US tensions with Latin America are a boon for China

This is an audio transcript of the FT News Briefing podcast episode: US tensions with Latin America are a boon for China

Marc Filippino
Good morning from the Financial Times. Today is Friday, May 20th, and this is your FT News Briefing.

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Canada is giving Huawei the boot. The US is losing influence in Latin America while China makes inroads. One observer put it like this.

Michael Stott
The US stance towards the region is rather like the Vatican. There’s a lot of rules. It’s very difficult to get entry. The Chinese are a bit like the Mormons. You know they’re these two nice guys in suits who knock at your door and say they just want to help.

Marc Filippino
Plus, after years of going up, bond prices have been dropping. We’ll ask our markets editor Katie Martin about whether the bull run for bonds is coming to an end. I’m Marc Filippino and here’s the news you need to start your day.

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Canada says it will ban the Chinese telecoms companies Huawei and ZTE from providing 5G services in the country. A top Canadian official said companies who already have equipment installed from the two companies will have to remove it and they won’t be compensated. Canada is following similar moves by the US and its allies who fear Chinese technology. They believe it’s being used by Beijing for spying. A Huawei representative in Canada said despite the announcement, there’s still no legislation blocking equipment sales.

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So this week, the Biden administration softened economic sanctions on Venezuela. It also sent a crisis delegation to Mexico, and the White House relaxed some Trump-era rules on Cuba. Behind this flurry of US diplomatic activity in Latin America is perhaps an effort to salvage a regional summit the US is hosting in Los Angeles next month because country after Latin American country is threatening to drop out. To talk about what’s going on, I’m joined by our Latin America editor, Michael Scott. Hey, Michael.

Michael Stott
Hello, Marc.

Marc Filippino
So, Michael, so far, Mexico’s president said he won’t attend. Caribbean nations are doing the same and Brazil and Argentina are holding out their RSVPs. What’s going on here? Why are they all threatening to back out?

Michael Stott
Well, on the face of it, Marc, what they’re worried about is the United States not inviting Cuba, Venezuela and Nicaragua. And this plays into a long running Latin American resentment that US policy towards these nations and a feeling that the most constructive way is to engage with them rather than to freeze them out. But behind that, there’s also a bigger problem, which is the lack of a substantive agenda and a feeling on the Latin American side that the US is not offering very much this time round beyond rhetoric. And it’s extraordinary that these nations should even be questioning attending what is the hemisphere’s premier forum for heads of government. It only happens every three years. When the Americans last hosted this event in 1994, Cuba was not invited, but everybody else showed up. There was no question of dropping out. And I think that difference between ‘94 and now says a lot about the waning of US influence in the region in those last two and a half decades.

Marc Filippino
It’s still unclear who will attend the summit next month. But these frustrations are unlikely to go away anytime soon. What do these frustrations mean for US influence in Latin America long-term?

Michael Stott
One of the problems is the US doesn’t have so much to offer and what it has been offering in recent times under the Biden administration, the Trump administration, have been things the Latin Americans don’t like very much. So the Trump administration was threatening and bullying on issues like trade with China, telling Latin American countries not to use Chinese technology. The Biden administration has been chiding them on human rights and corruption and democracy, but they haven’t been offered very much. And of course, at the same time, the Chinese have been coming along and saying, we’re not gonna tell you off. We’re not gonna threaten you. We just like to offer you some help. We’d like to offer you some loans. We’d like to buy your products. We’d like to boost trade. And we’re not gonna embarrass you with public statements about human rights and democracy. So, of course, that offer is quite attractive to a lot of the Latin American countries.

Marc Filippino
So this is a very different approach. And one of your sources, and I love this, compared the two by describing the US as the Vatican and China, more like the Mormons. What did he mean by that?

Michael Stott
Yes. So this was told to me by a top Latin American diplomat. I think it puts it rather well. What he said was that the US stance towards the region is rather like the Vatican. There’s a lot of rules. It’s very difficult to get entry. Even if you do your best, you might still be damned rather than going to heaven. The Chinese are a bit like the Mormons. You know they’re these two nice guys in suits who knock at your door and say they just want to help and they’d like to talk about God with you and have a chat, but they’re not gonna judge you. They just want to sort of do a deal. And I think that’s a rather good way of putting it. It sums up rather well what’s happened in the region over the past two decades when China has enormously grown its trade, its investment and its influence in the region.

Marc Filippino
Michael Stott is the FT’s Latin America editor. Thanks as always, Michael.

Michael Stott
Thanks, Marc.

Marc Filippino
For the past three decades, bonds have been on a bull run. Prices have largely gone up as interest rates have fallen, and there have been predictions that prices would reverse. But that never happened. But high quality investment grade bonds are selling off now, and so are riskier, high-yield corporate bonds. And some veteran bond investors are saying we may finally be at the end of an era. To talk more about this, I’ve got the FT’s Katie Martin on the line. Hey there, Katie.

Katie Martin
Hey, how you doing?

Marc Filippino
I’m doing well. So what’s been happening in the US corporate bond market, Katie?

Katie Martin
Yes. So it’s interesting. The steady as she goes nature of the US corporate bond market has been a little bit of a puzzle for quite some time. You know, investors have been saying, look, I’m happy that it’s holding up as well as it is, but I don’t quite understand why it’s holding up as well as it is. The various reasons cast around for that, like companies absolutely gorged on cheap money when the pandemic first hit because interest rates were cut to nothing. So they’ve had a good bit of padding. But what is happening now is that the real economy is catching up with quite a lot of the sort of consumer facing companies that are out there, companies that have loaded up on debt. It is looking quite hairy because the price pressures that we all know about that are like one of the biggest stories of the year. This kind of massive pick-up in inflation is hurting companies as well as individuals, and it’s just suddenly caught up with this market.

Marc Filippino
So there were some interesting comments from the chief investment officer of Pimco. It’s a massive asset manager and one of the most well-known bond trading firms. He said get ready to pick up bargain priced bonds. They could be a good opportunity for patient investors. What do you make of this?

Katie Martin
So I am not going to argue with Pimco. (laughter)

Marc Filippino
Yeah, Katie, probably a good idea.

Katie Martin
I know veterans do that. They know what they’re doing. They are some of the greatest experts in the room in terms of what the bond market is going to do next. But they’re saying that, look, we’ve had a horrendous start to the year in government bonds and in all sorts of bonds, all sorts of debt. And you know, we’ve seen this generational pullback in prices in the bond market. It’s been absolutely horrific for people that are active in that market. And has it all gone a little bit too far? And look, Pimco might be right about this and there might be some pockets of bargains kicking around. But it does seem to be quite a big call because if we’ve learnt anything over the past few months is that we have no idea what’s going on (laughter). We don’t understand how inflation works any more. And even central bankers who previously have been like, well, let’s not do anything hasty, are now saying, OK, fine, we’re gonna have to jack up interest rates really hard and really fast. And this is all just super bad news for the bond market. So would Pimco be trying to catch a falling knife? Maybe. But there is a sense that the market has moved a really long way really fast.

Marc Filippino
So if the safety net of bonds is looking shaky, stocks are looking really risky. Crypto, I mean, you know better than I do. Forget about it. Commodities may be too expensive to start investing in now. Where does this leave investors? Where do they put their money?

Katie Martin
Yes, that’s a really good point, right? So it is very, very unusual. In fact, I think unprecedented that you see five weeks of declines in bond markets and in stock markets at this scale at the same time. And that gives investors very few places to hide. In fact, I was talking to a commodity fund manager the other day who said, you know, for the best part of ten years, no one’s answered my calls (laughter), no one’s been remotely interested in commodities. And now the phone’s ringing off the hook with investors large and small, saying, I just need some sort of inflation hedge. And we think that commodities might be it. It’s not just the kind of flighty, high-tech bit of the market that’s getting a kicking now. It’s everything. I’m not getting the buffer out of the government bond market. What do I do? I’ve got to try and protect stakeholders’ money somehow, and commodities might be it, at least to some extent. Crypto, as you know, it turns out, not to be an inflation hedge, so that probably isn’t a good place to put your money. So yeah, it is really, really difficult for investors out there. This isn’t supposed to be an easy job, but it does seem unusually hard at the moment.

Marc Filippino
Katie Martin is the FT’s markets editor. Thanks as always, Katie.

Katie Martin
No problem.

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Marc Filippino
Before we go, a quick correction. Yesterday, I mistakenly said that the US men’s national soccer team did not qualify for this year’s World Cup. They did. The games are in Qatar this year and start November 21st.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. We would like to extend a warm welcome to our brand new producer, Sonja Hutson. Our editor is Jess Smith. We had help this week from Michael Lello, David da Silva, Peter Barber and Gavin Kallmann. Our executive producer’s Topher Forhecz. Cheryl Brumley is the global head of audio and our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

Correction: An earlier version of this podcast featured a guest mistaking Samsung for Huawei. This reference has been removed.