March 16 (Bloomberg) -- Fifty years ago this month, the U.S. launched the Alliance for Progress to turn Latin America away from Soviet communism. When President Barack Obama heads to the region March 18, he’ll seek to thwart a rival eroding U.S. commercial dominance in its backyard: China.
The world’s second-largest economy overtook the U.S. as Brazil’s biggest trading partner in 2009 after becoming Chile’s leading export market in 2007. Chinese exports to Chile have more than tripled in the past five years, while U.S. sales almost doubled, according to data from Chile’s central bank.
South America welcomes U.S. efforts to enhance trade ties as the region strives to export manufactured goods, said former Brazilian President Fernando Henrique Cardoso, 79. Brazil wants to reduce its commercial dependence on China, whose trade policy is driven by growing demand for raw materials.
“In the past, we feared the predominance of the U.S.; now it’s the opposite,” Cardoso, who ruled from 1995 to 2003, said in an interview last month. “It’s better for us for the Americans not to retreat too much to keep the balance.”
The U.S. has lost ground in Latin America as China stepped up purchases from mining, oil and farm industries to supply its manufacturers at home.
Still, in Brazilian President Dilma Rousseff, who took office Jan. 1, Obama, 49, will find an ally in his bid to pressure China to strengthen the yuan, which U.S. Treasury Secretary Timothy F. Geithner calls “substantially undervalued.” Brazil considers the currency issue a “priority,” Trade Minister Fernando Pimentel said two days after Rousseff, 63, became president.
When Rousseff met with Geithner in Brasilia last month, she described Brazil as a Western country that shares a common set of values and interests with the U.S. and wants to increase cooperation, according to an Obama administration official who spoke on condition of anonymity.
While Latin America “is a natural sphere of influence” for the U.S., in the years after the Sept. 11 terror attacks, it “became a modern Atlantis, a continent lost on the maps of Washington,” said Moises Naim, a senior associate in the international economics department at the Carnegie Endowment for International Peace in Washington. “There were a lot of strategic distractions for the White House.”
Obama’s five-day visit to Brazil, Chile and El Salvador will be his first foray to Central and South America, with stops in Brasilia, Rio de Janeiro, San Salvador and Santiago. It is an opportunity to chart a new course with Rousseff and Chilean President Sebastian Pinera as competitors are “knocking on the door,” said Eric Farnsworth, vice president of the New York-based Council of the Americas.
“We can no longer assume we are the only game in town,” Farnsworth said during a March 10 panel discussion at the Heritage Foundation in Washington. “We cannot ignore the Western Hemisphere, nor can we take it for granted.”
The U.S. delegation will include Geithner, Trade Representative Ron Kirk, Commerce Secretary Gary Locke, Energy Secretary Steven Chu and Export-Import Bank President Fred Hochberg, according to the White House.
The U.S. in 2008 was Brazil’s biggest trade partner, with imports of $27 billion compared with China’s $16 billion, according to the Inter-American Development Bank. China’s total increased to $20 billion in 2009, surpassing $16 billion for the U.S., on demand for iron, soy beans and oil.
Boeing Co. chief executive officer James McNerney, in an interview at the White House, said Brazil has gone through “a remarkable transformation” into a “huge market.”
“The president recognized its potential for American businesses for exports as well as for cooperation,” McNerney, a member of Obama’s export advisory panel, said.
Former President John F. Kennedy’s Alliance for Progress was unveiled at a conference in Uruguay that included revolutionary leader Ernesto ‘Che’ Guevara. It also was designed to regain influence in Latin America, where policy makers felt the U.S. was losing sway after Fidel Castro took control of Cuba in 1959.
The U.S. invested an estimated $6.3 billion under the alliance, Jeffrey Taffet, a historian of the program, said in a Feb. 22 interview. U.S. loans helped countries build roads, schools and other infrastructure, including the Santiago airport, he said.
Then-White House press secretary Robert Gibbs cited the anniversary of the Kennedy program in discussing Obama’s trip the day after it was announced in January. It will focus on spurring the U.S. recovery by promoting exports to a rapidly growing region of the world, Mike Froman, deputy national security adviser for international economic affairs, said yesterday.
Gross domestic product in Central and South America grew 6 percent in 2010 and is forecast to expand 4 percent this year, and U.S. sales to the region help support 900,000 jobs, Froman told reporters at the White House.
Brazil’s growing middle class has created an enormous market for U.S. goods, and while the economic relationship has been on a “good trajectory,” the U.S. can do better, Froman said. He singled out energy development and infrastructure investment, with Brazil preparing to spend $200 billion on the 2014 soccer World Cup and 2016 summer Olympic Games.
‘Time to Engage’
“I don’t know why American corporations have forgotten Brazil,” Brazilian billionaire Eike Batista, who controls oil and gas company OGX Petroleo e Gas Participacoes SA, said March 14 in an interview. “It is time to engage.”
The U.S. may be able to tap into Latin America’s desire to expand exports beyond the raw materials driving Chinese demand in the region. At least 91 percent of Brazil’s exports by value to China in January were raw materials and their derivatives, according to government data. Brazil’s top eight imports from China by value were manufactured goods.
“That’s beginning to sour a little bit,” Stephen Johnson, director of the Americas program at the Center for Strategic and International Studies, said in a telephone interview from Washington last month.
To be sure, long-standing trade tensions exist between Brazil and the U.S. Among them are U.S. farm subsidies, the 54 cents-per-gallon tariff on imports of Brazilian ethanol, which Congress renewed in December, and Brazilian duties on consumer goods such as electronics.
It’s unlikely these issues will be resolved during Obama’s visit, said Christopher Sabatini, senior policy director at the Council of the Americas. Possible accords could include an agreement on trade and investment to reduce double taxation, cooperation on green energy projects and greater collaboration on regional security, Sabatini said in a telephone interview yesterday. A statement may also be issued on Brazil’s desire to become a permanent member of the United Nations Security Council, he said.
The Obama administration also plans to complete changes to trade agreements with Colombia and Panama this year and submit the deals for approval to Congress, Trade Representative Kirk told the House Ways and Means Committee Feb. 9. Congress has not yet approved the pacts signed during the administration of former President George W. Bush.
“The U.S. has such a long way to go to catch up with China that anything it can do will be useful,” said Ronald Scheman, director general of the Inter-American Agency for Cooperation and Development from 2000 to 2004 and editor of the book “Alliance for Progress: A Retrospective.” “But the ballgame has changed. The U.S. has to find a new role and restructure its partnership with Latin America.”
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