Obama makes a strategic down payment

By Christopher Garman

The turmoil in the Middle East and Japan has almost completely overshadowed U.S. President Barack Obama’s trip to Latin America, but his visit to Brazil is a strategic down payment on improved relations with an emerging world power.

Under former President Luiz Inacio Lula da Silva most of Brazil’s foreign policy initiatives were driven primarily by the Ministry of Foreign Affairs (Itamaraty) with a long-standing preference for improved South-South ties or by Lula personally.

Brazil’s President Dilma Rousseff, however, is more interested in economic concerns and there are already signs that such issues will have more impact on her foreign policy, perhaps yielding a better relationship with the United States. Some of that shift can be explained by Rousseff’s economic training and her many years as a government technocrat. Equally important, however, is her underlying pragmatism, something that many pundits failed to identify during the presidential campaign.

Her more skeptical view of China yields the clearest evidence of this change. Under Lula, Brazil sought to strengthen its relationship with Beijing driven in part by a desire to counter-balance U.S. geopolitical clout. By contrast, under Rousseff, private sector concerns over how Chinese imports are undermining the competitiveness of Brazil’s manufacturing are surfacing more strongly in Brazilian policy. Where Lula blamed the U.S. Federal Reserve’s quantitative easing for global imbalances, Rousseff has placed equal blame on China’s managed currency policy.

It would be a mistake, however, to think this new focus will translate into a wholesale transformation of the relationship. Rousseff is not about to work jointly with the United States, either bilaterally or in multilateral settings such as the G-20, to pressure China on its currency policy.

Additionally, even though Brazilian policymakers are signaling a desire to supply the U.S. market with exports from its vast new oil deposits, Brazil’s new statist exploration and production framework designed to develop the country’s pre-salt reserves is much less attractive to U.S. majors. In fact, there seems to be more room for cooperation on renewables and environmental regulations in deep-sea drilling than in upstream E&P.

It comes as no surprise that Obama did not support Brazil’s push for a permanent seat on the U.N. Security Council in the same way it supported India’s bid. The United States may want to deepen its relationship with Brazil, but the ill will generated by Iran episode (Lula’s attempt to broker a nuclear deal with Tehran) hasn’t yet completely faded. Obama also remains constrained on trade, given protectionist pressures in the U.S. Congress that gives him little room to deliver either reduced U.S. agricultural subsidies or lower ethanol tariffs, both of which are high among Brazil’s priorities in the bilateral agenda.

But with pragmatists leading the two largest countries in the Americas, relations look set to improve.

Christopher Garman is the director of Eurasia Group’s Latin America team.