United States efforts to decouple from China and implications for Peru

United States is implementing a series of measures to try to cut off its dependence from China in certain areas, or to deny China access to certain technologies. In this sense, US is enlisting the help of some of its allies, as seen in the case of its effort to cut the flow of advanced semiconductors to China, as in the formation of the Chips 4 Alliance. Japan and Taiwan seem to be already on board in this idea. Netherlands, not a member of that alliance, is also participating. Still South Korea has not officially joined the Alliance.

What about Peru? Can Peru join in the effort to isolate China as US is planning to do? What, if any, can Peru do in that regard?

In this article a look at that issue is given. First, a brief review of Peru relations with China and US is given; second, in which areas could Peru cooperate with US effort is analyzed; and lastly, it is seen if really Peru can join that effort.

Peru relations with China and United States

China became, from the beginning of last decade, the biggest trade partner of Peru. In 2022 Peru exports of goods to China were 32.9% of its total exports, while to US was only 13.6%. Imports of Peru from both China and US were around the same proportion, 25% of the total for each one. Then, Peru is dependent on the Chinese market for its exports, mainly of copper, which account for 30.5% of Peru´s total exports, and China is the destination for 73.6% of Peru´s copper exports.

Peru has Free Trade Agreements with both US and China. With the first from 2009 and with China from 2010.

Regarding investment, at the end of 2021 there was a stock of 117.8 billion dollars of Foreign Direct Investment, FDI, in Peru, of which around 26% was from China[1]. The amount of FDI from US in Peru, accordingly to US data at the end of 2019 was a stock of 7.5 billion dollars.[2] Probably US investment is bigger than that amount, but not as big as of China. According to Peru data, which is not reliable because it does not record all FDI in the country, at the end of 2022 there was a stock of 30.19 billion dollars of FDI, of which from US was 10.7% of the total, and from China 3.7% of the total[3]. Anyway, in the last years there has been no new US investment in Peru, but China continues increasing its investment in the country.

Regarding exchange of students and people, for many Peruvians US is still the desired destination for study. According to US data, by July 2022, there were more than 3,500 Peruvian students in US and almost 4,000 US students in Peru[4]. Data for China is not available but probably the number of Peruvian students in China, and of Chinese students in Peru is quite low, though in the last years it is increasing the number of Peruvians students going to China, because, among other reasons, the Chinese government is offering many scholarships to Peruvian students.

Regarding economic cooperation, specifically bilateral assistance, US has been in the last decade the second largest contributor to Peru. According to a report, from 2011 to 2019 Peru received 4.4 billion dollars in bilateral assistance from the DAC of OECD countries, and from that amount 24.5% came from US, being the second largest donor to Peru, after Germany which contributed with around 28% of the total, and in third place was Japan with around 14%.[5] For bilateral assistance received from China there is no available data, but probably is not meaningful.

For Peru, China is becoming more important in the economic aspect, but still US is important for Peru in the political and military aspect. US has provided armaments to Peru armed forces, and also Russia, but China not. And Peru is in the America continent, where US is the most important country for many Latin America ones, and certainly will remain that way in the foreseeable future.

In which areas can Peru cooperate with US?

US competition with China happens in several areas. Regarding Peru possible involvement in that issue, perhaps it could in the following ones:

Access to valuable raw materials, like lithium: Lithium is considered a strategic material needed for industries like batteries, for electric vehicles. This material is not abundant or easily to exploit, and in fact a few countries hold most of the mineral that could easily be exploited. Some countries in South America are well endowed with lithium. The so-called lithium triangle, along the borders of Bolivia, Argentina, and Chile, is said to hold around 60% of the world reserves. But in fact, Peru also has lithium around that triangle[6].

Peru has lithium and it is said that Chinese companies could be interested, as they are present now in those south American countries[7]. US criticize China involvement in the exploitation of theses resource, in particular, in the lithium triangle[8].

But the perspectives for the exploitation of lithium in Peru is not good now, among other reasons, because most of the mineral is situated in Puno, a region that is home to many social protests, where local communities have opposed other mining projects. Also, Peru government has not developed any framework to exploit that resource yet[9]. And there is only one company interested in the exploitation of this product. American Lithium, a company from Canada, is the owner of a lithium and uranium deposit in the Puno region[10].

Peru adoption of the 5G technology

5G technology will be adopted by all countries. But still there is no data set for that in Peru[11]. It is known that Chinese companies, like Huawei, are the leaders in this field. In Peru Huawei is establishing itself as a leader in mobile technology and has cooperation agreement for example with San Marcos National University[12] and other public and private universities[13] to foster human capital in those areas.

It is well known that US is pressuring some countries not to adopt 5G technology from China. It has done it in Europe, in Asia, and is doing in Latin America. For example, it is said that US pressed Ecuador not to adopt Chinese technology for its 5G network in exchange for extending a loan in January 2021[14]. Also, Chile government in 2020 decided to adopt a Japanese proposal for building an undersea fiber-optical cable, instead of a Chinese proposal that would have directly linked Chile with China, because of US pressure[15]. What will happen when Peru decides to adopt 5G technology?

III. Can Peru join US efforts to isolate China?

As has been seen, Peru has important economic links with China. China is its biggest trade partner, and around one third of Peru goods are exported to that country. Also, China is already the main investor in the country.

In 2019, when Mike Pompeo, then US secretary of State, visited Peru, he told the government that Peru must be very careful when taking a decision to implement 5G technology. He said that Huawei is an entity linked to the Chinese government and Peru data could/would go directly to China.[16]

Many considerations will have to be taken when adopting 5G technology from China´s Huawei. One of the concerns is for example about how access to Huawei technology will be sustainable in the face of growing sanctions that US is implementing against this company. US would cut off completely access to US technology to Huawei soon[17].

In some circles in government and academy in Peru, there is beginning to be an informal debate about how much Peru is being linked to China, and what this will mean this in the face of confrontation between the two big superpowers: China and US, and how this will affect Peru decision in that regard. Lessons are studied of, for example, how Australia and New Zealand are dealing with that dilemma. Australia in particular, a country much dependent in China market for its goods, had some problems when it criticized China at the beginning of 2020[18].

Anyway, still how Peru could or would help US intent on containing China, if that is the case, and how would react to China response to that, is not known. It is a theme not debated yet, but one that must be done. This author is much interested in that theme and will continue writing about it[19].

March 22, 2023

[1] According to data from the Chinese Embassy in Peru and UNCTAD.

[2]Office of the USTR: https://ustr.gov/countries-regions/western-hemisphere/peru#:~:text=U.S.%20foreign%20direct%20investment%20(FDI,%2C%20manufacturing%2C%20and%20wholesale%20trade.

[3] See Proinversion: https://www.investinperu.pe/es/invertir/estadisticas-generales/inversion-extranjera

[4] According to US Department of State: https://www.state.gov/u-s-relations-with-peru/

[5] See MOFA: “Evaluation of Japan´s ODA to the Republic of Peru” page 22 https://www.mofa.go.jp/policy/oda/evaluation/FY2021/pdfs/peru.pdf

[6] See the interview with Walter Sanchez of Peru´s Ministry of Energy and Mining: https://www.bnamericas.com/en/interviews/perus-take-on-the-future-of-lithium

[7] See for example: https://asia.nikkei.com/Spotlight/Caixin/Why-Chinese-lithium-companies-are-targeting-Bolivia

[8] See for example https://news.usni.org/2023/03/08/chinese-actions-in-south-america-pose-risks-to-u-s-safety-senior-military-commanders-tell-congress

[9] As mentioned by the Ministry of Economy on march 10, 2023. See Diario el Comercio: https://elcomercio.pe/economia/mef-estima-que-tasa-de-pobreza-de-puno-supera-el-70-por-cierre-de-actividades-economicas-en-la-region-noticia/?ref=ecr

[10] See https://gestion.pe/economia/empresas/canadiense-american-lithium-controlara-yacimientos-de-litio-y-uranio-de-plateau-energy-en-peru-noticia/.

[11] I could take to a former Vice Minister of Communications one month ago about this theme.