On to the Summit

The air hung thick this weekend in the fortress city of Cartagena, as regional leaders met to discuss political and economic issues at the Summit of the Americas. Thirty-three of the thirty-five leaders were present, even ailing President Hugo Chavez was in attendance. The sole exceptions were Cuba’s President Raul Castro and Ecuador’s President Rafael Correa. The latter tried to organize a boycott by the so-called group of Bolivarian nations to protest Cuba’s exclusion. In 1962, the island country’s representation at the Organization of American States (OAS), the organizer of the summit, was suspended. Three years ago, the suspension was lifted, but Cuba has not yet been invited back to participate. Nevertheless, there was a great deal of interest among the rest of the participants to reactivate Cuba’s role. The U.S. government also was anxious to use the summit to repair its relationship with the continent. No longer a backwater of poverty, disease and political instability, Washington sees Latin America and the Caribbean as an important, albeit neglected, market. With Europe on the decline, the U.S. needs to find alternative destinations for its exports. At the same time, the competitiveness of U.S. industries is rising. The massive devaluation of the dollar against most of the Latin American currencies gave U.S. companies an enormous competitive advantage against the region. U.S.-manufactured tractors, automobiles and food products are flooding Latin America. Free trade agreements with a host of Central American and Andean countries opened new conduits for North American capital, services and products into previously protected sectors. Almost 40% of U.S. trade is with the rest of the America’s, and embarkations jumped 46% since 2009. Besides a long history of trade and investment, there is a good deal of regional integration. For example, most of Mexico’s railroad network runs north-south, facilitating the exchange of goods between the two countries. The ports of Miami and Galveston are the principal transshipment and container processing centers for the Caribbean and Central America. As much as President Chavez may despise Washington, the main refineries for Venezuela’s heavy crude are in the U.S. Therefore, there is a natural affinity between the U.S. and the rest of the Americas that binds it together.

At the same time, Latin America’s honeymoon with China is coming to an end. Beijing may be anxious to buy raw materials from the region, but it is not too excited to purchase anything else. Raw commodities, such as iron ore, soybeans and timber are welcomed free of tariffs into Mainland ports, but the Chinese impose astronomical restrictions and tariffs on products, such as steel, soymeal and lumber. Even Vale’s attempt to ship iron ore to China on its own vessels was violently rebuked. At the same time, Latin America is inundated with a deluge of cheap Asian products. Imported shoes and textiles from China and Vietnam are laying waste to Brazilian and Argentine manufacturers. A tsunami of Chinese and Korean automobiles and motorcycles are swamping most of the Andean countries, wiping out local assemblers. The same thing is happening with electronics and building supplies. Brazil’s Finance Minister Guido Mantega directs most of his “currency war” venom at Washington and Brussels, but the real culprit behind Brazil’s deindustrialization is China. The problem is that he can’t say that, given Brasilia’s need to present an image of solidarity with its fellow BRIC partners. Nevertheless, President Dilma Rouseff’s recent visit to Washington and her sunny demeanor at the Summit of the Americas confirms that Brazil also want to improve the relationship with its northern partner. It is important to note that 60% of Latin America’s exports to the U.S. are in the form of manufactured goods, while they represent only 13% of the embarkations to China. Therefore, it is no wonder that the Latins grew tired of their Chinese counterparts.

The summit also addressed other important political and social issues. For example, in an effort to bring an end to the violence that is still paralyzing parts of Colombia, Peru, Guatemala and much of Mexico, several governments opened a discussion on the legalization of drugs. There is extensive academic literature outlying the folly of eradication and intervention. The only effective way to reign in the narcotics industry is through legalization, regulation and treatment. Given the fiscal limitations faced by the developed world, this would also be a way to reduce expenditures, while opening a path to new sources of income. This would remove a major destabilizing force in the region, which has been the most important source of social and political unrest. This year’s Summit of the Americas proved to be the most interesting pan-regional conference in decades, allowing the U.S. to repair its ties with the region and open the way to a new era of cooperation.