Dilma Rousseff’s keynote speech on US-China relations and their impact on Latin America

We are pleased and honored to present the English translation of Dilma Rousseff’s keynote speech at our recent webinar, 21st Century Socialism: China and Latin America on the Frontline. Dilma Rousseff, former President of Brazil, provides a detailed analysis of the New Cold War and the current state of US-China relations, comparing and contrasting the US neoliberal model with China’s people-centered model of Socialism with Chinese Characteristics. President Dilma reiterates the need for Brazil to integrate with the rest of Latin America, to break its dependency on the US, to develop a truly sovereign foreign policy, and work closely with China – a country which is increasingly leading in new technology and which is willing to work with other countries on the basis of equality.

Brazil during the Workers Party governments always had a position of absolute independence with regard to its relations with all other countries. And it prioritized its strategic relation with the BRICS countries: Brazil, Russia, India, China and South Africa. Now we find ourselves in an international framework of conflict.

Since the financial crisis in 2008, friction between China and the United States has grown. Such frictions, which emerged during the Obama administration with the Trans Pacific Partnership (which was an attempt to counter China), became more aggressive during the Trump administration. After the Biden administration took office, China-US relations, while more “diplomatic” in appearance, became even more conflictual.

When comparing China and the US in their COVID response, economic recovery, education, science and technology, domestic governance and global governance, it seems fair to say that the balanceof competition is increasingly tilting towards China.

In the response to COVID, the disappointing result in the US contrasts sharply with the situation in China, which has had greater control over the spread of the virus, reducing the number of infections and deaths. The US government, on the other hand, has failed to reduce the deadly effects of the disease in the country. China has also actively participated in international cooperation, supporting the COVAX Facility and the World Health Organization (WHO), proposing to make COVID vaccines a global public good, and providing vaccines and PPE to other countries. These movements evidenced China’s growing “soft power”.

In terms of economic recovery and development, the US was also overshadowed by China. The year 2020 saw a 27.4% increase in China’s trade surplus over the previous year, an increase in its foreign exchange reserves and a 2.3% increase in its GDP, a stark contrast to the 4% contraction and 10% from the US and EU respectively.

At the present time, China’s neutral and considered position regarding the conflict in Ukraine, in defense of peace, respecting the sovereignty of countries and registering a strong critique of NATO’s contribution to the war, contrasts with the warmongering position of the US and EU.

In the early 1990s, when the Cold War ended, China’s and the United States’ share of GDP in the world economy was 3.86% and 20.6%, respectively. By 2018, the US share was reduced to 15%, while that of China rose to 18.6% in purchasing power parity (PPP) terms. China’s economic size is likely to surpass that of the US by 2030. The US has suffered severe losses through its deindustrialization and financialization. Meanwhile China has become a kind of factory of the world, with a huge capacity for carrying out a fourth industrial revolution. And it has surprised the world by reaching, on schedule, the goal of achieving a “moderately prosperous economy”, lifting 600 million people out of absolute poverty. And this in spite of COVID-19.

In the area of education, the gap between the two countries is rapidly decreasing. The United States remains a reference in basic science, due to its excellent research institutions, led by national state-led laboratories and also its large private universities. Still, US investment in these fields has been reduced by almost half compared to the Reagan-era investment.

Only 5% of college students in the US are studying engineering, while the number in China is about a third. Education, by the way, has always played a prominent role in Chinese civilization over the centuries, and science, technological development and innovation are considered key factors by the CPC in achieving socialist modernization by 2035 and 2049. China’s educational effort in recent decades has been equaling and even surpassing the United States in areas critical to scientific innovation, including engineering, computer science, and mathematics. The number of scientists and engineers produced by China is six times that of the US, surpassing the combined number for the US, EU, Japan and UK. The number of PhDs in China in STEM (Science, Technology, Engineering and Mathematics) is double that of the US.

In high-tech areas, competition is fierce. China is doing very well in Artificial Intelligence (AI), 5G, internet of things, smart cities, digital currency and cryptography. China’s response to COVID shows the power of the Fourth Industrial Revolution, represented by big data and AI. China and the US are major competitors in quantum computing, an area considered the Holy Grail of the 21st century.

When it comes to domestic governance, China has shown extraordinary progress and advantages. The fourth scientific and technological revolution, characterized by the great leap of AI, the internet of things and ICT, will increasingly impact all activities, increasing productivity. China is also accelerating its policy towards a society where equity prevails, while in capitalist countries, including the US, per capita income has flattened and jobs have stagnated or shrunk. Social wealth is rapidly becoming concentrated and the richest 1% is getting even richer. China is doing precisely the opposite.

In terms of global governance, the international order, put in place after World War II under US leadership and consolidated when US dominance was unchallenged, is now being shaken. Developing countries, which account for more than 50% of global GDP, are underrepresented in major international organizations such as the IMF and World Bank. The BRICS and the G20 were initiatives that sought to reduce this unfair asymmetry. Compared to the US, China has been more respectful of the role played by international organizations such as the WTO and WHO, and international agreements including the Paris Agreement – which is ironic.

The Trump administration led the US to distance itself from these international institutions. The Biden administration is trying a damage-management policy, but it is not likely that it will be entirely remedied.

Consequences of prejudice and the US’s containment policy in China

Until now, US prejudice towards China has been based on erroneous concepts. The most important is that China’s development could not be sustained because the political system centered on the Communist Party of China would be an insurmountable obstacle to its development. According to this reading, no country could develop without fully embracing a market economy and the system of liberal democracy. The problem is that the Communist Party of China is nothing like the bureaucratic and rigid Communist Party of the Soviet Union, and today is the leading force providing an impulse for the extraordinary development of the country, its people and its civilization.

In fact, contrary to what American elites expected, the 2008 global financial crisis did not occur in China. Instead, it broke out in western countries. It was this fact that changed the mindset of sectors of the deep state. Faced with the evidence, they concluded that China’s rise must be contained or slowed down, otherwise US dominance would be at stake. This containment policy, which intensifies conflicts, has proved to be extremely flawed and harmful to everyone.

First, any rational strategist is well aware that the consequences of an all-out war between China and the US are unthinkable. It is worth noting that there is no more significant geopolitical phenomenon today than the growing strategic partnership between China and Russia. Ironically, it is precisely the maximum US pressure on Russia and the containment of China that played a key role in bringing the two countries closer together. The economic sanctions stemming from Russia’s annexation of Crimea and, now, from the war in Ukraine, are strengthening a new geopolitical pole, and accelerating changes that otherwise would have occurred much slower.

Second, in the financial sector, US dollar hegemony faces new challenges. As a global currency, the US dollar holds an irreplaceable position in international trade and payments. This has made the dollar a weapon of retaliation and a tool of extortion against other countries. Here in Latin America we have two terrible examples: 60 years of blockade against Cuba, and now more recently, the blockade on Venezuela during a pandemic. The US government has been imposing far-reaching sanctions on foreign banks and companies that do business, against the US’s wishes, with countries like Iran, Venezuela, Cuba and now Russia. They use their national jurisdiction as an international weapon of coercion. Given this, and taking into account recent geopolitical events, it is unlikely that the dollar will remain irreplaceable forever.

Dollar hegemony is centered on SWIFT (the Society for Worldwide Interbank Financial Telecommunication), whose mission is to enable the flow of funds between countries, banks and companies. Major countries, including China, are still unable to bypass this dollar-based transfer mechanism. In 2015, China began testing an interbank transfer model called the Cross-Border Interbank Payment System (CIPS), which could be considered a new alternative to SWIFT, and this is now being accelerated. They believe that what would have taken 10 to 15 years will now take more like two to three years, as a result of the sanctions imposed in relation to the war in Ukraine.

Like several other central banks, the People’s Bank of China has been developing and testing digital currencies for over the last five years. China’s sovereign digital currency, or digital RMB, is rapidly advancing and can be used in China’s domestic market, as well as for foreign trade and investment. Recently, payment with yuan has been accepted by both Russia and Saudi Arabia as payment for oil.

Third, the US strategy of containing China based on so-called “decoupling” is absurd, because it will disconnect the US itself from the rest of the world in the face of the complex web of economic relations that involve the two countries and the hubs and supply chains in which China participates. In 2019, around 100 countries around the world traded and invested more with China than the US, and that number is still growing. In Latin America, China is the biggest investor, with Spain and the US in second and third place respectively.

Despite pressure from “decoupling”, China pushed forward the Regional Comprehensive Economic Partnership (RCEP) in November 2020. The agreement, which took effect on the first day of 2022, is seen as a testament to China’s growing regional influence. RCEP members represent a third of the world’s population and 29% of the world economy, even larger than the EU.

The great complementarity between China, its economic and trade partners and the US itself has been the main obstacle to decoupling them. As such, the efficacy of decoupling is highly questionable.

Fourth, the US has launched a technological containment policy on China based on the “5G dispute”. We all know that Huawei has the best 5G technology, in terms both of efficacy and cost, and because it can run on 4G platforms. The assessment of all Western analysts is that whoever is in the vanguard of 5G adoption will have a significant head start in developing the most modern productive forces. As China is the most advanced country in this area, we expect China will be reaping the fruits. Hence the US targeting of Huawei.

The US blockade of China in the field of semiconductors, the so-called “chip war”, is part of the “technological mismatch”. With the aim of undermining China’s technological innovation capabilities, the strategy has a major impact that cannot be underestimated. But the challenge should not be considered as insurmountable. In response, China has been striving to meet its demand for semiconductors by locating and expanding foreign cooperation and investing heavily in the field. China has a whole long-term strategy of industrial advancement, referred to as Made in China 2025, focusing on critical elements of modern technology.

Fifth, China announced the promotion of a new development paradigm based on the interaction between domestic dynamics – industrial and technological consumption and investment – and international dynamics – exports, New Silk Road, financial expansion. Together these constitute a powerful force to boost modern Chinese socialism, and they propose to the rest of the world what the CPC calls “shared development.” This development is very important for Latin America.

China-US competition, a two-system rivalry

Neoliberalism, which emerged during the Reagan administration, laid the foundations for the decline of the US. The financialization of the economy as a result of neoliberalism is the culprit that kills the dynamism of the capitalist system itself. Credit and finance gradually became obstacles rather than driving forces of production. The pursuit of small government, uncontrolled labor market liberalization and the pursuit of profit led to a rapid accumulation of financial wealth for those at the top of the social pyramid while de-industrializing the economy. Companies want to make money quickly, on a very short-term horizon, which is incompatible with R&D activity. So the US asks other countries, such as those of Latin America, not to use Chinese 5G technology, even if they don’t have alternatives of their own to offer – not because they don’t have technology companies but because these companies only operate on the basis of a short-term strategy.

The three consequences of neoliberalism, namely the financialization of the economy, rising wealth inequality, and the erosion of democracy, are prevalent in all capitalist countries. Even though it is the richest country with the greatest military power and technological capability, the US is no exception.

China’s strength lies exactly in the opposite path: its pursuit of socialism with Chinese characteristics. This path follows the law of the market, but attaches strategic importance to the role of the state. While open to domestic and foreign private investment, China has been increasingly active in controlling distortions created by oligopoly and speculation. The regulation of economic activity acts to preserve competition and avoid financial bubbles and market distortions, as was clear in the suspension of the IPO of Ant Financial Services; and in the stricter control over the real estate market and the control of tutoring services, which had been creating inequality.

So we have this conflict which is becoming very well defined. China is moving towards leading the fourth industrial and technological revolution worldwide, particularly via the Belt and Road Initiative. This is transitioning from being based almost exclusively on infrastructure to being centered around advanced industrial and technological partnerships. That is exactly what interests us here in Latin America. For us in Latin America, China has already surpassed the US in terms of economic relations.

In a world where changes are accelerating, Latin America has to face its own challenges and needs to leave behind commoditization and deindustrialization. It must develop a reindustrialization with new characteristics. Its participation in the Fourth Industrial and Technological Revolution cannot be simply as a consumer of the products of platform capitalism – ifoods, uber, Airbnb, etc – without technological and industrial capacity in AI, robotic industries, remote medicine, smart cities, etc. We cannot accept such a division. Whoever remains as a mere importer of these technologies and innovations will remain on the periphery, subjugated to the interests of the US.

The transformation of the productive model is the main challenge for Latin Americans to recover a path that allows them to achieve considerable economic growth along with social justice. Solely producing and exporting mineral or agricultural commodities does not support equitable growth. Another model is needed for our region to reach high levels of industrialization and have a great capacity to add value to production based on the quality of education and work and scientific-technological innovation with the generation of better jobs.

I repeat, the ability to enter the fourth technological and industrial revolution is critically important for Latin American development. And this means we need to be alert to the conflict between the US and China.

From our standpoint, the true integration of Latin America is essential for projecting the continent’s strength based on the extraordinary relevance of its market, which today reaches almost 1 billion people. We can combine that with the potential of the fantastic natural resources of the region, such as oil, minerals, agricultural products and proteins, immense water reserves, etc, and seek the modernity of insertion in the Fourth Industrial Revolution.

Our progressive governments in Brazil and the region have made some key advances. We want to break with the Monroe Doctrine. We want Latin America to be for Latin Americans.

China has increased its presence throughout Latin America in the recent period, surpassing the US both as a trading partner and as a source of foreign direct investment. And more than that, China has established itself as an international reference point in the field of socialism; that is to say, as a country on the path to building a modern socialism.

Although China’s presence has grown here in Latin America, the conservative elites repeat with China the same pattern of commodity export and mineral extraction. China has been specializing in infrastructure projects, and this new phase, with the Belt and Road Initiative, based on technology and industrialization partnerships, will be fundamental to Latin America. We cannot keep reproducing the inferiority complex of our conservative elites and oligarchs, that are only willing to submit themselves to the interests of the US.

Latin America’s place is not with the US; Latin America’s place is the path of independence. This independence isn’t a matter of individual countries; it’s region-level independence, cooperating on an equal basis with China.

Unfortunately I am not able to stay for the entire panel, as we in Brazil have the possibility of re-electing President Lula, and my party is working very hard along with the other progressive parties. We will do everything we can to win this election, which is fundamental for the relationship between Latin America and China.

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