Obama Heads to South America to Head Off China

In his first two years in office, President Barack Obama traveled extensively across Europe and Asia and even made two stops in Africa. On Mar. 18 he'll finally head for South America. The region's economic growth and vast resources have rivals such as China, India, and Russia "knocking on the door," says Eric Farnsworth, vice-president of the business-backed Council of the Americas in Washington. "We can no longer assume that we are the only game in town."

Latin America's economies grew about six percent last year, and Obama wants to strengthen ties to help reach his goal of doubling U.S. exports by 2015. "There's been tremendous progress in this region economically over the course of the last decade or so," says Mike Froman, Obama's deputy national security adviser for international economic affairs. "So this trip fundamentally is about the U.S. recovery, U.S. exports."

The $300 billion in annual trade with Latin America supports 900,000-plus U.S. jobs, with more than a quarter of those resulting from trade with Brazil. Brasília, the capital, is Obama's first stop in a five-day, four-city excursion that also includes Rio de Janeiro; Santiago, Chile; and San Salvador, El Salvador. Brazil has gone "from a country that needed an IMF loan just a matter of years ago to now having $300 billion in reserves," says Froman. The focus on Brazil is part of a broader effort by the Administration to engage more with the so-called BRIC countries, the emerging economies of Brazil, Russia, India, and China. (Obama has already visited Russia, China, and India.)

It's also an opportunity to cement relationships as China's economic power increases. In 2009, China bumped the U.S. as Brazil's top trading partner. Obama isn't expected to announce any major business deals or agreements on the trip, as he did during last year's India visit. Nor does the White House expect to resolve long-standing trade disputes with Brazil. The world's largest producer of sugar and sugar-cane-based ethanol, Brazil has long pressed the U.S. to lower tariffs on sugar imports and a 54 cents-per-gallon surcharge on ethanol imports.

Instead, say Administration officials, the trip is about building a framework for the future. For example, Brazil's recent discovery of offshore oil gives it claim to reserves twice the size of the U.S.'s, Froman says. The Administration has its eye on that oil—and so does China. China Petroleum & Chemical last month said it may bid on exploration rights and has already taken a 40 percent stake in the Brazilian unit of Repsol YPF, a Spanish energy company. Some Brazilians welcome the stepped-up U.S. interest. "It's better for us," says Fernando Henrique Cardoso, Brazil's President from 1995 to 2003, "for the Americans not to retreat too much, to keep the balance."

Obama will meet with members of a U.S.-Brazil business group and address corporate executives in Brasília on Mar. 19. Froman also cites opportunities for U.S. companies as Brazil plans to spend $200 billion on infrastructure ahead of the 2014 World Cup and the 2016 Olympics. "We're on a very good trajectory in our economic relationship," he says, "but there's greater potential."

The bottom line: Obama's South America trip will focus on furthering energy and construction deals—and countering China's influence.

Before it's here, it's on the Bloomberg Terminal.