Countering China’s influence in the Caribbean with a second Caribbean Basin Initiative

The Caribbean Basin is very important to U.S. interests. At its closest, the region sits 50 miles from the U.S. mainland. We are the leading investor in the region, and $35.3 billion of trade flows between us each year. The Caribbean Basin is also important to our broader geopolitical interests. The U.S. has seven key military bases across the region; eight of the Caribbean Basin’s 30 countries formally recognize Taiwan, the highest share of any region in the world. However, while we have been distracted by other things, China has been making significant inroads into the Caribbean, where it is eager to displace American economic and military influence.

From 2002 to 2018, trade between the two rose eightfold, and the Chinese currently have nearly $70 billion dollars’ worth of development financing deployed throughout the region. They are also expanding their traditional diplomatic engagement through PPE donations and a network of 16 Confucius Institutes, including in countries like Dominica and Antigua and Barbuda, where the U.S. has no diplomatic presence at all. As China puts down stakes on our “third border,” we have two options: We can either ignore the problem, or we can genuinely partner with countries in the region to put forward a more compelling offer than China’s. With the Caribbean’s key travel, tourism, and hospitality sectors particularly weak due to COVID-19, being responsive to the region’s needs is more urgent than ever.

Knowing that, President-elect Biden should take a page from Ronald Reagan’s first term playbook and develop a new and enhanced Caribbean Basin Initiative (CBI2). The original Caribbean Basin Initiative was a collection of free trade programs and preferences for Caribbean and Central American countries, launched in 1983.

At the time, the Soviet Union was making significant inroads into Central America and the Caribbean. The CBI came a few months before Ronald Reagan’s decision to send 6,000 American troops to Grenada, which had been taken over by a Marxist coup. Other countries in the region were just as contested. From 1980 to 1992, El Salvador was locked in a violent civil war between the U.S.-supported government and a collection of Marxist-Leninist guerrillas known as the Farabundo Martí National Liberation Front (FMLN), supported by Cuba and Nicaragua. The latter was itself home to the Sandinistas, who ran their own Cuban and Soviet-backed socialist government from 1979 to 1990.

The growing Soviet influence in the region required a constructive and significant response. Proactive, soft-power efforts like the CBI enjoyed widespread support, both then and now. By opening up U.S. markets to Caribbean and Central American producers, the CBI offered the region the U.S. asset that ultimately won the Cold War: participation in a market-based economic system that spurred local development and prosperity. With the aid of the CBI and its successive expansions as well as rapid growth in the service and tourism sectors, Caribbean countries have made impressive economic strides.

With an average annual GDP growth of 4 percent per year, development in the Caribbean has significantly outpaced the rest of Latin America since 2002. Granted, there is long way to go in a number of these countries, but if one takes a 40-year perspective, there has been considerable progress. Social indicators have also improved — since the early 1980s, literacy rates in Caribbean small states have risen by approximately 10 percentage points, and infant mortality has fallen 50 percent. Of course, the region is complex, and not all countries have experienced the same advances. Trinidad and Tobago has the third-highest per capita GDP in the entire Western Hemisphere, bolstered by investment in its petrochemicals, natural gas, and tourism sectors. Barbados too has enjoyed strong economic growth over the past 20 years, and has started to diversify beyond tourism to high-skill industries like offshore finance and information services. However, crippled by environmental disasters and institutional instability, Haiti remains the poorest country in the hemisphere, even with specific benefits built into the CBI for it. Nevertheless, in totality, the Caribbean Basin has made significant progress.

China realizes this. Trinidad and Tobago and Barbados are among the 13 countries in the Caribbean that have signed on to China’s Belt and Road Initiative, which will only continue to expand if the U.S. fails to formulate a better offer. 

The success of the original CBI led to multiple follow-up acts, including a promising Caribbean 2020 strategy from the State Department launched in 2017. However, so far this mix of initiatives has failed to generate the consistent attention and resources necessary to bring widespread prosperity and stability to the Caribbean.

A true CBI2 would go beyond ad hoc trade preferences and investments and introduce a comprehensive, actionable plan for meaningful economic reform in the region. For starters, it would channel public and private U.S. resources to improving social safety nets, public health capacity, digital connectivity, and education. In addition to creating jobs and mitigating the near-term effects of COVID-19, investment in these sectors would create a solid social foundation for future prosperity in the region. 

Second, a comprehensive CBI2 would support deep institutional and governance reform. Reducing red tape, digitizing government processes, and improving transparency would make it easier to start and run the future-oriented, service-sector businesses the region will need going forward.

Third, a CBI2 would address fiscal management issues. Responding to COVID-19 has required extensive deficit spending across Caribbean states, and climate-related economic damage is projected to reach 10 percent of the region’s GDP by 2050, further straining already struggling fiscal policy. With or without U.S. help, public debt will rise dramatically, increasing the need for better, more transparent debt management and fiscal planning.

Seeing these changes through would require deliberate diplomatic engagement on the part of the new administration.

In March 2019, President Trump convened the Bahamas, the Dominican Republic, Haiti, Jamaica, and Saint Lucia in the U.S., and in October, a U.S. delegation toured Suriname, Guyana, Jamaica, Haiti, and the Dominican Republic to encourage U.S. private sector investment. The Biden administration should seek to build on these efforts by convening all heads of state in the region that are U.S. allies and announcing a major comprehensive Caribbean initiative.

An effective CBI2 would also require the participation of Congress, where there is already plenty of support. The first place to look would be among the sponsors and co-sponsors of the Caribbean Basin Security Initiative Act, which would allocate $75 million per year to security in the region, especially around disaster and climate resilience issues. These include Adriano Espaillat (D-N.Y.), Albio Sires (D-N.J.), Barbara Lee (D-Calif.), Brad Sherman (D-Calif.), and Mario Diaz-Balart (R-Fla.). There are also three incoming Cuban American House members who could serve as advocates: Carlos Gimenez (R-Fla.), Nicole Malliotakis (R-N.Y.), and María Elvira Salazar (R-Fla.).

If the U.S. doesn’t put a compelling offer on the table, then China will continue to fill the gap.

For a region that is literally miles from a major U.S. city, so far, there has been an alarming lack of urgency to secure the region. As Caribbean countries fall under Chinese influence, fewer and fewer will recognize Taiwan, weakening the standing of a key U.S. ally.

On the flip side, as Chinese debt, infrastructure, and mobile networks in the region accumulate, China could eventually develop a strategic outpost in our backyard. The Inter-American Development Bank and the Caribbean Development Bank, which have worked with one another in the past, are obvious partners for action in the region. Mexico, Colombia, and Canada could also be major partners, as they also have an interest in fostering a competitive, business-friendly, and economically diversified Caribbean.

Whatever form it takes, the U.S. must offer the Caribbean a development initiative and diplomatic presence that recognizes the region’s enormous potential.

Daniel F. Runde is a senior vice president and William A. Schreyer chair in Global Analysis at the Center for Strategic and International Studies. He previously worked for the U.S. Agency for International Development, the World Bank Group, and in investment banking, with experience in Africa, Asia, Europe, Latin America, and the Middle East.