The Natural Market Fallacy: Slim Pickings in Latin America

A central issue in this era of globalization is whether any regional trade grouping-in Asia, Europe, or the Americas-represents the best course for the world economy, and whether the United States in particular has any natural markets. President Clinton's proposal for a Western Hemisphere free trade area, announced at the Miami summit in December 1994, is grounded in the conviction that the United States has such a market in Latin America. His vision, in essence the creation of a much-expanded North American Free Trade Agreement (NAFTA) by the year 2005, sounds grand. But even if Latin American states were to accept the labor and environmental controls Congress wants to include in new trade agreements, they are far less attractive trading partners for the United States than Mexico and Canada. Moreover, the drive toward economic regionalism would move the global economy in the wrong direction.

U.S. exports to Latin America, particularly to the economies of South America, are limited. The Commerce Department is fond of including the region's largest economy, Brazil, among the world's big emerging markets. However, what Brazil and other emerging markets truly have in common is that they have all been slow-growing as customers for U.S. exports. These limitations stem from a continuing history of aggressive protectionism and an insistence that foreign firms produce their goods in-country. The automobile industry provides a good illustration. In Brazil, the tariff on imported cars of 63 percent is cut in half for locally made cars that have significant local content.

The overall result of such policies is that U.S. merchandise exports to Brazil were $12.7 billion in 1996-sizable, but little more than the $12 billion the United States exported to thinly populated Australia. For additional perspective, consider that in 1996 the United States exported $26 billion to Korea, $18 billion to Taiwan, and $16 billion to Singapore, three Asian tigers with far smaller populations than Brazil. America's exports per capita to comparable markets are similarly revealing. In 1996 America's per capita exports were $604 to Mexico, $430 to Malaysia, $291 to Chile, $132 to Argentina, $120 to Thailand-and just $80 to Brazil's vaunted big emerging market.