Carrots or Sticks? analyzing the application of US economic statecraft towards Latin American engagement with China

Abstract

Geopolitical competition between the United States and China has led to an increased reliance on economic statecraft. In this context, understanding the conditions that trigger trade, aid, or investment weaponization becomes crucial. This paper examines how the US has employed economic statecraft in response to Latin American countries' engagement with China. The study revisits the theoretical debate on positive and negative economic statecraft and proposes a mechanism that identifies the conditions under which “carrots” or “sticks” are more likely to be employed. We argue that the US response towards Latin American countries' engagement with China tends to prioritize economic engagement over economic coercion, particularly when dealing with countries that are politically and economically aligned with Washington policies. To test our argument, we adopt a mixed-methods approach. First, we conduct a case study analysis on the US-Panama relationship. Second, we perform a statistical analysis to assess the impact of economic engagement with China on the allocation of American foreign assistance in the region.