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Fundamental Contradiction of Peruvian Foreign Policy towards China and the United States
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WHAT IS THE FUNDAMENTAL CONTRADICTION OF PERUVIAN FOREIGN POLICY TOWARDS CHINA AND THE UNITED STATES?
By: Anthony Medina Rivas Plata[1]
A little-known anecdote in the history of digital diplomacy is found in 2020 in Peru, when the X (Twitter) accounts of the US and Chinese Embassies began to accuse each other of plundering the fishing resources of the Peruvian sea. On September 22, the US Embassy in Peru issued a tweet alerting about the presence of a fleet of more than 300 ships from China on the Peruvian coast, reporting that these ships were overfishing in the area, causing enormous ecological and economic damage; shortly after, the Chinese Embassy not only denied what the US Embassy had said, but also accused it of spreading fake news and being a worse polluter than China.
The tensions between the two countries over the Peruvian situation, although always low-profile, have been increasing due to the growing presence of China in the Peruvian economy. This presence has been consolidated with the inauguration of the new Chancay Mega port in November 2024, of which the company Cosco Shipping, a Chinese state-owned company, owns the assets. But it is not just Chancay. It is estimated that China has established partnerships with 47 countries (Peru among them) and four international organizations: the European Union, the Association of Southeast Asian Nations (ASEAN), the African Union (AU), and CELAC. Peru has taken a privileged role compared to other countries in the region, as it has managed to expand the level of integration known as the Comprehensive Strategic Partnership to include the areas of politics, economy, technical cooperation, and culture. Since 2014, China has become Peru's main trading partner, and the ‘strategic’ feature of the relationship they established because of [AO1] this extends to the main sectors of the Peruvian economy: agriculture, fishing, energy, ports. This has been achieved in an asymmetrical manner, where Chinese companies (many of them state-owned) control strategic Peruvian assets without greater accompanying control or presence by the Peruvian State. In this sense, Peruvian state-owned companies are few and weak[AO2] , with low capabilities to establish joint venture companies. Also, the current political crisis in the country (six presidents in the last nine years) has critically weakened the state's capacity to regulate foreign investment. Peru’s policy of rapprochement with China has been a consequence of two long-term policies: Peru's entry into APEC in 1997, and its policy of trade liberalization through bilateral free trade agreements (FTA) since 2002.
To understand the China’s power and influence within the Peruvian economy, let us compare it with the trade balance that this country has with the United States. Since the implementation of the Peru-US FTA in 2009, Peruvian exports to the United States have shown sustained growth, reaching a total of 101,005 million USD (160,548,555,500 AUD) in the first fifteen years of the agreement's validity. Of this total, 51.1% corresponded to non-traditional products (manufactured and industrial). In the last year evaluated (February 2023 - January 2024), Peruvian exports to the United States totaled 9,090.7 million dollars (14,454,452,370 AUD), which represented an increase of 5.3% compared to the previous year. Of the total amount exported in that period, 98.7% corresponded to subheadings with duty-free access.
This economic relationship, which is extremely important for Peru, began to be challenged by China’s presence. This relationship has been boosted by the China-Peru FTA, signed in 2009 and in force since March 2010, which has allowed for sustained growth in trade. According to the Foreign Trade Society of Peru (COMEX Perú) there is a notably evolution of Peru´s trade flow from before the entry into force of the FTA until 2023. Peru’s total exports to China during the period 2009-2023 recorded a growth of 412%, with an average annual growth rate of 13.4%. In the case of traditional exports, they saw an increase of 418%, with an average annual growth rate of 13.5%, while non-traditional exports experienced a growth of 284%, with an average annual rate of 10.9%. This dynamism has positioned China as the main destination for Peruvian exports and the primary source of its imports. Indeed, he volume of bilateral trade has reached historic levels. In 2022, Peruvian exports to China totaled 20,891 million dollars (33,116,135,000 AUD), representing 33% of the country's total exports. At the same time, imports from China amounted to 15,789 million dollars (25,025,565,000 AUD), equivalent to 26.2% of total Peruvian imports. These values reflect the preponderant role that China has acquired in the Peruvian economy, both as a destination market for its primary products and in the provision of essential manufactured goods for industry and domestic consumption.
Despite the strong dependence on traditional products (mainly minerals), non-traditional exports have shown sustained growth, although they still represent a smaller portion of bilateral trade. In 2022, non-traditional exports to China totaled 706 million dollars (1,119,610,000 AUD), with the agricultural, fishing and textile sectors being the most prominent. The agricultural sector led these exports with a value of 356 million dollars (566,000,000 AUD), equivalent to 50.4% of the total non-traditional products exported to China. Fishing products accounted for 32.6% with 230 million dollars (365,649,400 AUD), while the textile sector contributed 46.6 million dollars, equivalent to 6.6%. These data reflect an effort to diversify the export basket and take advantage of opportunities in new markets within China, although the weight of exports remains strongly inclined towards basic products. Finally, in imports, Peru has consolidated China as its main supplier of manufactured goods. Imported products from China include machinery, electronic products, textiles and toys, making it a key source of supply for industrial and consumer goods.
According to US officials interviewed by the Financial Times in 2023, the United States is worried about China's growing economic relationship with Peru. Despite the fact that the United States is the fourth largest foreign investor in Peru (with 11%) compared to the United Kingdom (18%), Spain (17%) and Chile (11%). The country has been critical of the role that Chinese companies (especially state-owned ones) have taken on in sectors such as electricity and mining, in particular. In April 2023, the Italian company Enel sold all of its assets in Peru to China Southern Grid International to provide electricity to the north of Lima, and the Chilean company Luz del Sur was sold to Three Gorges Corporation, meaning that now 100% of the electricity in Peru’s capital, Lemu, (one of the largest capitals in South America, with almost 13 million people) is controlled by corporations from a single country: the People's Republic of China. Moreover, the United States' concern with Chinese investment transcends the economic issue and becomes one of security. During Xi Jinping's last visit to Lima during the APEC summit in November 2024, Peruvian President Dina Boluarte highlighted the promotion of Chinese investment in Peru as a strategic objective of her government. Certainly, the relationship with China is one of the very few things that have remained constant at the level of public policy in Peru in the last two decades.
The arrival of a new foreign policy under President Donald Trump results in a precarious position for Peru due to its deep trade relationships with both the US and China. With Trump employing tariffs to, among other things, damage China's global trade relations, Peru has become highly vulnerable. Close advisers to Trump have openly criticised China's Megaport project in Chancay and have indicated that they could impose tariffs of up to 60% on all products entering the US market through Chancay, despite the fact that products going to the United States leave mainly through the port of Callao, while products destined for China and vice versa leave through Chancay. At the same time, the Peruvian Congress approved an agreement for the entry of armed US troops into Peru, with the aim of carrying out military exercises in 16 Peruvian locations throughout 2025. Considering that some key officials in the Trump administration have opined that Chancay can serve as a Chinese military base (the Djibouti of South America) for supplies, logistics and ship repairs, Peru must be clear that its political neutrality in the midst of the conflict between China and the United States may be forced to end at some point. But when will that moment come?
[1]Ph.D. (c) in International Relations, BA (Hons) in Political Science and MA in Public Policy. President of the Institute of Andean Political Studies (Peru) and Vice-President for Latin America and the Caribbean at the International Association for Political Science Students-IAPSS (Canada). Professor of Political Science at the Universidad Nacional Mayor de San Marcos and the Universidad Católica de Santa María.