And the Winner is… Trump in Latin America

By Nicolás Comini*

Donald_Trump_and_Mauricio_Macri_in_the_Oval_Office,_April_27,_2017

U.S. President Trump and Argentine President Macri meet in the Oval Office. / Official White House Photo by Shealah Craighead / Wikimedia / Creative Commons

Criticism of U.S. President Donald Trump’s policies toward Latin America ranges from mild to furious in the region and among many U.S. Latin America watchers, but that anger is not likely to drive greater regional unity and demands for a more balanced relationship.  Trump’s rhetoric – emphasizing sovereignty, nationalism, and protectionism – have long been popular concepts in many countries of the region.  During Latin America’s recent “turn to the left,” for example, political leaders embraced a developmentalist emphasis on using tariffs and non-tariff trade barriers to give domestic industries an advantage in national economic expansion strategies.  But the U.S. President’s statements have generally infuriated not only the left as reflecting bias on an array of issues, such as immigration, but also the right.

  • Trump’s policies contradict the prescriptions that Washington has been advocating – and most conservative politicians have embraced – for Latin America for many years. Those prescriptions have emphasized free trade but touched on other issues as well, such as the shift (symbolic and material) of resources from traditional national defense to the “war on drugs.”  Trump’s “America First” approach undercuts his natural allies in Argentina, Brazil, Mexico, and elsewhere.  It has also given their leftist opponents a sense of legitimization of their anti-Americanism speeches, something that is surging also because of Washington’s new policies toward Cuba.
  • The U.S. summary abandonment of the Trans-Pacific Partnership (TPP), conservatives’ last great hope for deeper trade integration with the United States, left them angry. According to the ECLAC, 73 percent of all FDI in Latin America in 2016 came from the United States (20 percent) and the European Union (53 percent).  Individuals with strong anti-Communist credentials in Colombia, Chile, and Peru are all flirting with joining China’s Regional Comprehensive Economic Partnership (RCEP).

Regional organizations show no sign of providing leadership in how to respond to U.S. policy.  UNASUR is fading rapidly, in part, because it was labeled by the new conservative governments as too Bolivarian and anti-American.  Something similar is happening with the CELAC.  MERCOSUR is struggling, in part, because of the political tumult in Brazil.  Indeed, most governments are trying to remain friends with Washington, prioritizing bilateral agendas in detriment of regional (multilateral) institutions and mechanisms.

The surge in resentment toward Washington – within and among Latin American countries – is unlikely to lead to increased regional unity.  Internally, the left and right may agree that Trump is harming their interests, but their reasons are different and prescriptions for dealing with it are far apart.  On a regional basis as well, the current context accelerates the atomization of the region – and threatens to expand the bargaining power of the great powers of the United States, China, Germany, or Israel.  Although China is making inroads, in the end the United States has, and will retain, the greatest influence in Latin America – and the lack of efficient regional decision-making will prolong that situation.  Latin American fragmentation will create an image of acquiescence – and President Trump will think he is not doing so badly in the region.

October 18, 2017

* Nicolás Comini is Director of the Bachelor and Master Programs in International Relations at the Universidad del Salvador (Buenos Aires) and Professor at the New York University-Buenos Aires.  He was Research Fellow at CLALS.

Trans-Pacific Partnership: A Political Step Forward

By Fulton Armstrong

In more than 10 cities across the U.S. activists will use guerrilla light projection to illuminate monuments and building facades with slogans like “Don't Let Comcast Choke Your Freedom,” “No Slow Lanes, Open & Equal Internet For All,” and “TPP Dismantles Democracy.

In more than 10 cities across the U.S. activists used guerrilla light projection to illuminate monuments and building facades with slogans like “Don’t Let Comcast Choke Your Freedom,” “No Slow Lanes, Open & Equal Internet For All,” and “TPP Dismantles Democracy.” Photo Credit: Backbone Campaign / Flickr / Creative Commons

The chairmen of key U.S. Congressional committees agreed on legislation allowing President Obama to negotiate a Trans-Pacific Partnership (TPP) trade accord, but major political and substantive obstacles to an agreement remain. The leaders of the Senate and House tax-writing committees announced the move, with the key Democratic senator involved claiming that the Obama Administration had addressed his deep concerns about the secrecy of the talks. If passed, their bill would give the President “fast-track” trade authority – power to negotiate an accord that the Senate would eventually vote on but without the power to amend it, which would significantly increase chances of passage. Obama’s advisors have called TPP the “cornerstone” of his Asia policy, and the President said last week that it would help “make sure that we, and not countries like China, are writing the rules for the global economy.” Supporters estimate that TPP would stimulate growth by eliminating tariffs and non-tariff barriers affecting $2 trillion of goods and services (about one-third of global trade) each year among its 12 members.*

Opposition in the U.S. Congress and elsewhere remains intense, however. The Senate Democratic whip, charged with tallying support and opposition, stated that only one-quarter of Senate Democrats support the measure – and those opponents have made clear their concerns about the implications for U.S. workers and consumers. Although tariffs are on the table, most observers say the focus of the negotiations is on “harmonizing” regulations, which big multinational corporations – which have access to the talks that citizens’ groups lack – systematically seek to eliminate. Pharmaceutical companies, for example, are pushing hard for extending patents and trademarks so that cheaper generic medications cannot be sold. Critics say revisions to copyright and trademark provisions would also have implications for public information and the internet. Industry is seeking to roll back environmental protections in place since the early 1970s. The negotiations have been secret, but a leaked chapter of the draft agreement revealed that companies were gaining the right to sue governments if any regulatory action ever caused their profits to fall short of target – a massive burden on budgets.

The lack of transparency, which the leading Senate Democrat claims has been addressed, may have stoked opponents’ concerns. But the differences between U.S. backers and opponents appear significant and unlikely to fade without some serious political horse-trading, which the Obama Administration has been unwilling to do. In his statement last week, Obama admitted that “it’s no secret that past trade deals haven’t always lived up to their promise” – particularly regarding job creation – but neither he nor the Congressional chairmen have provided hard data showing that dismantling a host of regulations to accommodate corporate agendas will help consumers and un- or under-employed U.S. workers. If history is any guide, the Latin American signatories – Mexico, Chile and Peru – may see a favorable impact regarding employment in certain sectors, and others may see it as the only game in trade right now and thus worth trying to join, but Washington’s vision of TPP as primarily an Asia policy – to counter Chinese influence – suggests that they too see the advantages of participation accruing across the Pacific rather than to the north.

* Currently envisioned as members are the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam: Korea last week expressed interest in joining the talks, but the United States told it to wait. Colombia is interested, and Panama and Costa Rica seek membership in the “Pacific Alliance,” which is related to TPP.

April 20, 2015

Bracing for Economic Pain in Brazil and Beyond

By Kevin P. Gallagher*

Brazilian Real

Mark Hillary / Flickr / Creative Commons

Brazilian President Dilma Rousseff’s warning to U.S. Fed Chairman Ben Bernanke in 2012 – that his monetary-easing policies were creating a harmful tsunami of financial flows to emerging markets – was spot-on.  U.S. growth and interest rates have been appreciating currencies, causing asset bubbles, and exporting financial instability to the developing world.  Brazil and other emerging-market countries may soon be facing capital flight and exchange rate depreciation that could lead to financial instability and weak growth for years to come.  From 2009 to 2013 countries like Brazil, South Korea, Chile, Colombia, Indonesia and Taiwan all had wide interest rate differentials with the U.S. and experienced massive surges of capital flows.  The differential between Brazil and the U.S. was more than 10 percentage points for a while.  According to the latest estimates by the Bank for International Settlements (BIS), emerging markets now hold a staggering $2.6 trillion in international debt securities and $3.1 trillion in cross-border loans – the majority in dollars.

Now the tides are turning.  Many emerging market growth forecasts are continually being revised downward.  China’s economy is undergoing a structural transformation that necessitates slower growth and less reliance on primary commodities.  The prices of oil and other major commodities are stabilizing or declining.  As growth and interest rates pick up in the United States, the dollar gains strength – and emerging market currencies fall.  Brazil’s real hit a 10-year low last week, down to 2.87 to the dollar, amid continuing predictions of zero growth for the country this year.

The traditional tools for weathering the storm may not be available or enough for developing economies.  Floating exchange rates and the resulting depreciation can cause the debt burden on firms and fiscal budgets can bloat overnight, especially in a lower growth environment.  Increasing competitiveness would have helped boost exports, but an IMF study shows that Latin America failed to use one of the biggest commodity windfalls in its history to invest, hindering competitiveness to ride out the tsunami in short-term inflows.  Local bond markets help, but most debt is indeed in dollars, and most local debt is held by foreigners who are always the first to dump such debt.  Interest rate hikes can also be dangerous; they don’t reverse flight and can choke off what little growth there is to be had in a downturn.  Depleting foreign exchange reserves doesn’t always work; increasing debt could bring financial instability but threaten prospects for growth and employment.  Having no good options, emerging-market and developing countries may need to resort to regulating the outflow of capital alongside these other measures.  Such moves have traditionally been shunned by international institutions and capital markets, and new U.S. trade agreements such as the Trans-Pacific Partnership have stripped out balance-of-payment exceptions that allow nations to regulate capital.  But new research in cutting edge of economics by the IMF and others now justifies such measures to prevent or mitigate a full-blown crisis.  If we have learned anything from the global financial crisis since 2008, it is that nations need as many tools at their disposal to prevent and mitigate financial instability.  Instability anywhere can lead to instability everywhere, so we need all tools and hands on deck.

February 19, 2015

* Kevin P. Gallagher is an associate professor of global development policy at Boston University’s Pardee School for Global Studies, where he co-directs the Global Economic Governance Initiative.  His new book is Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance.