U.S. trade with South America is increasing at a faster rate than with any other region, except for Africa. During the first four months of 2008, merchandise trade between the U.S. and South America grew 70 percent over the same period of 2007, according to U.S. Census Bureau statistics. Exports to South America were up 51 percent, while imports increased 39 percent. Merchandise trade between the U.S. and Africa, which is fueled by oil and is about two-thirds the size of the South American trade, rose 72 percent in the first four months of 2008.
During this same time period, U.S. exports to China increased 22 percent and imports, 3 percent. Exports to Mexico increased 12 percent, while imports were up 11 percent. Mexico is the U.S.’s third-largest trading partner after China and Canada.
U.S. trade with South America last year totaled $168 billion, with approximately $69 billion in U.S. exports and imports of $99 billion.
The cheap dollar and the relatively strong economies of South America are driving the surge in U.S. exports. Excluding Venezuela, one of the U.S.’s largest suppliers of crude oil, the U.S. may achieve balanced trade with the rest of South America or even a surplus this year.
In percentage terms, Argentina is the fastest-growing market in South America for U.S. exports, but Brazil is not far behind. Exports to Argentina soared 76 percent in the first four months of 2008 compared to the same period last year, while imports increased 34 percent, resulting in a U.S. surplus of $324.9 million, according to the Census Bureau.
Exports to Brazil increased 69 percent from January through April 2008, while imports expanded 48 percent, leading to a U.S. surplus of $401.1 million.
The U.S. is the market for more than 50 percent of all South America’s exports.
Overall, U.S. trade with South America last year increased 24 percent, mostly because of the gain in exports. Imports were essentially flat, even from Venezuela, despite the increase in the price of oil last year. This year, however, is a different story. Despite a $1 billion increase in U.S. exports to $3.3 billion during the first four months of the year, the deficit with Venezuela grew to $11.8 billion, up $7.6 billion over the same period last year, because of the jump in imports. They totaled $15 billion, compared with $10.6 billion in the same period last year.
Mercosur
In 1991, Brazil, Argentina, Paraguay and Uruguay joined together to form Mercosur, short for Common Market of the South. But it’s unlikely to make that a reality any time soon, let alone achieve its ultimate goal of complete economic integration of the continent, according to Riordan Roett, director of Latin American Studies at Johns Hopkins School of Advanced International Studies.
“Mercosur is stalemated,” he said. “The rivalry among members makes it impossible to ‘deepen’ Mercosur.”
Bolivia, Chile, Colombia, Ecuador and Peru have their own trade bloc, known as the Andean Community of Nations, or CAN. All are associate members of Mercosur. Venezuela was a member of CAN, but President Hugo Chavez took his country out of the group in 2006 to protest the free-trade agreements negotiated by Peru and Colombia with the United States.
Chavez said South American nations had to choose whether they want continental unity or to be marginalized by individual agreements with the United States.
Disputes within Mercosur often must be resolved through presidential intervention. Individual countries are not inclined to give up their individual sovereignty to Mercosur. Nor does Roett anticipate the Brazilian Congress approving membership for Venezuela. “Even if it does,” he said, “the ideological differences among members will prohibit cooperation.” He anticipates that South America will continue to diversify its trade ties with the rest of the world. “The U.S will continue to be an important but declining trade partner.”
President Clinton sought to expand cooperative trade among all of the Americas — some 34 nations including Canada and Mexico — by announcing plans to create a Free Trade Area of the Americas. Talks began in 1994, but the idea never got off the ground because of the lack of enthusiasm from South American nations, especially Brazil.
Nor has the U.S. Congress been overly helpful in supporting increased trade between the U.S. and South America. “The anti-free-trade groups in the U.S. are driven by domestic politics, particularly in an election year,” Roett said. “The AFL-CIO is an important contributor to Democrat campaigns. Also, the slowdown in the world economy provides a useful backdrop for anti-free trade legislation.”
The Andean Trade Preference Act, which the Senate approved in 1991, currently allows an estimated 93 percent of all imports from Colombia to enter the U.S. mostly duty-free. By contrast, Colombia’s average duty on U.S. imports is around 14 percent for manufactured goods and more than 50 percent on agricultural commodities that compete with Colombian farmers, such as corn and wheat. Analysts believe an FTA with Colombia would increase U.S. exports to Colombia.
Trade constraints
Corruption has had a major deleterious affect on commercial and trade growth in South America. “Corruption is rampant,” Roett said. “It will not end soon. It varies from country to country. But politicians cannot separate their personal interests from their public responsibilities. It is generational, hopefully, and better educated business elite will understand the heavy price that is paid through corruption, but it is an eternal problem that is difficult to see being eliminated in the short term.”
Shipping executives whose companies operate in South America tend to agree, though none would speak for attribution. “Bribery is not unique to South America,” said one longtime carrier executive. “Most developing countries permit it because wages are so meager. The difference is that in Asia, for example, bribery is organized. Your designated country agent only has to deal with one or two people, who pay off the rest of the work force. In South America, and Mexico for that matter, someone usually takes a bite out at each stage, from the manufacture or retailer to the agent, truck driver, dock hand, you name it.”
Economic outlook for South America
The economies of South America, which have a combined population of 370 million, rely heavily on exports. Brazil dominates, exporting an estimated $140 billion in 2007, according to the CIA Factbook, followed by Venezuela, with $69 billion, Chile at $68 billion and Argentina at $55 billion.
The region’s overall economy slowed somewhat last year but overall growth still exceeded 6 percent. Venezuela, Colombia, Argentina, Uruguay and Peru all increased 8 percent or more.
Brazil
Brazil has the world’s seventh-largest economy. It grew 5.4 percent last year, the fastest pace of expansion since 2004, according to the Organization for Economic Cooperation and Development. This year, however, growth is expected to slow to 4.5 percent, followed by 3.8 percent growth in 2009, according to the Economist Intelligence Unit.
Total trade with the U.S. in 2007 reached $50 billion. U.S. exports totaled $24.6 billion, while Brazil’s exports were $25.6 billion in Brazilian imports to the U.S., leaving Brazil with a surplus of $1 billion.
Last year was the first time in Brazil’s history that it became a net international creditor.
Inflation, always a concern, came in at 4.7 percent in March, only slightly above the central bank’s 4.5 percent target. The EIU expects year-end inflation of 5.2 percent in 2008 and 4.3 percent in 2009.
Argentina
Argentina is the richest country in South America, measured by per-capita gross domestic product. In 2006, the most recent year for which figures are available, it was $15,936, according to the OECD, a group of 30 industrialized countries. Next was Chile at $12,982, followed by Uruguay at $11,645 and Brazil at $9,108.
Argentina’s economy has been booming. It grew 8.8 percent in 2003, 9 percent in 2004, 9.2 percent in 2005, 8.5 percent in 2006, and 8.7 percent in 2007. The EIU forecasts Argentina’s GDP to slow to 6.2 percent in 2008 and 4.5 percent in 2009.
Inflation is a problem. The government estimates that inflation last year was between 12 and 15 percent, following a 9.8 percent increase in 2006. The EIU expects inflation should ease to single digits by end-2009.
Total trade with the U.S. in 2007 was $10.3 billion, $5.9 billion worth of U.S. exports went to Argentina and $4.5 billion Argentinean imports to the U.S., resulting in a $1.4 billion surplus for the U.S., according to U.S. Census data.
Chile
The U.S.-Chile Free Trade Agreement was implemented on Jan. 1, 2004. U.S. exports surged 33 percent in 2004, 43 percent in 2005, 31 percent in 2006 and an additional 17 percent in 2007. The trade between the two countries has nearly tripled in four years, with U.S. exports reaching $8.3 billion last year. Chile has had a surplus each year since 2004, peaking at $2.8 billion in 2006, but falling to $684 million in 2007. U.S. exports last year totaled $8.3 billion, while imports were $9 billion.
In the first four months of this year, the U.S. had a surplus of $491 million.
Between 2002 and 2006, Chile’s GDP increased an average of 4.3 percent. Domestic demand and capital investment increased Chile’s GDP in 2007 by 5.1 percent. The EIU forecasts GDP to expand 4.8 percent in 2008 and 4.9 percent in 2009.
Chile is responsible for more than a third of the world’s copper production. The worldwide increase in demand and price of commodities spurred Chile’s growth in trade.
Colombia
Like most South American countries, Colombia is still suffering from various debt crises of earlier years. Public debt is expected to decline to 50 percent of GDP this year and that has encouraged major private investment. GDP growth, which averaged 4.4 percent between 2002 and 2006, topped 6.7 percent in 2007. The EIU expects it to decelerate a bit to 5.4 percent in 2008 and 5.4 percent in 2009. Through the first quarter of 2008, Colombia has experienced 24 consecutive quarters of economic growth. Inflation, compared with other South American countries, is in check, but still not within the 2.3 to 4.5 percent government’s targeted range.
In recent years, bilateral trade has become much more balanced. In 2000, U.S. exports to Colombia totaled $3.7 billion, while imports totaled $6.9 billion, according to the Census Bureau. In 2007, U.S. exports grew to $8.55 billion compared with $9.4 billion in imports from Colombia. U.S. exports increased 53 percent from January through April 2008, while imports into the U.S. from Colombia expanded 57 percent.
Failure by Congress to approve the free-trade agreement with the U.S. is expected to undermine Colombia’s economy going forward.
Afterthought no more
Trade with South America has been almost an afterthought in the minds of many Americans. But it shouldn’t be any more. In the next couple of years, trade with South America should be about half the size of U. S. trade with western Europe, and it will offer better export opportunities for many U.S. companies than Europe.
Also, the South American economy might be strong enough to still grow while the U.S. economy slows and perhaps moves into a recession. In the past, it was commonly said that when the U.S. sneezed, South America caught a cold. Strengthened linkages between the economies of South America and its diversification of trade with other regions of the world are helping to insulate it, at least in the short term, from the economy in el norte.
|
