Commentary
Argentina’s boisterous, Trump-like president-elect Javier Milei is a political and economic outlier in every sense of the word, and Beijing isn’t happy about it for good reason. The libertarian-oriented Mr. Milei has vowed to dramatically change Argentina in almost every way possible, and that includes the country’s relationship with China.
Decoupling From China Won’t Be Easy
In fact, not only has Mr. Milei declared China to be a “murderer” regime, but also that Argentina will “stop interacting with China,” as well as left-leaning Brazil.But Mr. Milei may find that decoupling from China is easier said than done. A review of Mr. Milei’s proposals for Argentina and its current relationship with Beijing will provide at least a nominal context for what he has planned and what may be only wishful thinking.
An Ambitious Economic Agenda
First, Mr. Milei wants to bring fiscal responsibility back into Argentine society and its economy. That may be very difficult to do, since entrenched interests within the Argentine political and economic establishment will be against him.Mr. Milei’s policies will include decreasing the size of Argentina’s federal government to “end the decline of Argentina.” He will start by eliminating a variety of federal agencies, such as Argentina’s ministries of culture, education, and diversity, which have benefitted from huge levels of federal spending. He also wants to cut or even eliminate bloated and money-losing corporations that have been connected to the political class and heavily subsidized by the government.
In order to drive economic activity, jobs, and innovation, he will need to drastically cut regulations and taxes on small- and medium-sized businesses. Fees on businesses and red tape stifle business formation, and those that do exist pay up to 100 percent of their revenue in taxes.
De-Banking the Government a Bold Move
Even more dramatic, the firebrand president-elect wants to shut down Argentina’s central bank. With negative net reserves, he has a point. Why have a central bank if it can’t manage the countries’ money and has proven to be a corrupt partner for the socialists who have driven the country into bankruptcy with unbridled spending and a monetary policy that has resulted in triple-digit inflation?Furthermore, Mr. Milei wants to drop the Argentine peso as the national currency. With an inflation rate of around 150 percent a year, no one in the country wants to use it. The country prefers to use U.S. dollars instead, which is why he has proposed to make the U.S. dollar Argentina’s national currency.
A Return to the Western Hemisphere
From a political perspective, Mr. Milei aims to reorient the nation’s foreign policy away from China and toward the United States and Israel. Anchoring Argentina to the West pits it squarely against Chinese interests in Latin America as well as much of the world, prompting Chinese Foreign Ministry spokeswoman Mao Ning to warn that doing so would be a “huge foreign policy mistake.”
From a trade perspective, Mr. Milei’s plan to decouple from China isn’t so original, even if it’s expressed in rather florid terms. Some European nations are doing so in varying degrees as well, so why is China angry and alarmed?
After all, Argentina isn’t exactly the biggest player on the global stage, or anywhere near it. Still, it’s the second-largest economy in South America behind Brazil, and third largest in Latin America, with a GDP ranking of 23rd in the world. But it’s Argentina’s participation in China’s Belt and Road Initiative (BRI) and its enormous natural resources, including oil, rare earth minerals, and agriculture, that are important to China’s economy, high technology sector, and food security.
What’s more, as a trading partner, China is the largest export market of agricultural products for Argentina and trails only Brazil in total trade with Argentina. It’s not clear how Mr. Milei intends to replace Chinese demand for agricultural exports, although at the moment, with food shortages in Argentina, keeping more of Argentina’s food supply at home would likely help him politically.
On the flip side of cutting off trade with China, where will Argentina find enough dollars to run its economy without an inflow from its bigger agricultural trading partner? That, too, remains to be seen.
A Threat Beijing Can’t Ignore
In the big picture, though, Argentina’s presumed exit from the BRI, the BRICS currency scheme, and trade decoupling would certainly be detrimental to China’s interests. All three would diminish China’s reputation and influence in the world, especially in Latin America. Mr. Milei’s rejection of the BRI would mirror Italy’s conservative prime minister Giorgia Meloni’s decision to leave the BRI in September of 2023 and would represent yet another defeat for Xi Jinping’s leadership.What’s more, Mr. Milei has openly pledged that there will be no more secret “negotiations” with China. That may not just apply to currency deals, but may also be a reference to China’s secret military space port it’s constructing in Argentina’s Patagonia region.
Mr. Milei’s ambitious makeover of Argentina will be challenging in the short to medium term. No doubt Beijing will do what it can to limit its success. Otherwise, Beijing could find its growing and powerful influence in Latin America cut off at the knees if a dollar-based Argentine economy became the envy of the region. Nations such as Brazil and Venezuela may find it difficult to justify their economic relations with China to their own impoverished people.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
