China is in the midst of a trade war with the United States and they are winning. The Chinese are opening up a new front by increasing economic relations with nations in close proximity to the United States. One area they are looking at is South America to expand influence that will harm U.S. national and economic security.
The U.S.-China trade deficit hit a record high of $323 billion in 2018 and increased 17 percent from 2017. According to Reason magazine, “China said that its exports to the U.S. grew by 11.3 percent during 2018 (despite President Trump’s tariffs), while imports from the United States climbed by only 0.7 percent last year.”
The Chinese have doubled down on unfair trade practices that have put them in a position to steal American technology, heavily subsidize exports and increase exports to the United States — and they are winning.
South America has become the new battleground of that trade war and oil is the centerpiece of the Venezuelan fight. The Chinese have made large investments and established trade ties in Central and South America that threaten U.S interests.
Reuters reported on Dec. 13, 2018, “A Venezuelan oil joint venture with a state-owned Chinese company accounting for around 10 percent of the crisis-stricken OPEC member country’s output has nearly doubled production in the past seven months, a unit of state-owned PDVSA said on Thursday.”
Right now, a U.S. firm, Erepla has a pending agreement with the same state-owned Venezuelan oil company to extract oil and create jobs for Americans. Makes sense that the United States is engaged on the ground in this battle by competing for control of Venezuelan oil reserves.
The American company is structured to promote oil exploration and development projects in emerging energy markets. Bloomberg describes this agreement that solves the problem of flawed previous contracts as one that “gives U.S.-based Erepla enhanced managerial participation and an innovative payment structure designed to avoid the shortfalls that have plagued previous projects.”
The best way to compete and fight a trade war against China is to go head to head and prove that the free market American companies are more efficient and not hampered by government control.
China agreed in September of last year to extend $5 billion in credit to the government of Venezuela after a visit from President Nicolas Maduro to China. This allows China to request payment in oil exports and to project a presence in the Venezuelan oil fields. Bloomberg also reports that the Chinese are investing in “a strategic alliance on gold mining” and advising on a planned “overhaul Venezuela’s 15-year-old currency controls.”
The Chinese want more control over Venezuela for strategic and economic reasons, therefore it makes perfect sense to accept invitations to work with Venezuela to box out even more Chinese economic ties in South America.
While some in the United States are worried that companies doing business in Venezuela props up the controversial regime of Nicolas Maduro, the fact is that economic ties will help to continue a strong U.S. presence in the South American oil extraction industry. Vacating that nation in the hopes that the regime will collapse will allow the Chinese to prop up the Maduro government and help socialists to maintain power. American economic activity is a positive.
National security is increased when Americans win fight against Chinese economic dominance in the region. Right now, the future of the Maduro government is unclear. It is possible that Mr. Maduro is deposed, and a friendlier government takes over, like has happened in Brazil. Makes sense for American interests to play a productive role in the Venezuelan economy so we don’t have to start from scratch and allow Chinese dominance in that country to keep American economic interests sidelined.
The Chinese goal of world economic dominance is gaining steam with an increased trade surplus with the United States and an increased economic presence in Venezuela. It is time for American companies to fight back and to prove that our free market economy is superior to the Chinese economy dominated by cronyism and government control. One way to do so is to have American companies, like Erepla, to provide some economic diplomacy in South America.
• Beau Rothschild, the founder of Rothschild Policy and Politics, formerly served as the members outreach director for the Committee on House Administration.