How can US companies export more to Latin America?

As debate continues over the measures required to pull the world’s largest economy out of the economic doldrums, the Obama administration has stated that it wants the US to double its exports over the next five years (and the coalition government in the UK has made a similar announcement). Increasing exports in both economies will bring obvious benefits, not least in creating jobs that have proven stubbornly elusive since the end of the recession.

So with an increase in the export base in mind, why has the US not capitalized to date on the strong growth in Latin America, which is right on its doorstep and a natural trading partner?

A paper published by John Murphy, Vice President, International Affairs, US Chamber of Commerce from the Center for Hemispheric Policy (part of the University of Miami) entitled “Locked Out and Left Behind: The Consequences of US Inaction on Trade” examines some of the reasons that US companies are not exporting to their potential; key points include the following:

• Overseas markets represent 73% of the world’s purchasing power, 87% of its economic growth, and 95% of its consumers.
• Only 1% of US companies currently export.
• The US is ranked a disastrous 114th out of 121 economies in terms of “tariffs faced” by its exports overseas (source: World Economic Forum’s annual Global Enabling Trade report).
• Doubling exports will create millions of new jobs.
• According to the WTO, there are 262 free trade agreements (FTAs) in force around the globe today, but the US has FTAs with just 17 countries.
• The US has an overall trade surplus in manufactured goods with its 17 FTA partner countries, according to the US Department of Commerce, despite a large deficit overall in these products with other markets.
• The US has still not ratified FTAs with two Latin American markets, Colombia and Panama, yet in 2010 both the EU and Canada have concluded negotiations with both of these countries.
• Failure to implement FTAs will only see US exports fall behind further; for example, the US share of the Colombian soybean meal, yellow corn and wheat markets dropped by 67%, 53%, and 37% respectively in 2008-2009 following a new trade accord between Colombia and the Mercosur trading block (Brazil, Argentina, Uruguay and Paraguay).

In summary Mr Murphy believes that the US needs to take more initiative and actively boost its exports through FTAs and to ignore vested interests that protect the rights of a limited number of parties, and even goes so far to say that the position of the US as a leading world power is at stake if it stands still.

US companies also need to have more belief that there is overseas demand for their products – It’s all too common to hear comments that no one wants US goods yet in areas such as Latin America “made in the United States” carries significant prestige with many businesses and consumers. US enterprises must also ensure that they are adapted to local requirements – GDP per capita in Latin America is approx. 15% of the US figure, and generally it is the region’s middle class economic grouping that is growing fastest so products adjusted to this segment stand a higher probability of success.

Another factor often overlooked is the ability of foreigners to visit the US. The US requires a visa for all visitors from Brazil, a country with a population of approx. 200m in an area similar in size to the US, and to have an interview in person for a visa, yet there are only 4 consulates in the entire territory, down from 10 only a few years ago; making it more difficult to obtain something as simple as a visa only acts as a barrier for trade.

If the US can overcome these obstacles then it can help address some of its current difficulties, reduce its trade deficit and create much needed jobs. As Mr Murphy puts it “If the United States fails to embrace a forward-leaning trade policy, US workers and businesses will miss out on the huge opportunities afforded by these booming foreign markets. The US standard of living and its standing in the world will suffer.”

In the next entry we will look at a recent publication in the UK on trade and examine at its relevance regarding Latin America.