The Donroe Doctrine Leans on Sticks But Needs Carrots

For decades the US was the dominant outside investor, trading partner and commercial lender to Latin America, and US companies thrived across the region’s markets.

When Latin American nations experimented with import substitution industrialization in the 1960s and 1970s, throwing up tariff walls and other protections, local subsidiaries of US multinationals reaped big profits. When the region’s economies opened up in the 1980s and 1990s, US corporations bought up newly privatized banks, telecoms, railroads and energy infrastructure. Consumer brands and businesses such as Proctor and Gamble, Kimberly Clark, Kelloggs, and Walmart doubled down and profited as Latin America’s middle class grew. Manufacturers boosted their markets and margins by going south, particularly to Mexico after the start of NAFTA in 1994, to build out their supply chains.

In the 21st century, US companies, corporations, investors and exporters have been losing this pole position to China. Over the last 25 years, Chinese trade with the region has grown from next to nothing to half a trillion dollars a year. Beijing is now the top partner for most of South America and a significant economic player in Central and North America too. Chinese exports of consumer goods, high-end electronics and now cars undercut US-made products in Latin America’s markets, while its outsized demand for commodities has drawn Latin America further into its orbit.

Chinese companies have bested American ones in building new dams, ports, power plants, railways and telecommunications infrastructure, supported by hundreds of billions of dollars more in financing. And in the 2010s, Chinese government-tied banks became prolific lenders to Latin America’s governments, to the tune of tens of billions of dollars.

Trump has set his sights on disrupting these deepening commercial ties between China and Latin America. He leaned first on Mexico and the threat of Chinese products coming into the US through the USMCA free-trade backdoor. The administration has muscled El Salvador, Guatemala, and Argentina to match US duties and import quotas on Chinese goods in their recently signed free trade frameworks and has made similar demands in its discussions with Ecuador.

Infrastructure spats too are on the rise, with the US pressuring Latin American nations to walk away from deals with China to build or manage ports, railroads, energy grids and undersea cables — and in some cases even to “rip” out existing equipment and replace it with US-friendly providers. The Trump administration has also been keenly focused on defending frontier areas of the global economy, adding provisions on access to critical minerals to trade and financing agreements and pushing Argentina, Chile and other nations to blunt China’s expansion of its extensive space facilities in the region.

This increasingly muscular US approach has achieved some notable success in specific cases. But to truly displace Chinese money, companies, operations and influence in the Western Hemisphere, the US needs more than the stick of demands and threats represented by the National Security Strategy. It must also provide the carrot of commerce and investment to incentivize US companies to do more business with their hemispheric partners.

The main challenge is money. Not only do Chinese companies benefit from subsidies and tax breaks at home, they also receive significant financial support from state-run banks and insurers when they venture abroad.

To compete, US companies need access to similar financing and means of derisking. Last year’s reauthorization and lending boost for the Development Finance Corporation is a good first step. Needed next is the reauthorization of the US Export-Import bank, granting it more financial firepower and flexibility to build compelling financial packages for US companies competing against Chinese rivals. The US should leverage funds from the Inter-American Development Bank, the Development Bank of Latin America and the Caribbean, World Bank and other multilateral financiers to provide loan guarantees and other means of crowding-in private sector capital.

The recently announced AI export program is a good test case, promising to combine money from the DFC, Ex-Im bank, US Trade and Development Agency, Millennium Challenge Corporation and World Bank with technical training and other development support to promote the adoption of a full US AI technology stack, from energy and datacenters to semiconductors and software models. If it works, this multitiered financing and support model could be rolled out for companies competing in other critical sectors.

Echoing the words of Exxon’s CEO about Venezuela, countries are “uninvestable” if they don’t have fair legal rules and investment protections. US companies have long faced unfair Chinese competition from below-cost bids at public auctions or in some cases outright bribery.

US investors need clear rules and transparent processes. The US can recommit to free-trade agreements and bilateral investment agreements it already has in the hemisphere, not least because they allow its companies to appeal to international arbitration over politicized domestic courts. The US can work with international financial institutions that help design public infrastructure proposals to ensure competitive processes and high governance standards. And it can support the digitization of customs and procurement, which makes graft harder to hide.

US companies benefit in the global marketplace when US standards are adopted. Washington should fund papers, proposals and positions within international standard-setting bodies that ensure interoperability for telecommunications and cloud computing; for satellite technologies, licensing, and orbits; and to set 6G protocols in ways that on balance favor US companies and their products.

In some cases, competing with China will involve relying on other nations’ companies and technologies. For instance, to offer an attractive, affordable alternative to Huawei’s telecom equipment, the US could support and finance buys from Sweden’s Ericsson, Finland’s Nokia, or South Korea’s Samsung. And given the rapid build-out of undersea cables, US provider SubCom will need to partner with France’s Alcatel Submarine Networks and Japan’s Nippon Electric Company to achieve the scale needed to limit China’s reach.

Trump’s push to replace Chinese companies with American ones won’t work by mandate. US private companies need to profit (even China’s state-run companies are prioritizing investment returns over diplomatic ties). Supported by US policies that expand financing, level playing fields, promote transparency and partner with others, US companies can make a buck while also advancing US national security.