This year marks the fifth anniversary of the Taiwan Allies International Protection and Enhancement Initiative (TAIPEI) Act, passed by a bipartisan coalition of U.S. lawmakers seeking to strengthen Taiwan’s relationship with diplomatic partners worldwide. Senator John Curtis (R-UT) framed the 2019 legislation as a “response to Beijing’s intensified campaign in the Western hemisphere and the Pacific aimed at prying away Taiwan’s allies.”
Testifying before the Senate Foreign Relations Committee last month, Samantha Custer, AidData’s Director of Policy Analysis, provided data-driven insights on the evolution of Beijing’s influence and the status of Taiwan’s diplomatic allies in the Western Hemisphere—drawn from over decade of AidData research into China’s development finance and public diplomacy.
Opening the March 26th subcommittee hearing, senators from both parties expressed concern over Beijing’s growing influence in the Western Hemisphere. Since 2016, the People’s Republic of China (PRC) has used economic and diplomatic inducements to persuade seven countries to de-recognize Taiwan, including Sao Tome and Principe, Panama, El Salvador, Dominican Republic, Burkina Faso, Solomon Islands, and Kiribati. Beijing peeled away three more of Taiwan’s allies since the TAIPEI Act’s passage in 2020: Nicaragua (in 2021), Honduras (in 2023), and Nauru (in 2024).
The hearing was timely, recognizing that seven of Taiwan’s remaining twelve diplomatic allies are in the Americas. These “holdouts” represent a high-water mark for Beijing’s competition with Taipei, and a crucial test for the PRC’s ability to exert economic pressure to compel Latin American countries to join its orbit and deter U.S. interference in the event of a conflict with Taiwan.
Custer’s testimony drew on the latest version of AidData’s Global Chinese Development Finance Dataset to document the full extent of PRC finance flowing into the region. Over the last two decades, China bankrolled nearly 2,500 development projects in Latin America worth $300 billion. In many cash-strapped economies, Beijing holds out the promise of high-value projects as a reward for alignment with their strategic goals—whether those are derecognition of Taiwan or closer economic ties through the Belt and Road Initiative (BRI), China’s signature global infrastructure program.
“But this money is not without strings attached,” emphasized Custer in her testimony. “For each dollar of aid it's supplied, Beijing provided $28 of debt for projects expected to generate commercial returns.” Only a small slice of Beijing’s development portfolio consists of aid, which includes grants and no- or low-interest loans, while the vast bulk (over 90%) comes in the form of loans and other debt instruments with terms approaching market rates.
Much of this debt is concentrated in a few large-scale infrastructure or investment projects, with PRC banks making large bets that they will be able to make their money back. Yet most countries in the region seem prepared to accept these terms: two-thirds of countries in Latin America and the Caribbean have signed onto the BRI with promises of greater access to development finance.
Taiwan is hard-pressed to compete on these terms. While it is one of the best-regarded development partners in the social and economic sectors, Taipei mobilizes an annual aid budget of not billions but hundreds of millions. The PRC’s deep pockets and willingness to spend to pry allies away from Taiwan would suggest that Beijing flipping Latin America is a fait accompli. However, a strong cluster of support in the region still backs Taipei. As the Senate committee asked how best to bolster Taiwan, Custer suggested, “rather than asking why Taiwan has lost some of its diplomatic allies, we should consider why it has not yet lost all of them.”
So why hasn’t Taiwan lost all of its diplomatic allies in the region? Countries there have a variety of reasons to continue recognizing Taiwan, whether due to ideological affinity or the perception of better economic alternatives available through pursuing a closer partnership with the U.S. It is also instructive to consider the role of countries maintaining ties with both the PRC and Taiwan. While only seven countries in the region maintain full diplomatic relations with Taiwan, seven others have representative liaison offices with Taipei.
“Fence sitters like Brazil or Chile have a strategic rationale for holding the middle ground. They may have a foreign policy based on neutrality, or they may capture economic or political gains from playing both sides,” explained Custer. These countries appear able to maintain liaison offices without losing access to PRC investment opportunities, making the “fence-sitting” position relatively lower cost than fully committing to recognizing Taiwan. As the U.S. looks to bolster Taiwan’s standing and prevent further slippage of allies, policymakers for the region should look to these countries, not only Taiwan’s formal allies.
Now is an opportune time for lawmakers to consider how they want to engage with the region to support Taiwan. In the first week of April, a follow-on bill to the TAIPEI Act, the Taiwan Allies Fund Act, was reintroduced to the House of Representatives. In light of Beijing’s intensified campaign to win over diplomatic allies, a bipartisan coalition of legislators in both the House and Senate crafted the bill last year to expand U.S. support for Taiwan. It would authorize Congress to allocate $40 million each year from 2025 to 2027 to support Taiwan and Taiwan’s allies. Drawing on the funds to be appropriated under the PRC Malign Influence Fund, these resources would be used to counter some of Beijing’s key levers through substitutes for the PRC’s Health Silk Road activities, programs to strengthen civil society, media, and NGO resilience to propaganda, and promote alternatives to PRC development finance.
Where could Congress focus these efforts? First, it is important to note that any engagement with the region will be most effective if it is rooted in a broader Latin America strategy rather than a “Countering China” strategy. Second, it is worth considering the continuum of recognition that Taiwan’s friends have in the region, with different approaches necessary to fit different contexts. AidData reviewed countries in Latin America based on their levels of PRC finance, trade, and other soft-power engagements that may be priorities for funding under the Taiwan Allies Fund Act, if it is passed.
Guatemala: Bulwark of full recognition of Taiwan
While most other countries in the region either switched recognition to the PRC or hedged their bets, Guatemala maintains full ties with Taiwan, an example of how countries in the region may resist pressure from Beijing. The bilateral relationship has continued steadily across multiple presidential administrations and looks set to continue under President Arevalo, who affirmed the country’s plan to maintain ties with Taiwan immediately after his 2023 election and more recently in a February press conference with U.S. Secretary of State Marco Rubio.
However, some observers note with concern the remarks by Arevalo and Foreign Minister Carlos Ramiro Martinez that Guatemala is seeking to expand trade ties with mainland China. These trade ties may provide an opening for Beijing to pressure Guatemala to flip or hedge its support for Taiwan, downgrading it from formal recognition.
At present, these statements appear to just be intentions, and Guatemala’s trade with the PRC has actually declined in recent years. In 2019, Guatemala exported just under $200 million worth of goods to the PRC, led by ferroalloys and metals. By 2023, this had nearly halved, to $105 million. During the same period, Taiwan doubled its imports from Guatemala, growing them from $66 million in 2019 to $133 million in 2023.
To better support the trend of deepening trade partnership between Guatemala and Taiwan, the U.S. should look to foster the trade capacity of both countries. This may be achieved through U.S. support for capacity building activities among commerce and trade officials, as well as backing the legal and physical capacity of Guatemala to scale up trade, with dedicated industrial zones, warehouses, and sufficient cargo reception and scanning facilities. While the PRC has invested heavily in commercial ports around the world, the U.S. lags far behind in supporting its peers’ port development.
Ecuador: Caught in the middle, with partial recognition of Taiwan
Ecuador is one of the region’s many “fence sitters,” caught between recognition of the PRC and fully severing ties with Taiwan. While Ecuador formally switched recognition from the ROC to the PRC in 1971, the nation still hosts a Taiwan liaison office (officially a “Taipei Trade Office”) in Quito. This uneasy situation makes Ecuador an attractive target for PRC influence. As a country that recognizes the PRC, Ecuador has access to large volumes of development finance, which Beijing leverages to induce countries to peel away from Taiwan.
Since 2000, Ecuador has received the fourth-largest amount of PRC development funds in the Western Hemisphere, trailing only Venezuela, Brazil, and Argentina. Beijing has clearly prioritized engagement with Ecuador and has bankrolled over$26.5 billion in development projects. But nearly all were committed under the previous president Rafael Correa’s tenure (2007 to 2017), and new investments tapered off to nearly zero in succeeding administrations. This drop in project finance is likely due both to shifting political directions, with Correa’s successors less enthusiastic in their embrace of Chinese development finance, and several large-scale projects becoming mired in a series of controversies and eroding trust in PRC contractors (such as the Coca Codo Sinclair Dam’s issues with missed taxes, construction quality, and charges of corruption). In his remarks at March’s Senate subcommittee hearing, Senator Kaine (D-VA) specifically highlighted the harms of these projects, noting that the downsides of PRC partnership “has left Ecuador victimized by illegal fishing around the Galapagos, environmental despoliation around drilling or substandard infrastructure projects.”
In the wake of this blowback and subsequent dropoff in PRC infrastructure projects, Beijing has pivoted to tools of soft power outreach. Its elite diplomacy in Ecuador expanded substantially following 2013, particularly the Ambassador’s outreach through local media channels (including op-eds and interviews, as seen in the graph below). With Beijing’s move to these media and information strategies, resources unlocked by a future Taiwan Allies Funds Act could be well applied to civil society and journalism projects. Well-designed projects would provide support for an independent and resilient fourth estate in Ecuador, so that it can continue transparent reporting on the full costs of development projects, whether funded by the PRC or other partners.
Panama: Potential for change, full recognition of the PRC
Panama’s role in the PRC-Taiwan divide is one of the most important stances in the region, and one that both Beijing and Washington are watching closely. As Senator Curtis (R-UT) noted in his subcommittee remarks, “specifically, the TAIPEI [Act] came as a response to Panama, the Dominican Republic, and El Salvador switching diplomatic recognition. Not only did they switch diplomatic recognition, but they adopted China’s One China's principle, or China’s claim that Taiwan is part of China.”
Panama’s decision to leave the BRI in early 2025 has opened up a new window for change. While it is unlikely that Panama will swing fully back around to formal recognition of Taiwan (as the PRC could create too much pain through trade reductions), it may be able to move back towards the middle. Most countries that maintain a Taipei liaison office still have access to trade with the PRC but are also able to tacitly support Taiwan. One challenge that U.S. policymakers must confront now is how to effectively use this opportunity, paired with timely economic incentives and diplomatic support, to help Panama move back toward Taiwan.
The Taiwan Allies Fund Act may offer some of those economic incentives, if applied creatively. Panama would not immediately be eligible for resources under the Taiwan Allies Fund, as it does not maintain official relations or a liaison office. However, the bill’s language defines potential recipients as those that “maintain official relations with Taiwan or have meaningfully strengthened unofficial relations with Taiwan.” If Panama sees its peers receiving these funds, they could be part of a larger economic appeal to promote the economic value of a partnership with Taiwan. Or, if these funds are disbursed more expansively, project-type interventions could directly support trade and media resilience activities.
