In South America, Trump already losing a trade battle with China

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By Marco Aquino and Eduardo Baptista

LIMA/BEIJING (Reuters) - In South American copper giant Peru, the incoming Donald Trump White House will find itself already on the losing side in a trade battle with China, part of a bigger power realignment around the resource-rich region in Washington's backyard.

Peru, the world's no. 2 copper exporter, is set to host Asia-Pacific Economic Cooperation leaders this week, with China's President Xi Jinping expected to attend and inaugurate a major new Chinese-built port in the country. Outgoing U.S. President Joe Biden is also on the guest list.

Peru reflects a wider challenge for the White House around South America, where China's presence has grown rapidly given its huge appetite for the region's main exports: corn, copper, soy, beef and battery-metal lithium.

That's made Beijing the go-to trade partner from Brazil to Chile and Argentina, eroding Washington's regional political clout, a trend that widened under Trump's 'America First' inward turn during his first administration and again under Biden.

"The strategic value is that this is the United States' backyard," said Li Xing, professor at the Guangdong Institute for International Strategies, adding it helped counter U.S. presence around the Indo-Pacific and offset trade war risks.

"China can't start by building military bases there because it's too sensitive and will make China's conflict with the United States too pronounced... So it has made inroads with economic ties first."

Peru demonstrates the dramatic shift. China's trade lead there over the United States widened to $16.3 billion last year, UN Comtrade data show, a stark reversal of just a decade ago when Washington was the dominant player. That's come hand-in-hand with investment from energy to mining.

China overtook the United States in 2015 on trade with Peru, widening the gap under Trump's previous administration from 2017-2021, and again under Biden.

"China has entered the region aggressively, is learning quickly, and is prepared to remain for the long term," said Eric Farnsworth, a former State Department official now at the Council of the Americas and Americas Society.

"Unless the United States meaningfully prioritizes regional economic policy in a new and more effective way, the region will continue to tilt toward Chinese interests."

The U.S. embassy in Lima did not respond to a request for comment. Washington officials have repeatedly warned publicly that Chinese investment in the region comes with strings attached and said the United States is a more reliable partner.

'SINGAPORE OF LATIN AMERICA'

A beacon of the change is a new megaport 80 kilometers (50 miles) north of Lima in Chancay. It is being built by China's state-owned Cosco Shipping and promises to shorten sea routes to Asia both for Peruvian and Brazilian goods.

The Chinese-controlled port, set to be inaugurated by Xi when he is in Peru, has sparked concern from the United States over regional security, but more importantly will turbocharge the region's trade highway to China.

"We will have direct routes to Asia, particularly to ports in China, which will be cut by 10, 15, 20 days depending on the route," Peruvian Minister of Transport and Communications, Raul Perez Reyes, told Reuters at the port.

He added that it would compete with Mexico's Port of Manzanillo and eventually Long Beach in California.

"Our aim is to become the Singapore of Latin America."

The Pacific coast port is leading to other investments to boost connectivity, especially for soy producers in Brazil, who are keen to cut down shipping costs and travel time to Asia, and avoid going through the Panama Canal to the north. Peru's government is pushing a potential $10 billion rail project.

That could see more Brazilian soy transported overland to Peru and then heading for China. Brazil has seen trade with the world's no. 2 economy skyrocket in recent years.

Most local officials and diplomats, however, strike a cautious tone. They say both China and the United States are key partners. But privately, they concede that China has given more concrete attention to Latin America.

"Peru is open to do business with all countries," said a senior Peruvian official on condition of anonymity. "What China does though is concentrate its investments in Latin America and Africa" which have the resources it needs, the official said.

He added that Peru hoped to sign an agreement during APEC with China to upgrade their 2009 free trade agreement, mainly related to intellectual property, electronic commerce and customs procedures.

'SIGNALS OF ENTHUSIASM'

Brazil's ambassador in Lima, Clemente Baena Soares, said the Chancay port would be a major boost for his country's soybean farmers, cutting almost in half journey times to Asia.

He called for Peru to ease red tape for Brazilian haulers such as load limits on highways linking the countries.

Jose Tam, president of the Peru-China Chamber of Commerce, said that China was being more proactive than others in South America, helping boost its trade and investment ties.

"China is sending the clearest signals of enthusiasm in the region," said Tam, who heads the association that includes large copper mines such as MMG Ltd's Las Bambas and Aluminum Corp's Chinalco.

Mario de las Casas, corporate affairs manager for Cosco Shipping, said Peru's pivot towards China wasn't political and it was open to investors from everywhere. The trend was purely business, with less U.S. investment on offer.

"Let the United States come to invest, it has not done so for many years," he said, adding that Peru was well positioned to benefit from any global trade tensions. "Here there are no good or bad guys, here there are only interests."

(Reporting by Marco Aquino and Eduardo Baptista; Editing by Adam Jourdan and Alistair Bell)

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