Obama and Latin America

The re-elected U.S. President needs to boost relations with Latin America, especially Brazil.

BY LATINVEX EDITORS

When President Barack Obama starts his second term in January, it would behoove him to focus more of his time and policies on Latin America.

While the U.S. economy grew an average of 0.6 percent the past five years, Latin America’s grew 3.3 percent. The next five years the region’s GDP will likely expand by another 4.0 percent.

It is also a very significant market that the United States can benefit from as it tries to boost exports – a key pillar in President Obama’s economic recovery plan. Latin America’s economy is expected to reach $7.5 trillion in 2015, or roughly the same size as China last year.

Mexico has for many years been the second-largest U.S. export market, but clearly there is also enormous potential in Brazil, the largest economy in Latin America and the sixth-largest in the world (ahead of the United Kingdom).

Brazil is slated to replace France as the fifth-largest economy in two years (2014) and will only be 13 percent smaller than Germany’s economy in 2017, according to a Latinvex analysis of forecasts from the International Monetary Fund.

While U.S. trade with Latin America has been growing in recent years, the rate has lagged that of Latin America’s trade with China.

“China is occupying space the U.S. has left vacant because the U.S. decided to commercially neglect the region,” Rubens Barbosa, Brazil’s ambassador to the U.S. from 1999 to 2004, told Bloomberg recently.

Mexico dominates U.S. trade with Latin America but in recent years the United States has also implemented free trade agreements with several other countries aimed at boosting two-way trade. Most recently, the US-Panama FTA went into effect on October 31.

“Panama is one of the fastest growing economies in Latin America, “ U.S. Trade Representative Ron Kirk said last month when he signed an agreement setting the date for implementation. “That adds up to support for more well-paying jobs across the United States.”

Apart from Mexico and Panama, the United States has FTAs with Chile, Colombia, Costa Rica, El Salvador, the Dominican Republic, Honduras, Nicaragua and Peru. Before the Panama FTA, the one with Colombia was the last to be implemented – on May 15 – after years of delays due to U.S. domestic politics.

The likelihood of a free trade agreement with Brazil is small, as both the United States and Brazil maintain protectionist policies that would have to be eliminated. The U.S. agricultural subsidies have long been criticized by Brazil and other countries, while Brazil has a long list of policies that discriminate against imports to help boost local production.

That being said, there is nothing that would stop President Obama from forging closer political and business ties with Brazil.

Brazil is increasingly becoming a leader in Latin America as Hugo Chavez’ star fades. That is due to Brazil’s increased political focus on the region as well as the significant expansion of Brazilian companies in Latin America.

The U.S. private sector has already boosted their business with Brazil in recent years and further investments are expected the next few years, spurred by a still-growing large economy and the 2014 World Cup in soccer and 2016 Olympic summer games that will be held in Brazil.

However, as Germany has shown, a pro-active government policy of trade missions to, and offices in, international markets help spur more exports.  

Meanwhile, President Obama himself needs to travel more to both Brazil and Latin America – and not just for a photo opportunity. At the same time, the president needs to avoid petty treatment of Latin American leaders like Brazilian President Dilma Rousseff, who was slighted when she visited the White House in April and didn’t get extended an official state visit.

Of course, President Obama also needs to make sure that the good relations with Mexico improve. His new term starts a month after Mexico gets a new president, Enrique Peña Nieto, who has stated that he wants close ties with the United States.  And those ties should not only be close on issues like the drug war, but also on trade and business.

Obviously, the U.S. president needs to maintain the existing prices of Mexican tomatoes in accordance with the North American Free Trade Agreement and not end the system, as the U.S. Commerce Department has signaled. That move, clearly aimed at placating U.S. tomato producers, threatens to create another unnecessary trade war with Mexico.

Any U.S. president is constantly torn between various domestic and international issues. However, with the American economy still not growing at sufficient levels, we urge President Obama to make Latin America a key priority during his next mandate.

That will benefit both the United States and Latin America.

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