China, Sweden Trade with S Amer. Grows; US Sputters

Posted on July 22, 2010


The Financial Times reported today that Sweden’s Volvo a premiere truck (world’s number 2 truck maker), bus and construction equipment manufacturer, has made great comeback strides following the depression.  Many of the Nordic countries have as well. But the bright spots aren’t trade with the EU or North America. The big bright spot for Scandinavia are China, India and Brazil.

[Meanwhile, the economic bellwether here in the US], Caterpillar, the world’s biggest maker of earth-moving equipment, brushed off worries about a slowdown in global industrial demand on Thursday, saying its strong order book was defying concerns about the world economy as it raised its forecast for full-year profits and reported earnings for the second quarter of the year that were far ahead of Wall Street expectations.

How did Caterpillar pull this off?  Cost-cutting and expansion – particularly in Brazil and other South American countries.  They are building a second factory in Bazil due to demand.  [BusinessWeek]

But however bright the prospects are for Caterpillar, the overall trend for US trade in one of the fastest growing economies in the world, Brazil, is not good.  Currently Brazil has placed sanctions on US cotton

But the US is lagging.  Trade with Mexico is roughly 58% of our trade with Latin countries. The remaining countries account for only a little over 8 %.

Many of the largest economies in South America, however, are not part of U.S. FTAs and have resisted a region-wide agreement, the Free Trade Areas of the Americas (FTAA), in part because it represented an extension of the same trade model used by the United States in bilateral agreements. Countries south of the Caribbean Basin have been reluctant to enter into such a deal because it does not meet their primary negotiation objectives. Brazil, Argentina, and Venezuela are less compelled to capitulate to U.S. demands because they are far less dependent on the U.S. economy than countries in the Caribbean Basin, do not rely on previously existing unilateral preferential arrangements, and would have to redefine their subregional trade pacts. [InternationalTradeReports]

Just this March, Brazil slapped sanctions on many US products:

The Brazilian government has announced trade sanctions against a variety of American goods in retaliation for illegal US subsidies to cotton farmers.

The World Trade Organization (WTO) approved the sanctions in a rare move.

Brazil published a list of 100 US goods that would be subject to import tariffs in 30 days, unless the two governments reached a last-minute accord.

It said it regretted the sanctions, but that eight years of litigation had failed to produce a result.

It said it would raise tariffs on $591m (£393m) worth of US products – from cars, where the tariff will increase from 35% to 50%, to milk powder, which would see a 20% increase in the levy.

Cotton and cotton products would be charged 100% import tariff, the highest on the list.

The Office of the US Trade Representative said it was “disappointed” by Brazil’s decision and called for a negotiated settlement.

Critics say the US has given its cotton growers an unfair advantage by paying them billions of dollars each year.

Agricultural subsidies are among the most contentious and complex and are beyond the scope of this post.  However, suffice to say that the Obama Administration needs to put our agriculture near the top of his list of areas of concern but not takeover!

Carlos Marcio Cozendey, head of economic affairs at Brazil’s foreign ministry, told a news conference: “The idea was to distribute the retaliation broadly in order to maximise pressure.

“US farm subsidies are condemned worldwide. This archaic practice must stop.”

However some analysts say major changes to these subsidies would involve modifying agricultural legislation – a tall order for the US Congress against a difficult economic and political backdrop, says the BBC’s Gary Duffy in Sao Paulo.

Our correspondent says the dispute, which began in 2002, is one of the few in which the WTO has allowed cross-retaliation, meaning the wronged party can retaliate against a sector not involved in the case.

He adds that it appears the Brazilian government has deliberately chosen a wide range of products in order to have maximum impact. [BBC.UK]

China, on the other hand, is pouring money into the major economies of South America at a mind-boggling rate. A report in the Latin Business Chronicle concluded:

China is undermining the U.S. agenda to advance political reform, human rights and free trade in Latin America, the China-Latin America Task Force says.

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The PRC has pursued a cautious and nuanced policy toward the region. It has effectively leveraged the prospect of PRC investment and sales to the vast potential Chinese market to secure concessions for its own businesses and exports. It has used a combination of institutional mechanisms in order to strengthen relationships with countries in the region that it regards as particularly important because of their resources, market potential or strategic position. These include not only economic mechanisms such as free-trade agreements, but also technology, political and cultural exchanges.

Although Chinese trade with Latin America has fueled a boom in the region’s commodity-export sectors in countries such as Brazil, Chile, Peru and Venezuela, Latin American manufacturing sectors have been badly damaged by expanded competition from Chinese goods. On balance, countries and regions with large manufacturing sectors and limited primary-product export sectors such as Mexico and Central America have viewed the relationship much less positively than their neighbors to the south.

The US needs to get its economic house in order since there are other key area in which international funds and companies are moving away from trade and investment here. It appears movement to put petro-profits from the UAE into India are underway.[Financial Times] The US is putting the lives of its troops on the line for the UAE and other oil-producing states in the gulf region and yet their money is beginning to shift elsewhere.

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