March, 30 2009, 02:00pm EDT
For Immediate Release
Contact:
Phone: (202) 223-4975,Email:,coha@coha.org
Global Recession: Protectionism and Diversification in the US and South America
WASHINGTON
- Peru and Chile maintain free market principles and diversification of trading partners
- Brazil, Chile, Colombia and the U.S. implement huge stimulus packages
- Argentina, Paraguay, and Ecuador attempt to protect their economies by imposing new tariffs
- The G-20 summit this April could offer global solution to the crisis
On the other hand, South American nations like Peru and Brazil that have diversified their bilateral trade partners over the last decade, may be less impacted by the global recession. MERCOSUR, UNASUR, ALBA and other South American regional trade agreements could also help to soften the blow on the continent. Nonetheless, much of South America is now experiencing a recession, and the debate on how to most effectively respond to it varies widely among economists.
Those Who Diversify: Chile
At a G-7 meeting in early February, finance ministers maintained an anti-tariff rhetoric and pledged to remain "committed to avoiding protectionist measures." Accordingly, Timothy Geithner, U.S. Treasury Secretary, stated, "all countries need to sustain a commitment to open trade and unfettered investment policies which are essential to economic growth." While some left-leaning governments in South America are erecting trade barriers, Peru and Chile are robustly pursuing their free trade model, with a free trade agreement (FTA) between the two nations having gone into effect on March 1, 2009. Moreover, in conjunction with this agreement, the two countries continue to diversify their trading partnerships. Chile has signed comprehensive FTAs with the US, Canada, the EU, South Korea, Japan, Central America and Mexico.
Peru
Meanwhile, its trade agreement with Australia went into effect on March 6, 2009.
According to Financial Times, Peru's President Alan Garcia signed FTAs with Canada and Singapore in 2008 and expects the pacts to come into effect this month. Peru's trade deal with China should also take effect within the next few months, and agreements with South Korea, Central America, and Japan are currently under negotiation. Their advocates insist that Chile and Peru's economies have benefited enormously from free trade, but a number of area nations and various leftist analysts are moving away from an unalloyed neo-liberal-oriented enthusiasm for this type of approach.
Washington's Approach
The U.S. is also somewhat shifting away from the neo-liberal free trade model. "Our consensus to advance international trade is frayed," explained senator Max Baucus (D-Mont.) at the nomination hearing of U.S. Trade Representative nominee Ron Kirk on March 9, 2009. "Our faith in the international trading system is badly shaken." The Obama administration has vowed to shift U.S. trade policy away from a strategy of signing new agreements to impose tougher labor and environmental standards and position them in the core of the FTA prior to the final passage of trade deals. The Office of the USTR also has issued a statement claiming that trade policy will contain a new element of "social accountability," intending to make the trade pact part of the solution "for addressing international environmental challenges."
In response to the current world economic crisis, however, drawn out trade agreements do not offer a timely or convincing solution to a very real problem. In order to allow for a more immediate impact on the economy, the U.S. along with a number of South American nations have implemented Keynesian economic policies that protect domestic markets and stimulate demand. Proponents of this economic model assert that the solution to a recession is to stimulate a state's economy through a combination of increased infrastructure spending by the government and interest rate reductions. This is exactly what President Barack Obama is hoping to do with the $787 billion economic stimulus package he signed into law on February 17, 2009. Within the U.S., the stimulus package has received criticism for not addressing the finance and mortgage situation, not being big enough and quick enough, as well as neglecting to provide enough stimuli for the private sector, and to protect the public from senior personnel gouging taxpayer funds by means of ill-earned bonuses by ethically challenged financial officers.
Internationally, the biggest criticism regarding trade policy has been the "Buy American" provision. Although Obama amended this language so that Washington would not violate trade agreements and international trade laws, the plan still favors U.S. steel, iron, and manufactured goods for infrastructural projects. While the U.S. will not be found disrupting its trade relations with Canada and Mexico, U.S. steel and iron will be able to maintain their preferences over the largest emerging economies, such as Brazil, India, and China. Some economists fear that if the U.S. is able to close its market from these nations, the affected developing countries may be forced to decide to close their own borders, with their 2 billion or so consumers, to American exports, and thus ignite a trade war. World Trade Organization (WTO) director, General Pascal Lamy remains cautious over the provision. After Obama watered down the language, Lamy said, "We all know the devil isn't in the details, it's in the implementation."
Those Who Stimulate: Brazil
Brazil, Colombia, and Chile are also implementing Keynesian national stimulus packages, though on a much smaller scale when compared to that of the U.S. Brasilia's $281 billion deal is focused primarily on supporting the energy and transportation sectors of South America's largest economy, according to Prabir De of Indian Express Finance. In December 2008, Brazil also announced 2009 tax cuts of 8.4 billion reais (US $3.6 billion), directed primarily at the obligations borne consumers. According to Brazzil Mag, the measure also included a tax reduction provided on the Tax on Industrialized products for the Brazilian auto industry until March 31, 2009. The carmakers agreed to transfer the tax cuts to reduce the prices charged to their customers, making prices for their vehicles considerably cheaper.
Colombia
The Brazilians are not the only South Americans attempting to jump start their economy. Colombia's plan represents the largest annual infrastructure spending in its history. The 55 trillion peso (US$22 billion) stimulus plan includes over 100 electricity, transportation, oil, and sanitation projects, according to Latin Finance. Colombia's economy is predicted to grow less than 2 percent this year, and the stimulus is expected to allow it to weather the storm, according to Carolina Rentaria, head of Colombia's National Planning Department.
Chile
Chile will also break its record for economic stimulus spending this year, as President Michelle Bachelet announced a $4 billion scenario to curtail the effects of the global recession on January 6, 2009. The primary aim of the stimulus is to create the conditions for economic growth as well as to generate 100,000 new jobs. As Davor Luksic of The Americas Society reports, the stimulus focuses on tax rebates and subsidies, such as $1 billion for Codelco, the country's giant state-owned copper producer. The January plan followed a $1.15 billion spending bill, which was passed in November 2008, and was intended to stimulate lending to small businesses and middle-income households. Santiago is also mulling over temporarily cutting the 19 percent value-added tax (VAT) and adding a one-time payment to low-income families as a third economic stimulus, according to a Reuters report.
Although stimulus packages do not include explicit protectionist mandates, such as tariffs and anti-dumping measures, several developing nations have argued that fiscal stimulants and bailouts (especially to large bank and auto bailouts in the U.S. and Europe) may be having an adverse effect on international trade. At a WTO Trade Policy Review Body meeting, developing countries were concerned about large subsidies being made to individual industries, such as U.S. steel fabricators. At the same meeting, Brazilian Ambassador Roberto Azevedo told journalists that protectionism includes more than just controlling imports and raising tariffs. It also includes subsidies and large stimulus packages, which are typically not available to developing nations with limited resources. Azevedo argued that industrialized nations "are increasing the capacity of their industry to compete in a way that developing countries cannot." Since developing nations do not have the funds to implement such large scale supportive measures, their only alternative is raising tariffs.
Those Who Tariff: Argentina
As part of their economic defense strategy, Argentina, Ecuador, and Paraguay have all raised tariffs to protect their domestic markets. In November, Argentina and Brazil lobbied to raise the common tariff of MERCOSUR, the South American regional trade bloc, but Paraguay and Uruguay did not support the overtly protectionist measure. In response, Argentina unilaterally imposed tariffs on a variety of goods including shoes, appliances, farm machinery, processed food, steel, iron and textiles. Buenos Aires in turn was criticized by Brazil, China and Paraguay for its new system of licensing and minimum pricing that it has applied to over 1,000 imports in recent months. The Bridges Weekly Trade News Digest observed that Brazilian manufacturers consider that Argentina's new policies "unfairly discriminate against their products... by delaying shipments for up to 60 days and effectively excluding imports that fail to meet the price requirements." Yang Shidi, economic and commercial counselor of the Chinese Embassy in Argentina also condemned the import restrictions as "discriminatory," in an interview published in La Nacion. Yang went on to assert that the new policies have hurt Chinese producers and are inconsistent with a 2004 memorandum of understanding (MOU) between Argentina and China, which acknowledges China's market economy status.
As a result of Argentina's restrictions and its trade deficit with Brazil, the Paraguayan government announced on March 1, that it will apply certain tariffs to imports from Argentina and Brazil in order to protect its local industry. Paraguay's Finance Minister Dionisio Borda argued that Asuncion's treatment of Argentinean and Brazilian imports would be similar to their respective treatment of Paraguayan imports. Borda stated, "We, too, are going to apply the same measures they have adopted." He assured the interested parties that the measures would "be temporary" and serve as part of the economic recovery plan. Paraguay is also implementing its own "Buy National" campaign similar to the U.S. "Buy American" provision, which will give local Paraguayan goods and services a 70 percent preference, according to Borda.
Ecuador
President Rafael Correa of Ecuador is essentially forcing citizens to "Buy Ecuadoran" products with his newly imposed import restrictions. According to a WTO press release, Quito raised tariffs between 5 and 20 percent on 940 products, including perfume, liquor, shoes, shampoo, grapes, butter, turkey, caramels, cell phones, eyeglasses, sailboats, building materials and transport equipment. As prices of imported goods drastically increased, some argue that buying domestic is now the only practical choice for most Ecuadoran consumers. Correa, however, predicts that the tariffs will have only a minor impact on citizens, because "the poor don't consume perfumes, liquor and chocolates."
Ecuador's new tariffs have been criticized as one of the world's most protectionist responses to the global economic crisis. Gary Hufbauer, of the conservative Peterson Institute for International Economics, argues that no other country has harsher restrictions on imports. Correa said drastic measures were necessary to prevent Ecuador's economy from crumbling, as petroleum prices declined and remittances and earnings on foreign investment plunged. It should be noted that Ecuador is extremely vulnerable in the current situation because it adopted the U.S. dollar as its official currency in 2000 after the country was beset by a withering banking crisis. This prevents Quito from printing its own money. Ultimately, this could prove to be problematic if Ecuador's trade deficit widens because its economy could collapse due to a drainage of U.S. dollars. Correa hopes that the restrictions will keep $1.46 billion from exiting Ecuador's $50 billion economy, according to Jeanneth Valdivieso and Frank Bajak of the Associated Press. Some economists are also calling for the creation of a national currency to replace or supplement the dollar, in order for Ecuador to maintain a more sound monetary policy.
Paraguay
Although tariffs are seen as short term solutions, they can have long term consequences. For instance, some economists argue that tariffs and price controls have the potential to trigger global "trade wars," as witnessed in Paraguay's response to Argentina's imposed tariffs. They also agree that protectionist measures, such as Smoot-Hawley Tariff Act, prolonged the Great Depression longer than may have been necessary. Thus, newly imposed tariffs should only be counted on to provide temporary relief (much like an economic stimulus), and they should be re-evaluated as the beginning signs of a recovery appear.
A Global Solution to a Global Problem
As the economic crisis continues to globalize, South American nations are pursuing various trade deals, implementing economic stimulus packages, and imposing new tariffs in response. All of these individual national efforts seek to soften the blow delivered by the downturn, but it is unlikely that they alone will solve the problem. Latin American stocks have plummeted and the International Labor Organization has issued a warning that 2.4 million Latin Americans shortly could join the ranks of the unemployed this year as a result of the incessant crisis. Nevertheless, the catastrophe extends far beyond Latin America and the entire Western Hemisphere, and thus there is dire need for global collective action. The G-20 summit in London that begins in a few days, offers a good deal of potential to develop a concerted response. At this point, the only thing the world's economies seem to agree on is that the financial regulatory system needs to be reformed, but exactly to what extent, continues to be a serious concern. Developing nations want greater governance over the operation of the international financial institutions, such as the World Bank and the International Monetary Fund (IMF). They also agree that the IMF needs to be rendered more flexible in terms of the conditionalities it imposes on countries receiving financial aid.
Developing nations also fear that they will be "crowded out" by developed nations in terms of access to loans and investment capital. Latin American finance ministers have called for a recapitalization of the Inter-American Development Bank (IDB), currently the largest lender in Latin America for major development projects. The World Bank is proposing a Vulnerability Fund that would similarly focus on infrastructure projects and maintaining adequate financing of schools, health care, and loans for small businesses for low income elements of the population.
The U.S. is also calling for greater financial regulation, while simultaneously calling on the EU to engage in greater government spending and in economic stimulus programs. The EU, much like Latin America, feels as though it is being forced to clean up a mess that originated mainly in the U.S. There is a fear that the G-20 summit will be spoiled due to delegates bringing with them contrasting objectives and with only 24 hours to rush through the chaotic agenda. One can only hope that the world powers listen to the worthy voices of developing nations and work together to overcome the global crisis. If the former don't, the real problems will really begin.
This analysis was prepared by COHA Research Associate Will Petrik
Founded in 1975, the Council on Hemispheric Affairs (COHA), a nonprofit, tax-exempt independent research and information organization, was established to promote the common interests of the hemisphere, raise the visibility of regional affairs and increase the importance of the inter-American relationship, as well as encourage the formulation of rational and constructive U.S. policies towards Latin America.
LATEST NEWS
GOP Still Lacks Votes to Pass Budget Bill 'Because It's a Moral Monstrosity,' Says Senate Democrat
"We have been debating amendments for 21 hours and we are still going because through 12 hours of debate and 21 hours of amendment votes, Republicans still don't have 50 votes for their bill," said Sen. Chris Murphy.
Jul 01, 2025
Even after an all-night session of amendment votes and wrangling behind closed doors, Senate Republicans still did not have enough support to pass their reconciliation package as of Tuesday morning, leaving party leaders scrambling to placate GOP holdovers who are purportedly nervous about the legislation's unprecedented cuts to Medicaid and federal nutrition assistance.
Sen. Chris Murphy (D-Conn.) argued in a social media post that the reason for the GOP's inability to quickly rally its own members around the legislation is straightforward: "Because it's a moral monstrosity."
"We have been debating amendments for 21 hours and we are still going because through 12 hours of debate and 21 hours of amendment votes, Republicans still don't have 50 votes for their bill," Murphy wrote at roughly 5:30 am ET, as the marathon "vote-a-rama" continued with no end in sight.
With Democrats unanimously opposed to the bill, Senate Republicans can only afford to lose three GOP votes if they are to send the measure back to the House for final approval. Sens. Rand Paul (R-Ky.) and Thom Tillis (R-N.C.) have said they will vote against the bill in its current form, and Sens. Lisa Murkowski (R-Alaska) and Susan Collins (R-Maine) are undecided. Sen. Ron Johnson (R-Wis.) also suggested he's on the fence.
Republican leaders have been working to bring Murkowski into the yes column with a proposal that would temporarily exempt Alaska and other states from the bill's massive cuts to the Supplemental Nutrition Assistance Program (SNAP). Sen. Amy Klobuchar (D-Minn.), the top Democrat on the Senate Agriculture Committee, ripped the proposal as "absurd" and said it would reward the states with the highest SNAP error rates.
"Insanity reigns," Klobuchar wrote on social media.
Senate Republicans' margins became more difficult after Sen. Thom Tillis (R-N.C.) announced his opposition to the legislation over the weekend, pointing to the Senate version's devastating cuts to Medicaid.
"What do I tell 663,000 people in two years or three years, when President Trump breaks his promise by pushing them off of Medicaid because the funding's not there anymore?" Tillis asked in a floor speech on Sunday, citing an estimate of the number of people in North Carolina who could lose health insurance under the Republican bill.
Throughout the country, nearly 12 million people would lose coverage under the Senate reconciliation bill, according to the nonpartisan Congressional Budget Office.
"Kicking millions off healthcare, blowing up the national debt by trillions, and devastating generational economic harms—all being written into law on the fly," Sen. Patty Murray (D-Wash.) said early Tuesday morning after hours of debate and amendment votes.
Keep ReadingShow Less
At Least 95 Palestinians Killed in Israeli Attacks Including Massacres at Beach Café, Aid Points
"I saw body parts flying everywhere, and bodies cut and burned," said one eyewitness to a strike on the popular al-Baqa Café.
Jun 30, 2025
Israeli forces ramped up their genocidal assault on the Gaza Strip Monday, killing at least 95 Palestinians in attacks including massacres at a seaside café and a humanitarian aid distribution center and bombings of five school shelters housing displaced families and a hospital where refugees were sheltering in tents.
An Israeli strike targeted the al-Baqa Café in western Gaza City, one of the few operating businesses remaining after 633 days of Israel's obliteration of the coastal strip and a popular gathering place for journalists, university students, artists, and others seeking reliable internet service and a respite from nearly 21 months of near-relentless attacks.
Medical sources said at least 33 civilians were killed and nearly 50 others wounded in the massacre, including footballer Mustafa Abu Amira, photojournalist Ismail Abu Hatab—who survived an earlier Israeli airstrike and is reportedly the 227th journalists killed by Israel since October 2023—and prominent artist Frans Al-Salmi, whose final painting depicting a young Palestinian woman killed by Israeli forces resembles photographs of its slain creator posted on social media after her killing.
Warning: Photos shows image of death
Survivor Ali Abu Ateila toldThe Associated Press that the café was crowded with women and children at the time of the attack.
"Without a warning, all of a sudden, a warplane hit the place, shaking it like an earthquake," he said.
Another survivor of the massacre told Britain's Sky News: "All I see is blood... Unbelievable. People come here to take a break from what they see inside Gaza. They come westward to breathe."
Eyewitness Ahmed Al-Nayrab toldAgence France-Presse that a "huge explosion shook the area."
"I saw body parts flying everywhere, and bodies cut and burned," he said. "It was a scene that made your skin crawl."
Witnesses and officials said Israeli Defense Forces (IDF) troops opened fire on Palestinians seeking food and other humanitarian aid from a U.S.-backed Gaza Humanitarian Foundation distribution point in southern Gaza, killing 15 people amid near-daily massacres of aid-seekers.
"We were targeted by artillery," survivor Monzer Hisham Ismail told The Associated Press. Another survivor, Yousef Mahmoud Mokheimar, told the AP that Israeli troops "fired at us indiscriminately." Mokheimar was shot in the leg, another man who tried to rescue him was also shot.
IDF troops have killed nearly 600 Palestinian aid-seekers and wounded more than 4,000 others over the past month, with Israeli military officers and soldiers saying they were ordered to deliberately fire on civilians in search of food and other necessities amid Israel's weaponized starvation of Gaza.
Another 13 people were reportedly killed Monday when IDF warplanes bombed an aid warehouse in the Zeitoun quarter of southern Gaza City, according to al-Ahli Baptist Hospital officials cited by The Palestine Chronicle. IDF warplanes also reportedly bombed five schools housing displaced families, three of them in Zeitoun. Israeli forces also bombed the courtyard of al-Aqsa Hospital in Deir al-Balah in central Gaza, where thousands of forcibly displaced Palestinian families are sheltering in tents. It was reportedly the 12th time the hospital has been bombed since the start of the war.
The World Health Organization has documented more than 700 attacks on Gaza healthcare facilities since October 2023. Most of Gaza's hospitals are out of service due to Israeli attacks, some of which have been called genocidal by United Nations experts.
Israel's overall behavior in the war is the subject of an ongoing International Court of Justice genocide case, while Israeli Prime Minister Benjamin Netanyahu is wanted by the International Criminal Court for alleged war crimes and crimes against humanity in Gaza, including murder and using starvation as a weapon of war.
Since October 2023, Israeli forces have killed or wounded more than 204,000 Palestinians in Gaza, including over 14,000 people who are missing and presumed dead and buried under rubble, according to the Gaza Health Ministry, whose casualty figures have been found to be generally accurate and even a likely undercount by peer-reviewed studies.
The intensified IDF attacks follow Israel's issuance of new forced evacuation orders amid the ongoing Operation Gideon's Chariots, an ongoing offensive which aims to conquer and indefinitely occupy all of Gaza and ethnically cleanse much of its population, possibly to make way for Jewish recolonization as advocated by many right-wing Israelis.
Keep ReadingShow Less
'We Cannot Be Silent': Tlaib Leads 19 US Lawmakers Demanding Israel Stop Starving Gaza
"This current blockade is starving Palestinian civilians in violation of international law, and the militarization of food will not help."
Jun 30, 2025
As the death toll from Israel's forced starvation of Palestinians continues to rise amid the ongoing U.S.-backed genocidal assault and siege of the Gaza Strip, Rep. Rashida Tlaib on Monday led 18 congressional colleagues in a letter demanding that the Trump administration push for an immediate cease-fire, an end to the Israeli blockade, and a resumption of humanitarian aid into the embattled coastal enclave.
"We are outraged at the weaponization of humanitarian aid and escalating use of starvation as a weapon of war by the Israeli government against the Palestinian people in Gaza," Tlaib (D-Mich.)—the only Palestinian American member of Congress—and the other lawmakers wrote in their letter to U.S. Secretary of State Marco Rubio. "For over three months, Israeli authorities have blocked nearly all humanitarian aid from entering Gaza, fueling mass starvation and suffering among over 2 million people. This follows over 600 days of bombardment, destruction, and forced displacement, and nearly two decades of siege."
"According to experts, 100% of the population is now at risk of famine, and nearly half a million civilians, most of them children, are facing 'catastrophic' conditions of 'starvation, death, destitution, and extremely critical acute malnutrition levels,'" the legislators noted. "These actions are a direct violation of both U.S. and international humanitarian law, with devastating human consequences."
Gaza officials have reported that hundreds of Palestinians—including at least 66 children—have died in Gaza from malnutrition and lack of medicine since Israel ratcheted up its siege in early March. Earlier this month, the United Nations Children's Fund warned that childhood malnutrition was "rising at an alarming rate," with 5,119 children under the age of 5 treated for the life-threatening condition in May alone. Of those treated children, 636 were diagnosed with severe acute malnutrition, the most lethal form of the condition.
Meanwhile, nearly 600 Palestinians have been killed and more than 4,000 others have been injured as Israeli occupation forces carry out near-daily massacres of desperate people seeking food and other humanitarian aid at or near distribution sites run by the U.S.-backed Gaza Humanitarian Foundation (GHF). Israel Defense Forces officers and troops have said that they were ordered to shoot and shell aid-seeking Gazans, even when they posed no threat.
"This is not aid," the lawmakers' letter argues. "UNRWA Commissioner-General Philippe Lazzarini has warned that, under the GHF, 'aid distribution has become a death trap.' We cannot allow this to continue."
"We strongly oppose any efforts to dismantle the existing U.N.-led humanitarian coordination system in Gaza, which is ready to resume operations immediately once the blockade is lifted," the legislators wrote. "Replacing this system with the GHF further restricts lifesaving aid and undermines the work of long-standing, trusted humanitarian organizations. The result of this policy will be continued starvation and famine."
"We cannot be silent. This current blockade is starving Palestinian civilians in violation of international law, and the militarization of food will not help," the lawmakers added. "We demand an immediate end to the blockade, an immediate resumption of unfettered humanitarian aid entry into Gaza, the restoration of U.S. funding to UNRWA, and an immediate and lasting cease-fire. Any other path forward is a path toward greater hunger, famine, and death."
Since launching the retaliatory annihilation of Gaza in response to the Hamas-led October 7, 2023 attack on Israel, Israeli forces have killed at least 56,531 Palestinians and wounded more than 133,600 others, according to the Gaza Health Ministry, which also says over 14,000 people are missing and presumed dead and buried beneath rubble. Upward of 2 million Gazans have been forcibly displaced, often more than once.
On Sunday, U.S. President Donald Trump reiterated a call for a cease-fire deal that would secure the release of the remaining 22 living Israeli and other hostages held by Hamas.
In addition to Tlaib, the letter to Rubio was signed by Sen. Bernie Sanders (I-Vt.) and Democratic Reps. Greg Casar (Texas), Jesús "Chuy" García (Ill.), Al Green (Texas), Jonathan Jackson (Ill.), Pramila Jayapal (Wash.), Henry "Hank"Johnson (Ga.), Summer Lee (Pa.), Jim McGovern (Mass.), Alexandria Ocasio-Cortez (N.Y.), Ilhan Omar (Minn.), Chellie Pingree (Maine), Mark Pocan (Wisc.), Ayanna Pressley (Mass.), Delia Ramirez (Ill.), Paul Tonko (N.Y.), Nydia Velázquez (N.Y.), and Bonnie Watson Coleman (N.J.).
Keep ReadingShow Less
Most Popular