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Trade with Latin America is a tough nut to crack
Brazil is hot, but not an easy market to enter for U.S. exporters.
Latin America tends to be overlooked as a market for U.S. exports, with Europe and Asia getting the most hype, according to a high-ranking officer of the U.S. Department of Commerce.
“The money is being made here,” said Walter M. Bastian, referring to the Western Hemisphere.
He is deputy assistant secretary for the Western Hemisphere at Commerce, and “the point person” on behalf of U.S. business in that major chunk of the world, according to Dixie Anderson, executive director of the World Affairs Council of Western Michigan, which invited Bastian to speak here last week as part of its Great Decisions series.
“We need to get the message out, particularly in this region,” Bastian told the Business Journal, because international trade is key to increasing manufactured and agricultural exports from West Michigan.
The message: 43 percent of U.S. exports go to Canada, Mexico and the other nations that make up the Western Hemisphere.
“That’s a pretty remarkable number,” he said. “In essence, it’s about one-quarter of the world getting 43 percent of the exports” from the United States.
“The Western Hemisphere has become a thriving market of nearly a billion people,” said Kendra Kuo, who also spoke at the World Affairs Council event with Bastian. Kuo is director of the U.S. Commercial Service in Grand Rapids, part of the Department of Commerce, and she noted that “while many western Michigan businesses are fully engaged in business partnerships with companies in Canada, Mexico and Brazil, other opportunities abound.”
Over the past decade, the economies of Latin America and the Caribbean grew at a steady rate of 4 percent a year, according to Kuo, while trade between the U.S. and Latin America has nearly tripled.
Many Michigan manufacturers know how important Canada and Mexico are for their business. Michigan’s exports of merchandise in 2013 were worth $58.5 billion, with $25.9 billion going to Canada. Mexico was No. 2 at $12.2 billion, followed by China at $4.2 billion, Germany at $1.7 billion, and Japan at $1.4 billion.
Michigan’s largest merchandise export category is transportation equipment, at $28.9 billion of the state’s total exports in 2013. Other top categories are machinery (except electrical), $5.1 billion; chemicals, $4.5 billion; computer and electronics, $3.1 billion; and metals for industry, $2.5 billion.
Michigan’s agricultural products have markets in South American countries such as Colombia and Chile, according to Bastian, although he noted that Chile “tends to probably be a competitor of yours on a lot of (agriculture) products.”
Brazil is the B in BRIC, one of the world’s four major hotspots for economic growth. Other countries in BRIC are Russia, India and China. Brazil is now getting even more attention from exporters around the world as the site in June of the World Cup soccer championship and the venue for the 2016 Summer Olympics.
Brazil is the fifth largest nation in the world, both in terms of geography and population, and it is investing immense amounts of capital in infrastructure on the outskirts of Rio de Janeiro to prepare for the Olympics in two years. But unlike almost a dozen other Latin American nations, there is no free trade agreement between the United States and Brazil.
Bastian told the group at the World Affairs Council event there is no indication that Brazil seriously wants a free trade agreement with the U.S., and he said it is “extremely difficult” for U.S. companies “to get in there.” He said it didn’t help matters any when the world learned the U.S. National Security Agency had been listening in on personal cell phone calls of Brazilian President Dilma Rouseff, as well as German Chancellor Angela Merkel.
The major hurdle between the U.S. and Brazil, however, is simply “one of competitiveness,” said Bastian. Brazil has the biggest economy in Latin America and is reasonably well developed, he said, and “we compete in a number of areas,” particularly manufactured goods, citing aviation as one of the key markets where Brazil is very protective of its industry. In agriculture, Brazil is a “huge soy exporter,” as is the United States.
“They worry about our agriculture policies; we worry about their agriculture policies. It really is one of just head-to-head competition,” said Bastian.
U.S. businesses with a presence in Brazil, particularly in regard to preparations for the Olympics, are generally subcontractors to a Brazilian company, he said.
“U.S. firms don’t seem to have a great interest in becoming prime contractors in Brazil — not that they can’t do it, but Brazil makes it difficult for (U.S.) companies to win the prime contracts. There’s a preference given to local design and engineering companies,” said Bastian.
“So the U.S. comes in as a subcontractor to the prime, and also providing more select services or products for things like security. That’s pretty much how it’s going,” he added.
“It’s a question we are asked very often: How come there are not more U.S. companies bidding on these projects? I think the answer is simply, is the payoff worth the cost to play in the game?” he said, adding that the cost also entails much time and effort, as well as capital investment.
But Brazil is just one nation in Latin America; others that do have free trade agreements with the U.S. (besides Mexico) include Peru, Chile, Colombia and Panama, plus the smaller developing economies in the Central America Free Trade Agreement. They include Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. CAFTA represents the third-largest U.S. export market in Latin America behind Mexico and Brazil, with U.S. exports to CAFTA countries valued at $19.5 billion in 2009, according to the U.S. government.
Bastian said the huge population of Hispanic people living in the U.S. can actually help in penetrating markets in Latin America, and there are already “some pretty strong ties” between the U.S. and Latin America.
“There is an affinity for the U.S. throughout Latin America which is separate from the politics,” said Bastian. “Everyone likes the United States. Everyone wants to come up and go to Disney, shop at Saks and Bloomingdale’s.”
Latin Americans are interested in U.S. higher education, and Latin American television features many popular American series, giving them a glimpse into American life.
“People are taken with the American way of life,” he said. “I don’t mean to sound … overly patriotic on the subject, but it’s a selling point.”