Matias Bidegaray is a staff writer and first-year MPP student.

In December of last year, former President Biden embarked on a trip to South America, where his administration announced new investments in the region. The U.S. and Peru agreed to a $6.2 million sale of retired trains from California, in addition to over $100 million in American investments in 2024. This included $65 million for counternarcotics, $8.5 million for port security, and $30 million for water infrastructure to boost trade and foreign direct investments (FDI). In contrast, Chinese leader Xi Jinping, who was in Lima for the annual meeting of the Asia-Pacific Economic Cooperation Forum (APEC), announced the inauguration of the Chancay deep-water port—a $1.3 billion project, led by People’s Republic of China (PRC) state-owned COSCO Shipping, that is expected to generate $4.5 billion annually for Peru and create over 8,000 direct jobs in the region. 

The disparity between these investments may grab headlines, but it underscores a deeper issue: the U.S. is steadily losing economic and political influence in Latin America and the Caribbean (LAC). China’s Belt and Road Initiative (BRI), initially devised to connect East Asia to Europe through infrastructure projects, has expanded globally, including into LAC. The policy serves as a vehicle to advance China’s soft power by driving state-subsidized regional growth and indirectly extending its military capabilities in the region. This poses a problem for the U.S., as waning influence in its own hemisphere threatens both economic stability and national security. LAC has long been central to U.S. strategic interests, but its position in the region is no longer unrivaled. Without renewed engagement, the U.S. risks undermining both the region’s autonomy and American security.

China Gains in LAC

For the past two decades, China’s BRI has expanded its focus from large-scale infrastructure projects to investment in strategic economic sectors that countries in LAC cannot afford to manage without outside help. Investment in renewable energy and mining precious metals like lithium are central to China’s directive to expand its global dominance. 

China’s decisive approach to the region is marked by the new megaport in Peru. The project has the potential to reshape trade and create new routes that entirely bypass North America. The port aims to reduce shipping times between Peru and China from 35 to 23 days, cutting logistics costs by at least 20 percent. The project will also spread benefits across the region, serving as a hub for goods from Brazil, Chile, Colombia, and Ecuador en route to Shanghai and other major Asian ports.

The Chancay Port represents a component of that policy, joining numerous projects in LAC such as railways in Bolivia and Argentina, industrial parks in Trinidad and Tobago, roads through the jungles of Costa Rica, and the Coca Codo Sinclair hydroelectric plant in Ecuador. As of this year, 22 LAC countries have signed on to the BRI, Colombia being the most recent signatory. China has been South America’s largest trading partner for over a decade; however, the Chancay project may very well propel South America-China trade to even higher levels. In Central America, the U.S. remains the region’s largest trade partner, but China continues to make significant inroads, with trade between the two expected to continue growing throughout the decade. 

LAC states welcome foreign subsidies and trade routes due to various complex financial and structural realities these countries often face—many are not positioned to weigh the broader geopolitical implications of such investments. This is particularly true in the aftermath of the global coronavirus pandemic, which left regional economies decimated, markets destabilized, and recovery efforts heavily reliant on external support. Yet, LAC officials continue to stress that the U.S. and China are both key partners. “Peru is open to do business with all countries,” a senior Peruvian official told Reuters. But officials also concede that China has focused more attention to the region compared to their American counterparts—reflecting a strategy to concentrate investments in regions that need it most, LAC being one of them.  

While China cannot directly establish a military presence in the region without provoking a response from the U.S., it has instead turned to commercial engagement to gain strategic security advantages. Beijing is leveraging its growing industrial foothold in LAC to construct dual-use infrastructure and transport networks that serve both civilian and defense purposes. China administers approximately 40 port-building projects throughout the region, nearly all owned by state-owned enterprises. These ports are strategically positioned near important waterways, like the Panama Canal and the southern coast of Chile, allowing China to monitor U.S. naval movements and maritime traffic, along with establishing a stronger presence near vital shipping routes. By controlling critical infrastructure in LAC, China is able to dictate trade terms, deepen dependencies, and sideline U.S. influence in an effort to undermine American businesses and shift alliances toward Beijing. The Chancay Port is representative of this approach, combining commercial and strategic functions while providing Chinese freighters direct access to trans-Pacific maritime routes.

These PRC-backed port projects challenge the U.S. sphere of influence in LAC by creating key military and economic chokepoints meant to disrupt U.S. security and commercial operations. Policymakers have been sounding the alarms of China’s growing footprint in Latin America and the Western Hemisphere. The U.S. needs to re-engage in the region. The Trump administration’s weaponization of trade policy to antagonize long-time allies, combined with its pledge to increase trade barriers in the region and reports of potential tariffs of up to 60 percent on goods passing through Peru’s new Chancay port or other PRC-controlled ports, would complicate these efforts.

Response from the U.S. 

The U.S. cannot afford to lose ground in Latin America. The national security concern is clear: an adversary gaining significant local influence poses a direct threat. Though the military use of civilian and commercial dual-use infrastructure remains unlikely, analysts caution against dismissing the possibility altogether. The U.S. must reassert itself in the region and reevaluate its policy approach of the last few decades. This cautious, half-hearted engagement with LAC—defined by a strategy rooted in free trade agreements, a persona-non-grata posture, and a lack of sustained commitment—has come back to undermine the U.S. China, meanwhile, has pursued an aggressive expansion of its soft power in the region, using large-scale investments that double as not-so-subtle tools of security and economic leverage. While these projects are tied to deceptive practices and debt diplomacy, they have successfully established economic dependencies and trade routes that all lead back to Beijing—the original policy objective to BRI. 

More concerning is how China’s FDI in LAC has evolved over time. After years of large-scale infrastructure and extractive projects, Chinese firms have moved into niche and high-growth sectors, like lithium mining. This evolution reflects a decades-long learning process and a familiarization from Chinese firms and LAC officials of conditions on the ground. This mutual adaptation has allowed China to scale its efforts, moving into “innovative” sectors and imprinting its position on industries critical to future global supply chains. The U.S. needs to reverse this trend by taking advantage of its natural proximity to the region and the economic and political partnerships created in years past.

In this regard, recent comments by President Trump about purchasing or forcibly annexing the Panama Canal contradict that approach and threaten to alienate the U.S. from countries in the region that need reliable partners. In truth, the president’s suggestion confirms the importance of ensuring access to strategic assets and shoring up U.S. security concerns. However, this “America First” movement, with shades of Theodore Roosevelt-esque new imperialism—whether intentional or not—is ultimately short-sighted. The U.S. would be better served rethinking how it conducts its soft power in LAC. 

This means making changes to current commercial and development initiatives in an effort to reduce reliance on opaque Chinese financing. Ryan Berg, director of the Americas Program at the Center for Strategic and International Studies, suggests that targeted investments through Special Economic Zones (SEZs) and reforms to the Development Finance Corporation (DFC)—the government’s primary agency for mobilizing private-sector development globally—are essential to rebalancing regional dynamics. SEZs, paired with public-private partnerships, can attract private industry to zones that support infrastructure development and commercial expansion. Berg also argues the DFC must be reformed to meet this challenge. While the region has over 500 SEZs, the agency has struggled to identify relevant sites due to governance gaps, regulatory uncertainty, and inadequate infrastructure. Focusing on SEZs with strong governance, flexible regulations, and geographically strategic locations near ports and transit hubs would enable the DFC to better drive investments in critical infrastructure and high-growth industries.

Policymakers can also leverage SEZs to promote nearshoring by relocating or developing production and manufacturing in the region, thereby reducing supply dependencies, improving regional trade, and creating a buffer against global shocks. Additionally, the U.S. needs to capitalize in areas where it is ahead. The recent announcement of a trade agreement between the Southern Common Market (MERCOSUR), a South American trade bloc, and the European Union (EU) presents an area to exploit. Engagement on EU import standards, including environmental, intellectual property rights, and worker protections—areas often undermined by PRC investments—offers a chance for the U.S. and its allies to counter China’s deceptive but appealing loans and projects.

Conclusion

These tools will be critical to restoring U.S. influence in LAC. Transparent and sustainable investments can narrow the PRC’s advantage while setting the stage for long-term stability in the region. Unlike China’s debt-heavy agreements, the U.S. can position itself as a mutually beneficial partner, free from the baggage of economic dependency. Beyond driving growth, this approach can reverse harmful trends like democratic backsliding, regional insecurity, and migration pressures as a byproduct of meaningful development. Policymakers should also avoid the appearance of intervention in LAC, a region with a long history of colonialism and forceful American involvement. Many Latin Americans will resent interference from what they see as a “colonial” power, and those perceptions risk driving states closer to China, which markets itself as a non-colonial alternative. Outcompeting China in Latin America and the Caribbean is a critical national security and economic priority. The U.S. must move beyond a reluctant and slow response to China’s effective development aid strategy. A well-resourced and intentional approach to counter PRC infrastructure projects is essential to reestablishing the U.S. as a mutually beneficial partner in the Western Hemisphere. 

Photo courtesy of Leon Overweel on Unsplash.

The views expressed in Policy Perspectives and Brief Policy Perspectives are those of the authors and do not represent the approval or endorsement of the Trachtenberg School of Public Policy and Public Administration, the George Washington University, or any employee of either institution.