What Paraguay election means for Taiwan, and US-China competition

Voters heading to the polls in Paraguay Sunday could determine whether it breaks historical ties with one of its closest friends, with whom it has a lucrative relationship: Taiwan.

Paraguay’s conservative candidate Santiago Peña has pledged to maintain ties to Taiwan. The leading opposition candidate, Efraín Alegre, has signaled support for forging a new path with China that could bring economic benefits Taiwan can’t match.

Paraguay would become the final South American nation to cut diplomatic ties with the self-ruled island democracy, further solidifying China’s influence in the region as an even more profitable ally. Shifting away from Taiwan would imply a symbolic loss for the United States, which is wary of growing Chinese sway in Latin America.

Whatever route they take, Paraguayan officials will be navigating the need for multilateral economic cooperation, ideally without being restricted by geopolitical competition. 

“Paraguay, among other countries in the region, has seen a strategic opportunity to utilize the competitive dynamics among the U.S., China, and Taiwan to strike the best economic deal to advance their national interest,” says Pepe Zhang, a senior fellow at the Atlantic Council in Washington.

Cold War conditions brought Paraguay and Taiwan together in 1957, when both countries were ruled by anti-communist dictatorships. Taiwan’s government has been separate from China since the Chinese Communist Party came to power in 1949. China refuses ties with any country that recognizes Taiwan, and in turn, Taiwan has invested heavily in its remaining allies in areas like technology, transportation, and health care.

The “Taiwan cost”?

Taiwan invested an average of $4 million in development projects in Paraguay and $14.8 million in aid each year between 2005 and 2014, according to estimates by researchers Tom Long and Francisco Urdinez. The capital, Asunción, is home to an engineering university established by Taiwan, and Paraguayan students receive generous scholarships to study abroad in Taiwan.

Yet those benefits pale in comparison to what Paraguay’s neighbors have received from China in the form of direct investment and access to South America’s top export market. Most Paraguayan neighbors, apart from Brazil, participate in Beijing’s infrastructure-oriented “Belt and Road” initiative. On the whole, China invested some $130 billion in Latin America between 2005 and 2020.

These missed financial opportunities constitute the “Taiwan cost,” says Mr. Long, an associate professor of international relations at the University of Warwick. Nicaragua, El Salvador, Panama, and the Dominican Republic have all shifted ties to China since 2017, with Honduras following suit in March.

The trend doesn’t mean Taiwan can’t retain its cultural influence around the world in other ways, says Leland Lazarus, the associate director of National Security at the Jack D. Gordon Institute for Public Policy at Florida International University.

“Taiwan has a great story to tell. It’s a flourishing democracy. It’s so important to the global economy,” says Mr. Lazarus. “They can really do a better job at telling it.”

The current president of Paraguay, Mario Abdo Benítez, told the Financial Times last fall that his country would need $1 billion from Taiwan to make a continued alliance worthwhile. Paraguay’s foreign ministry immediately rolled back the idea that there is a price tag on the nation’s loyalty. 

The dilemma has attracted more attention abroad than within Paraguay, where voters in the upcoming elections are primarily concerned about bread-and-butter issues of poverty, the spread of organized crime, and recent corruption scandals within the Colorado Party, says Diego Abente Brun, program director for Latin American and Hemispheric Studies at George Washington University. But certain sectors, and especially beef and soy exporters, are frustrated.

“We’re a food-producing nation that is not selling to the world’s biggest buyer of food,” Pedro Galli, president of the Rural Association of Paraguay, told Reuters. Because of Paraguay’s relationship with Taiwan, the South American nation can only do business with China indirectly through third-party countries. “We’re watching the party from the balcony.”  

When considering the cost-benefit analysis of an alliance with China versus Taiwan, “the decision is pretty clear,” says Mr. Zhang from the Atlantic Council. “China will provide greater benefits.” 

For other Paraguayans, the long-standing relationship with Taiwan transcends a narrow economic viewpoint. Ara Gonzalez, who is beginning a career in international relations, says the allegiance is a question of “democracies supporting democracies.” 

“Paraguay will be better off [on] the side of Taiwan,” says Ms. Gonzalez, who is in her late 20s and studied in the U.S. before returning home to Capiatá, a city outside Asunción. She says she appreciates Taiwan’s educational grants, donations to Paraguayan nonprofits and foundations, and economic support for developing nations more broadly, adding that Paraguay doesn’t need China to thrive. 

U.S. perspective

If Paraguay decides to open its arms to China for commercial reasons, that doesn’t mean the historically conservative country will position itself against the U.S., says Fernando Masi, director of CADEP, an economic research center in Asunción. 

Tensions between the U.S. and China have heated in recent months at the same time as China ramps up military activity near Taiwan.

“As much as there have been moments of authoritarianism in Latin America, the values of democracy and human rights make the U.S. a stronger ally,” Mr. Masi says.

However they feel about Taiwan, the U.S., or China, most Paraguayans are not interested in having to choose sides, a sentiment that has been growing around the world.

This month French President Emmanuel Macron spoke of the need for European “strategic autonomy” to avoid overdependence on the U.S., while Brazilian President Luiz Inácio Lula da Silva called for a common currency among BRICS countries, a block of emerging economies, that could compete with the dollar – both during diplomatic visits to China. 

“From the perspective of a lot of Latin American and Caribbean countries, economic security is national security,” something the U.S. doesn’t always seem to get, says Mr. Lazarus. “Politicians need to balance lofty democratic ideals with the very real needs of their people.” 

“There is no need and not much benefit to thinking of U.S.-China relations as a return to the Cold War,” says Mr. Long.

What all countries want, he adds, is “to be able to pursue their interests with multiple partners.”