 1.3 Chinese economic displacement of US in Latin America by country
In the pages to come, I present a new theory of how Chinese economic actors have filled the economic voids left by US capital based on the demand of elite actors in target states, and I suggest what this will mean for the global economy and geopolitical influence over the next two decades. Notably, I show that China has not always capitalized politically on its economic growth. In fact, the effect of displacement is more to the detriment of US leadership than it is in favor of China. As I insist throughout this book, leadership is built and requires material resources to sustain – something the US has ceased to allocate in LAC.
1.1 The Impact of Economic Displacement in LAC
In a new cold war, I believe that competition between the US and China will primarily be about economic power, similar to the hegemonic transition between Great Britain and the US in the eighteenth century.10 Both China and the US will engage in competitive economic statecraft, aiming to provide public and private goods (and services) across the world. While the USSR competed militarily with the US, China has not yet reached military parity with the United States.11 More importantly, it does not offer an ideological or moral alternative to the US.12 Thus, the competition will continue to center around economic preeminence.
LAC provides a clear test case for how this competition will unfold. Here, I offer three broadly applicable findings related to China’s economic displacement of the United States in LAC:
1. China’s current economic position already represents a notable shift in global economic dynamics. If the current trend persists, China could overtake the US as the world’s largest economy by 2040. Overall estimations mask a more intricate reality: In some nations, China has already or will soon displace the US in terms of its economic weight. In fact, from 2001 to 2020, China displaced the US in much of the developing world. LAC is no exception.
2. China has successfully positioned itself as a provider of alternative economic goods, thus becoming a substitute to the US in many economic sectors. This includes extending credits, making infrastructure investments, offering COVID-19 assistance,13 and spearheading initiatives like the Asian Infrastructure Investment Bank (AIIB) and various free trade agreements (FTAs).14
After World War II, American economic goods were pivotal for rebuilding Europe. The provision of American goods not only assisted in North Atlantic recovery but also established US political and economic authority in the Western Hemisphere.15 Over the past two decades, however, in the face of considerable US retrenchment between 2001 and 2020, Chinese investments and financing have been addressing unmet developmental needs in the Global South.16 This phenomenon, which I explain in detail in Chapters 2–4, occurred due to market forces that enabled hundreds of Chinese actors to take advantage of the capital outflow from the US and the creation of economic opportunities, or “voids,” in abandoned markets. It is typically suggested that this opportunism was a strategic maneuver by China to intentionally displace the US’s influence in LAC. However, this phenomenon was actually significantly driven by the demands of local elites themselves, who increasingly turned to Chinese goods as viable alternatives, especially in contexts where American options were lacking or absent. This shift underscores the pivotal role of local agency in shaping economic and geopolitical landscapes.
3. The United States is experiencing a decline in its ability to offer economic opportunities relative to China. This shift is not just economic; it has profound implications for the US’s political influence and leverage on the global stage.
A key theoretical assumption of this book is that the United States’ international dominance was primarily built upon the robustness of its economy. Throughout the nineteenth century, the US economy experienced extraordinary growth, propelling the country to the status of an economic superpower before it had even achieved corresponding military or political might. From 1774 to 1909, the US economy grew at an average rate of 3.9 percent per year. The period between 1897 and 1914 saw US investments abroad increase fivefold, much of which was linked to the LAC. Not surprisingly, the first American bank to open a branch abroad was not in Europe, but in Buenos Aires just before World War I.17 This linkage was facilitated through European firms involved in colonial enterprises, as well as through direct US investments in Mexico, Cuba, Central America, and, to some extent, other regions of Latin America. The United States, which had been a net capital importer in the nineteenth century, transformed into the world’s largest capital exporter by 1918. It maintained this status until 1981.18 In the 1930s, the United States used its Export-Import Bank to provide bilateral funding to Latin American countries, partly to counter growing geoeconomic and geopolitical competition from nations like Germany. This historical precedent mirrors today’s contest among major powers for influence through development support.19
Throughout the twentieth century, the United States’ monopoly in providing both private and public goods laid the foundation for its hegemonic legitimacy. However, this monopoly has been challenged by China since 2001, and it has led to what I describe as the erosion of political influence. Political influence indicates one country’s ability to shape another country’s domestic agenda in its favor through public opinion, legitimacy among local political elites, and foreign policy making. The erosion of US political leadership has thus manifested as a shift away from the US in terms of (a) the preferences of the elite, (b) public opinion, and (c) political alignment within international organizations in the Global South. While China’s economic weight does not always translate into Chinese political gains, I show that it certainly erodes US legitimacy.
The findings in this book show that the provision of economic goods plays a crucial role in sustaining the stability of the hegemonic system. When China commenced supplying alternative goods and services in LAC (as well as in Africa and Asia), the initial reaction from the US was positive. This development was perceived as a relief for the US, as it alleviated its responsibility for being the sole supplier of goods in these less prioritized regions. Moreover, there was an expectation that, as China’s economy expanded and liberalized, it would gradually align with and support the liberal international order. Twenty years later, however, a more complex story has emerged.
I contend that the shift in economic power dynamics between the US and China has not only altered the global economic landscape but has also provided smaller, developing nations with more options and leverage in the international arena and reshaped their interactions with major powers. I see this dynamic unfolding specifically in relation to the material goods underlying so-called rationalist approaches to international affairs, such as aid, credits, infrastructure projects, and investment capital. Between 2001 and 2020, Chinese economic actors became central in the provision of specific goods and services that improved people’s quality of life in the developing world, in some cases surpassing the US in importance.
Traditionally, literature on international relations distinguishes between public and private goods. However, in the context of the goods provided by China to LAC, this distinction is often blurred. In this book, the concept of public goods is treated as an ideal type, recognizing that, in reality, products often possess both public and private characteristics, making their classification far from straightforward. The majority of products generate a spectrum of effects, some of which may be global, others regional or local, and others that oscillate between public and private impacts. Chinese offerings in these regions may not neatly fit into the conventional categories of public or private goods. They can have characteristics of both, or their categorization might shift based on the political and economic dynamics at play.
This complexity around the blurry divide between public and private adds another layer to understanding the nature and impact of Chinese influence in LAC countries through the provision of various goods. For instance, consider a dam, a solar park, or a port constructed by a Chinese enterprise with Chinese financing. While these may initially appear as private goods that primarily benefit the investing entities or specific stakeholders, they also have positive externalities that extend to the general population. Their construction and operation might stimulate local economies, create jobs, or contribute to infrastructure development, yielding benefits that transcend their immediate private utility. Political elites, for their part, utilize these projects to enhance their chances of reelection and to show results to their electorate. The dual nature of such projects illustrates the complex interplay of public and private benefits in the realm of international relations and economic exchanges, particularly in the context of growing Chinese influence in various regions.
A particularly salient example of this dynamic can be found in how Chinese SOEs have executed numerous infrastructure and railway renovation projects in Latin America, often financed by loans from Chinese policy banks. The infrastructure of the San Martín line in Argentina in 2004, for example, was funded with a loan granted by the Export–Import Bank of US$113 million for the purchase of 24 locomotives and 160 cars provided by the state-owned China Railway Construction Corporation (CRCC). Strictly speaking, these are private assets, the use of which benefits those who pay the train fare and the companies that transport products in their cars. In addition, credit must be paid back with interest, which benefits the lender. Yet while this infrastructure is a private good, it undoubtedly benefits a broad group of citizens, even those who do not consume it directly, and it would have been very difficult for the Argentinean government to finance new infrastructure or renovate existing infrastructure without Chinese players. And, indeed, once the work was completed, the positive outcomes of the project were enormous, including a reduction in emissions, a revaluation of land, and greater safety in the movement of people and goods.
COVID-19 vaccinations offer another significant example of how alternative private goods from China have served the public in LAC in significant ways. At the onset of the COVID-19 pandemic in early 2020, LAC countries were the hardest hit in the world in terms of GDP and deaths per capita. The desperation to vaccinate the population was met with a global shortage of vaccines, especially those developed by Western laboratories (which also showed the best results on human immunity). Faced with a shortage of Pfizer, Moderna, and Johnson & Johnson vaccines, Chile and Brazil negotiated the purchase of thousands of doses from the private Chinese laboratory Sinovac. The doses were paid for at market price, and it was certainly a lucrative deal for the laboratory. But the governments of Brazil and Chile managed to vaccinate the majority of their populations in time to avoid a major crisis. Were Sinovac’s vaccines a second-best for the governments of these countries? They were. In a universe where Pfizer’s vaccine supply had been sufficient for both rich and poor countries, Chile and Brazil would surely have chosen to buy these vaccines. But that hypothesis is immaterial against the reality these countries faced. Vaccines from Chinese laboratories were the best alternative they had.20
My keen interest in the competition between China and the US and the effects of displacement on the provision of goods is fundamentally connected to the US’s role as the global hegemon. In scenarios where the hegemon is in decline, it tends to minimize its contribution of public goods to the lowest feasible level. This reduction is based on the expectation that the secondary powers, or followers, will step up their contributions to compensate for the shortfall; a dynamic, I argue, that is particularly evident in LAC. In LAC, the US effectively “delegated” the provision of economic goods to China, and this trend has intensified in recent years. In the long run, this shift has affected US political leadership and made countries dependent on Chinese economic goods. It has, in turn, led the US to implement a reactive policy, which I analyze in Chapter 7.
1.2 Theoretical Interventions
1.2.1 The Question of Intentionality
A consistent theme throughout this book is that while China does not always successfully convert its economic influence into enhanced soft power or greater alignment in international organizations, it effectively diminishes that of the United States. Notably, this shift may not necessarily be the result of a deliberate strategy by China (something this book does not aim to prove). Rather, I suggest, it is an indirect effect of China’s growing structural power in Latin America.
Past scholarship, by contrast, has placed significant emphasis on Chinese intentionality. Indeed, the idea of intentionality has had such a chokehold on discussions of Chinese statecraft that it is nearly impossible to avoid. Following the classics on economic statecraft, a number of scholars examining China’s economic statecraft – most notably William Norris and James Reilly – assert that China is “purposeful” and/or “deliberate” in its use of economic tools to achieve its foreign policy objectives.21 Their work illuminates, for example, the conditions under which Chinese corporations and banks align with the central government. On the opposite end of the spectrum, there is a rising collection of scholars urging us to abandon the assumption that all economic interactions engaged in by great powers must have strategic, diplomatic, or geopolitical motivations. There are those, furthermore, who believe it nearly impossible to deduce foreign policy objectives from official documents or interviews, since these objectives are frequently not made plain.22 The opacity of nondemocratic regimes makes this task particularly difficult. Other scholars contend that the line between political and economic objectives is blurry in a state-controlled economy like China’s.23 Some suggest that the BRI, for example, is both an economic and political instrument, making it impossible to determine the project’s “true” purpose.24
For scholars focused on the question of Chinese intentionality, the questions are: How can future academic debate address the challenge of proving intentionality regarding the long-term political consequences of China’s economic rise? Which effects have been the result of strategy, and which have been unintended and structural? We are talking about hundreds of actors, including SOEs, privately owned enterprises (POEs), political banks, commercial banks, and provincial actors. Sometimes these actors are even competing against each other. One possibility would be to conceive of the political consequences of a state’s economic rise (in this case, China’s) as externalities or by-products. This approach is engaged by some of the most notable authors insisting that there is intentional strategy behind Chinese economic statecraft.25 Another way to address the challenge of proving intentionality is to infer strategy from behavior. That is, to use inductive reasoning to assume that deliberate intentionality has led to specific political results. I myself have used this approach in the past, although it is not without problems.26 The main concern with assuming intentions from observable results is that a strategy becomes observable only when successful. Thus, there is a confirmatory bias in which failed attempts to exert political influence go unseen. For example, what if a Chinese SOE, despite the efforts of its executives, fails to link the success of a project to the host country’s support for China in a multilateral organization?
Authors generally describe the evident contradictions in Chinese foreign policy as a gradual result of the process of opening up to the world since the late 1970s.27 Political scientist Nicholas Rühlig, for example, characterizes how the Chinese state evolved from a “rule monopolist,” defined as a state able to independently make all relevant binding decisions and that maintains exclusive legitimacy and possession of the means of enforcement, into a “rule manager,” which sets the frameworks within which a complex mix of states, international institutions, and private sector actors shape politics. Political scientist James Reilly, meanwhile, refers to the Chinese State as an “orchestrator,” noting that, at times, it may not be listened to.28 These authors posit the need to look at other actors affecting Chinese foreign policy beyond the state, such as private and mixed capital enterprises and international organizations.29 Looking beyond state intentions and behaviors in the intentionality debate offers a more nuanced understanding of China’s economic influence. Shifting focus to local actors and multi-stakeholder interactions provides fresh insights into the mechanisms and outcomes of economic statecraft. This approach examines how local agency and complex multi-actor dynamics shape the implementation and effects of China’s economic activities.
1.2.2 The Role of Local Agency
A fundamental theoretical tenet of this book is that the efficacy of China’s economic statecraft in the developing world is dependent on the agency of domestic elites. Economic statecraft is said to be effective if a strategy succeeds in turning economic means into political gains. Yet, not only has the literature remained overly focused on intentionality, it has ignored the role of the target state. In this case, I highlight how LAC countries have come to view China as a provider of goods in absolute terms and relative to the US.30
I contend that two factors determine how much of what China offers to target countries has been demanded by domestic actors. The first factor is the degree to which China has become an outside option as a supplier of the same goods provided by – or goods that are complementary to those provided by – other major powers. The second factor is the extent to which these goods address domestic developmental needs. The agency of consumer countries for goods offered by China can either be direct (i.e., agency exercised by the central government to procure or consume Chinese goods) or indirect. In the case of indirect agency, the central government can orchestrate companies or other subnational actors to procure or consume a good offered by China (e.g., by encouraging a national enterprise to jointly venture with a Chinese enterprise to raise needed funds to deliver necessary infrastructure, as is the case with the Chancay Port), or it can delegate procurement or consumption to large corporations or subnational governments (as when provincial governments are given autonomy to bypass national governments in negotiating investment projects or aid from China, as occurred in Brazil during COVID-19). Just as China orchestrates the action of its economic actors, as shown by James Reilly,31 the countries that consume goods offered by China exercise agency through a multitude of actors (a dynamic discussed further in Chapter 4).
Let’s take one of China’s largest multinational enterprises (MNEs), Huawei, as an example. William Norris’s theory, which is based on state control, suggests that states – particularly those with strong enforcement and monitoring abilities like China’s – can incentivize or deter specific behaviors in firms by implementing measures that either penalize undesirable actions or reward desirable ones. Meanwhile, James Reilly’s orchestration theory suggests that top leaders implement some economic statecraft initiatives while delegating authority to line ministries and government agencies. In turn, these agencies deploy orchestration techniques to mobilize and manage financial institutions, enterprises, and regional authorities. How can Norris’s state control theory and Reilly’s orchestration theory improve our understanding of the varying degrees of Huawei’s success in penetrating markets when considering, for example, the tech giant’s evident interest in expanding into foreign markets and winning bids to deploy 5G infrastructure? While some nations, such as Costa Rica, took restrictive measures against Huawei fairly early on, other Latin American countries, such as Colombia, deepened their connections with the company.32 Similar divergences occurred between 2001 and 2020 throughout LAC in a wide range of sectors, such as energy, mining, and logistics (see Chapter 3). In this example, it is reasonable to assume that an independent variable utilized by both Norris and Reilly – the sender’s control/relationship with a specified commercial actor (in this case, China’s control of Huawei) – is held constant because the corporation is the same in each location (Costa Rica and Colombia). Yet, neither the state control nor the orchestration framework explains Huawei’s strategic success or failure in these two distinct countries. To put it another way, the existing frameworks fall short of offering a valuable explanation for how China’s overseas economic connections influence the interests and policy decisions of other governments. Local agency, I suggest, is paramount to the equation.
China, like any other country, may want to maximize its economic resources for political aims, but the effectiveness of such efforts will rely on whether the target nation finds such resources to be in demand. Whether the target nation determines Chinese resources to be in demand, in turn, depends on whether there are any other suppliers for such resources. Foregrounding the push-and-pull of these dynamics, this book thus focuses on the area where supply and demand converge, or where proactive economic statecraft is successful in accomplishing its policy goal because there is a market for the Chinese goods delivered to the target country.
1.2.3 “Three to Tango”: Toward a New Theory of Economic Statecraft
In sum, I argue that the existing literature tends to overstate the importance of senders (in our case, China) in interstate contacts impacted by the instruments of economic statecraft.33 Recent research on China–Latin American relations demonstrates that smaller states and their domestic political interest groups can greatly diminish the economic influence of major powers.34 Authors studying China’s relations with Southeast Asian countries have also called for a more inclusive study of statecraft in which the target countries be addressed as active actors who can shape and affect the dynamics of a given relationship.35 What we need is a theory that allows us to study the political effects of China’s economic rise without having to accept the validity of the two core assumptions embedded in existing theories and frameworks: firstly, that there is always political intentionality behind the use of economic means; and secondly, that target states are passive agents. In addition, such a theory should discuss the political effects of economic influence and be empirically operationalizable in a clear manner.
To address this need, the theory presented in this book explains economic displacement as a result of the provision of alternative goods to target states (in this case, the provision of Chinese goods to LAC) and the extent to which these goods address domestic development needs. It utilizes a “three to tango” approach, emphasizing how target countries actively engage with China to fulfill their local development needs when the US does not offer good enough alternatives. This approach complements the existing literature on economic statecraft and geoeconomics, which often overlooks the role of target countries in determining the effectiveness of China’s use of economic tools for political ends. It shows that as China’s economic influence expanded, China emerged as a competing provider of goods; although its success in this role has varied in extent across different countries. Consequently, the United States faces increasing challenges when it comes to resonating with overseas audiences, which has led to a decline in its soft power and support within international organizations. The political effectiveness or ineffectiveness of Chinese economic means, my theory demonstrates, depends on the local demand for the economic goods offered.
1.3 Defining Economic Weight and Economic Displacement
1.3.1 Economic Weight and the Concept of Structural Power
The hypothesis tested in this book is that economic displacement has the capacity to result in a country’s loss of political influence in a sphere where it has been historically dominant. In order to test this hypothesis, the chapters to come introduce the concept of economic weight and define how it has contributed to the economic displacement of the US by China in LAC.
The classic definition of power in international relations (IR) is the so-called relational one. Developed by Robert Dahl and disseminated by way of the classical realism school of IR theory, it focuses on the power of A to get B to do something they would not otherwise do.36 While similarly dyadic, Susan Strange’s definition of “structural power,” by contrast, emphasizes positional power – a power that does not imply intentionality. In Strange’s words, “structural power […] is the power to shape and determine the structures of the global political economy within which other states, their political institutions, their economic enterprises and (not least) their scientists and other professional people have to operate.”37 While Strange’s books do not operationalize this variable, her theory of power is more useful than the classic definition for the purposes of proposing a concept that (a) does not depend on China’s intentionality, and (b) recognizes the agency of target countries.
Drawing on this definition of structural power, the concept I propose, “economic weight,” reflects the power exerted by Country A on Country B through economic interactions. This influence is quantified based on the annual total of capital that Country B accrues from economic entities originating from Country A, adjusted in proportion to the size of Country B’s economy. Significantly, this concept also encompasses the relative scale of Country A’s economic capabilities in comparison to those of competing nations. In this sense, the economic weight of Country A on Country B exerts structural power on how Country C relates with Country A. Notably, this conceptualization does not presuppose any intentional outcomes on Country B as a result of these economic interactions. It focuses on the structural impact rather than the intentionality of deliberate strategy of the influencing country.
If we were to express economic weight graphically, we could think of circles representing the size of a country’s economy. Let’s say Country A is a small country (Chile, for example) and country B is a large country, like China. The collective impact of hundreds of Chinese economic actors engaging in economic activities within Chile can be conceptualized as having an “economic weight” on Chile’s economy. The influence, or impact, of this economic weight can thus be represented visually as a shaded area of overlap, symbolizing the extent to which Chinese economic involvement permeates and influences the Chilean economic landscape. This shaded area can be compared to the weight that a third country has on Chile, which, in this book, is the United States. In Figure 1.4, for example, we see a graphic representation of Chinese and US economic weight on Chile, which in this figure looks relatively even.
Figure 1.4 Visualizing economic weight
Operationalizing economic weight as a positional phenomenon presents a distinct advantage: It recognizes that power is fundamentally relational rather than merely an attribute that varies over time or is specific to individual countries. Traditional measures of power, such as the widely recognized Composite Index of National Capability (CINC), tend to be unidirectional and do not account for the dyadic nature of power relations between countries.38 This approach overlooks the reality that power is most meaningfully understood in the context of relationships.39 Furthermore, conventional definitions often focus exclusively on power as emanating from states, disregarding the influence exerted by non-state actors. Works on structural power in domestic politics highlight this oversight in mainstream IR scholarship, noting that the IR preoccupation with the power of large states often marginalizes the significant role that the structure of global capitalism plays in elevating large firms to the status of international political actors in their own right.40 This view has recently been recognized in the “global China” research agenda.41 The concept of structural power is inherently interdependent, which aligns with my perspective: Power emerges from the control that firms and capital holders wield over business decisions that are critical for economic growth and how they condition other actors. This framing underscores the dependence of states on private investors, situating these non-state actors as pivotal in international power dynamics. By considering economic weight in this broader, more interconnected context, we gain a more comprehensive understanding of the multifaceted nature of power in the global political economy.42
In her seminal work States and Markets, Strange identifies four pillars that underpin a nation’s power: (a) the security structure; (b) the production structure; (c) the financial structure; and (d) the knowledge structure. My concept of economic weight specifically captures a country’s structural power within the realms of finance and production.43 This focus is deliberate, as these are the domains where the current rivalry between China and the United States is most pronounced. While the US maintains a clear advantage in the security and knowledge structures,44 competition with China is more evident and critical in the financial and production sectors. This selective emphasis allows for a more nuanced understanding of the current geopolitical dynamics, particularly in relation to the shifting balance of economic power between these two global giants. One of the strengths of my conceptual framework, which I will delve into in Chapters 3 and 4, is its capacity to incorporate the dynamics of “outside options” for target states to the traditional notions of economic statecraft. Ultimately, the effectiveness of China in converting its economic prowess into political clout, especially between 2001 and 2020, has largely depended on the extent to which it represented a viable outside option for LAC countries. Similarly, the effectiveness of US economic statecraft has weakened as China has increasingly offered alternative goods to those used instrumentally by the US. This perspective offers a nuanced understanding of the interplay between economic power and political influence in international relations.
In the discipline of international relations, there has been a debate between those who are optimistic and those who are pessimistic about the systemic effects of the China–US rivalry.45 This debate specifically concerns the possibility of a rising China challenging US hegemony. It is therefore essential to agree on a measurable definition of key concepts, something that has not always been possible. I believe that the concept of economic weight, as I have defined it, has great potential for encompassing the competition for global influence between China and the United States because it is easily operationalizable (as I will show in Chapter 2). Moreover, it shares some of its central intuitions with other debates, such as soft balancing, forum shopping, and regime complexity, which have also been used to study the China–US rivalry.46
1.3.2 The Dynamics of Economic Displacement
In my approach to understanding the economic weight and competition between China and the US when it comes to providing alternative goods in the developing world, I also introduce the possibility – or potential outcome – of “economic displacement.” This concept is defined as the phenomenon that occurs when the economic weight of Country A (a rising power; for instance, China) on Country B (a developing nation) surpasses the economic weight of Country C (the established power; for example, the US) on Country B. Essentially, the dynamic of economic displacement captures a shift in economic weight, highlighting the moment when one nation’s economic presence and influence in another country becomes more significant than that of a competing nation. There is a very useful metaphor: As with a solar eclipse, economic displacement depends not only on both the size of the celestial bodies (the gross size of the US and Chinese economies) but also on their proximity to each target country (measured by the shaded area of economic weight). To illustrate this graphically, let us compare two moments: the year 2001 and the year 2018. If we were to express the relative economic weight of China and the US on Chile in that year, the figure would show that the United States had a greater economic weight than China (which, in fact, had an almost nonexistent weight). On the other hand, in 2018, China’s economic weight in Chile was greater than that of the US (Figure 1.5). In a side-by-side visual of these two years, we are witnessing the dynamic of economic displacement wherein China’s economic weight has surpassed that of the US in Chile.
Figure 1.5 Visualizing economic displacement
The dyadic measurement of economic weight and economic displacement allows me to account for the fact that China’s economic growth has taken precedence over the pre-existing US relationship with smaller countries.47 As China’s economic weight has grown in certain countries, so has the possibility of strengthening its position vis-à-vis the US, especially when China can boast an outside option in a bargaining situation. This possibility is in play every time China provides a good that meets the needs of a smaller country and offers it on terms comparable to or better than those of the US, whether it be investments, credits, or trade opportunities. Displacement is most likely to occur, in particular, when China’s economic weight has grown and the US’s economic weight has diminished over time. The greater China’s economic weight, the more credible it will be when a small country threatens to lean toward China instead of the US. The phenomenon of displacement is more complex than it may initially appear, however. Rather than being a sudden event, it’s a gradual process that unfolds over years. This process can be measured in two ways: as a continuous variable (showing gradual change, as I illustrated in Figure 1.2) or as a discrete variable (showing distinct stages, as I illustrated in Figure 1.3). Throughout the book, I primarily use a simplified measurement, focusing on displacement as a dichotomous (yes/no) variable. This approach pinpoints the moment when China surpasses the US in economic influence.48 However, I also present additional evidence using the continuous variable to capture the nuanced, gradual nature of the process by which China has overtaken US economic influence through the provision of alternative goods.
Notably, this trend is not irreversible. As I discuss in Chapter 2, the US has the potential to reverse its displacement by China in LAC. Thus, the long-term outcome remains uncertain; in 40 years, we could see the US reversing the trend, maintaining its current position, or being completely displaced by China. I explore the policy implications of these various scenarios in Chapter 7.
1.4 Book Overview
1.4.1 Data and Methodology
This book originated as an empirical inquiry aimed at answering questions for which data was not yet available. I thus started by creating the databases I needed, using the highest level of disaggregation possible (e.g., down to the company level), before scaling up to national and regional levels.49 I have also been capitalizing on data development since around 2015.50 As a result, this project benefits from years of systematic data collection, disaggregation, and curation on investment, trade, foreign aid, and credit. Each chapter utilizes different data tailored to its specific objective, integrating both quantitative and qualitative methods.
To measure the economic weight of China and the US, I systematized investment, aid, trade, and credit data using existing sources and my own data collection from secondary sources. An important aspect of disaggregation is to avoid the biases of nation-level statistics as much as possible.51 For assessing the effects of economic displacement on the erosion of political influence, I relied on pre-existing survey data, covering both public opinion and the views of political elites. Additionally, I incorporated quantitative analysis of parliamentary debate texts. To evaluate the loss of political influence in international bodies, I coded data based on existing sources for the United Nations General Assembly (UNGA) as well as original data for use in relation to the Organization of American States (OAS) and United Nations Human Rights Council (UNHRC) cases. Furthermore, for two case studies on the demand for Chinese substitute goods and for insights used in the conclusion, I used qualitative data – namely, in-depth interviews with over forty politicians and business leaders – and government data obtained from public websites.
Each chapter provides detail regarding the data used, and the Appendix provides an in-depth explanation of how the original data was gathered. In addition, the data is made available to readers through an online repository for consultation.
1.4.2 Roadmap
This book consists of seven chapters, divided into two major parts. In the first part of the book, I explore the question of how China has managed to economically displace the US within its traditional spheres of influence despite not surpassing the US in global economic standings. This part is comprised of four chapters, including this one.
Chapter 2 operationalizes the concepts of economic weight and economic displacement as defined in the parts above, demonstrating how China has increased its presence in the Global South while the United States has seen a notable decline since 2001. This chapter is significant as it presents evidence that China has economically displaced the US in much of LAC; a shift attributed not only to China’s growing economic influence but also to the US’s decline. Chapter 3 investigates whether Chinese entities have filled the economic gaps left by the withdrawal of US actors from the region, examining the causality between the US’s diminishing economic influence and the influx of Chinese economic players in the region. The chapter reveals that neither the commodity boom nor the ideology of Latin American presidents sufficiently explains China’s remarkable growth. It illustrates that the rapid economic displacement of the US by China was facilitated by Chinese actors becoming alternative suppliers of goods in the region – a causal mechanism overlooked in previous analyses.
Chapter 4 presents two case studies based on qualitative evidence and in-depth interviews to explore how domestic actors in South America have exercised agency in demanding alternative goods from Chinese economic actors. Focusing on South American countries where economic displacement has been more pronounced, the chapter illustrates how political elites utilized Chinese goods to demonstrate their ability to deliver solutions to constituents. These cases show that the agency of South American states has not always been exercised directly, but sometimes through subnational actors. The first case study exemplifies top-down dynamics, examining the construction and financing of two dams in Argentine Patagonia by Chinese actors. The second case study – which focuses on the most significant port project in the hemisphere – illustrates bottom-up dynamics whereby businesses and subnational governments have engaged with China independently of traditional nation-state channels. In this instance, the Peruvian state played an orchestrating role in the project but delegated agency to local entrepreneurs, demonstrating how subnational actors can engage with China independently and how national governments can benefit from these interactions.
In Part II of the book, I ask: To what extent does economic displacement translate into a loss of the US’s political leverage in other countries? Essentially, this part of the book considers the political consequences of the displacement phenomenon for US political leadership. I explore two causal paths that explain a loss of US political leverage: (a) the deterioration of the US’s valuation in the domestic arena in terms of public opinion and (more importantly) the perspective of political elites; and (b) the US’s increased inability to influence voting in international organizations in the international arena. The hypothesis is the same for both mechanisms: Economic displacement hampers the US’s ability to exert political leverage because it dilutes the effectiveness of the use of economic incentives (i.e., sticks and carrots).52
In Chapter 5, I investigate the effect of economic displacement on the deterioration of US soft power in domestic politics and among political elites. To do this, I examine a multi-country survey that asks about the role of China and the US in relation to their capacity to provide solutions to the problems faced by Latin America. Then, focusing specifically on national legislators, I analyze a sample of over 2,500 legislators spanning ten years across fifteen countries to conduct an initial assessment of the impact of economic displacement on their foreign policy preferences. My analysis confirms the trend: Economic displacement erodes legislators’ valuation of the United States. Meanwhile, China’s economic growth empowers incumbent governments, regardless of their ideology, by allowing them to present themselves as effective managers providing development solutions to their voters; a dynamic I explore further in relation to the Argentine legislative debate on the installation of a China-controlled space station in Patagonia.
Chapter 6 examines another facet of how China’s economic displacement undermines US political leverage: its capacity to generate alignment in international organizations. Existing literature has shown that China’s economic rise has enabled it to form coalitions and garner support in international bodies. However, little is known about how this affects the US’s ability to influence countries where economic displacement has occurred. In this context, I investigate instances within the United Nations General Assembly, the UN Human Rights Council (UNHRC), and the Organization of American States (OAS). My findings indicate that countries’ alignment with the US decreases in these three forums when displacement occurs.
Chapter 7 of the book summarizes my key findings and derives three major policy lessons from them. The lessons my work illuminates may, I believe, define the future landscape of competition between China and the United States in LAC, and they are readily extended to other regions of the Global South.
