Why Obama Courts Brazil and Latin America

March 22, 2011


The above-linked article reports on Obama’s trip to Latin America and his call for a strengthened partnership with that region.  Why the emphasis on Latin America?  Why was he in Brazil just as military operations were being launched against Libya?  Here’s why:

Brazil Trade

Our trade surplus with Brazil, driven by an even larger surplus in manufactured goods, is rising fast.  This chart would look virtually the same for every country in South America.  Obama correctly sees Brazil and Latin America as key to his objective of doubling exports in five years to rebuild the manufacturing sector of our economy. 

What Obama doesn’t understand is why.  Why are we so successful in trade with these countries and with others, like Canada and Australia,  and such an abysmal failure in places like China, Japan and Germany, just to name a few?  We are successful in South America for the very same reason that China, Japan and Germany have trade surpluses with us and for the very same reason that Japan has a trade surplus with China.  We’re more densely populated than South American countries (and Canada and Australia), just as China is more densely populated than us, and Japan is more densely populated that China. 

It’s all about population density and its role in suppressing per capita consumption.  When nations share labor forces and markets through free trade arrangements, the results become lopsided when one has an over-sized labor force and a market stunted by over-crowding and low per capita consumption.

I’ve recently begun my annual updating of trade results for 2010 between the U.S. and each trading partner.  2010 saw a rebound in trade volumes from the recession-affected trough of 2009.  And, in virtually every case, what I’m finding is that our balance of trade in manufactured goods improved with less densely populated nations while it worsened with those more densely populated.  And, I might add, this is in spite of the fact that the dollar fell relentlessly in 2010.  It also holds true regardless of whether the nation in question is wealthy or poor.  (In other words, low wages aren’t a factor.)  I’ll share some selected charts with you for some of the more significant trade partners as I compile the data.  (I’m doing it alphabetically, so Brazil was among the first.) 

Obama would be well-advised to return home and focus not on our trade relations with Latin America.  Nothing he says or does there can work to America’s advantage any more than the disparity in population density does automatically.  Rather, he should focus his efforts on revising trade policy to stem the tide of imports from the overpopulated, export-dependent economies of the world.