Government Intervention in the Economy

Treasury Secretary Scott Bessent was in Brazil discussing trade and this quote popped out at me.

Despite diplomatic controversies caused by Trump’s economic agenda in Brazil, Bessent supported the use of tariffs as part of a broader effort to reindustrialise. He noted that while tariffs generate short-term revenue, the long-term goal is to encourage companies to move production to the United States, shifting government revenue towards domestic economic activity.

This should sound familiar to anyone who has looked at Latin America from the 1950s-1980s. Import substitution industrialization was a large-scale effort to industrialize, encourage local production, and shift government revenue to domestic economic activity, all through the use of tariffs. As Mike Allison and I wrote in U.S. and Latin American Relations:

The idea was that to reduce dependency on imports, the state would direct, encourage, and subsidize targeted domestic industries, whose products would substitute for foreign goods (p. 136).

It's so similar, but not identical. At least as yet, we're not seeing the same level of state investment in industry (e.g. ownership, even if partial). The irony is that Latin America was doing it in large part to protect itself from the United States, which in turn exerted tremendous pressure to liberalize and open markets up to U.S. products. Now the script is flipped.

The irony is extended further since in the same interview, Bessent said we had a “generational opportunity to strengthen ties with governments that support market-oriented reforms.” At the moment, however, the U.S. is not such a country. "Market-oriented" means that the market determines outcomes with a minimum of government manipulation. Recent reforms in terms of government intervention in the economy is decidedly not market-oriented. In fact, Latin American countries have been pursuing free trade agreements elsewhere.

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Americans Don't Care Much About Venezuela

There is a new Pew survey showing Americans* don't have much faith in Donald Trump when it comes to "wise decisions" toward Venezuela, that they're split on U.S. access to Venezuelan oil and the use of force to remove Nicolás Maduro, and that the splits run a lot along partisan lines. Politically, I don't think it matters much because the poll does not measure intensity.

About a month ago, I gave a surprisingly lengthy interview for local TV news. I ended up getting a lot of positive feedback because so many people just didn't have any idea what was happening. But what occurs to me is that the appetite for knowing more has mostly evaporated. What people really pay attention to is the use of U.S. force that might involve U.S. casualties. In my opinion, although people might be aware of killing people on boats and commandeering oil tankers and many might even oppose those actions, they don't assign much importance to them. If we ever get to a point where U.S. troops enter Venezuela, then that can change quickly.

What that means is that until that time, U.S. public opinion likely won't have much impact on U.S. policy toward Venezuela, which will continue to go along the president's whims.

*Yes, I am aware of the problematic nature of the term but it's much easier shorthand than "people in the United States." I wish we had something better.

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How Latin American Presidents Deal With Trump

In an article about Senator Katie Britt, a New York Times reporter noted something that caught my attention:

She seldom challenges Mr. Trump. When she does, she believes that, to be effective, any outrage must be felt quietly, any response conducted through back-channeled phone calls and peppered with words of admiration for the president.

This is a great way to way to frame oppositional Latin American presidents' response to Donald Trump as well. It was widely reported that Trump took offense to Nicolás Maduro dancing around in response to U.S. threats. So after the Venezuela invasion, Gustavo Petro switched from highly inflammatory to a White House visit where he had Trump sign The Art of the Deal. Claudia Sheinbaum has been similarly careful albeit perhaps less effusive, but manages to get Trump to say positive things about her publicly.

I am sure everyone has noticed that co-dictators Daniel Ortega and Rosario Murillo are very quiet. Nicaragua was not on the list of countries being decertified as not cooperating in anti-narcotics efforts (Bolivia, Colombia, and Venezuela were) so are less likely to get his attention. So they stay vewy vewy quiet and stay off Trump's radar. 

Miguel Díaz-Canel doesn't exactly go this route but his personality is very un-flamboyant so he greatly resembles it. He'll never visit the White House but he's not in the news much and does not make fiery speeches. But Cuba is Cuba, so he's on the radar no matter what. 

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Cuba Has a Secret Plan

From Granma: Cuban President Miguel Díaz-Canel says Cuba has lots of support and plenty of governments and institutions ready to help it, but he can't talk about it.

Apuntó que, además de esas manifestaciones de solidaridad, «hay más cosas, cosas que no podemos hoy explicar abiertamente, porque el enemigo está en una persecución de todas las luces que se le pueden abrir a Cuba, de todos los caminos que se le pueden abrir a Cuba; pero sí les puedo asegurar, con todo sentido de responsabilidad, que Cuba no está sola.

«En un momento como este hay mucha gente, gobiernos, países, instituciones, empresas que están dispuestos a trabajar con Cuba y que ya nos han hecho llegar vías, mecanismos, intenciones de cómo podemos hacer.

So sure, you wouldn't want to publicize any of this, but it's difficult to supply anything secretly to Cuba. The trick is that Cuba badly needs oil and the U.S. has promised tariff retaliation for selling to Cuba. You can't get oil there without anyone knowing.

Both Mexico and Russia have publicly said they'll keep sending it (even though Donald Trump said Mexico would stop). However, Claudia Sheinbaum suggested that she might not want to suffer the tariffs. The loss of Mexican oil would be huge. Russia's supply is much smaller but every bit counts because Cuba cannot produce enough for its own needs.

So perhaps there are plans afoot to get some critical goods to Cuba, which can slightly ease the pain inflicted by the embargo and threats. Certainly, the Cuban government enjoys a level of international respect that Venezuela lacked (or once had, then lost as it became clear that Maduro and much of the regime wasn't even slightly revolutionary). But it may well be that the most important assistance will have to be public because it's in bulk.

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The Key Problem with Maria Corina Machado

Marco Rubio's announcement that the Venezuelan regime will have to submit a monthly budget, which will then release money from a Qatari account*, just underlines a key reason that democratic transition in Venezuela is a problem for the Trump administration. Democratically-elected (or even just democratically-minded) leaders could not accept such an arrangement. No one in Venezuela gets a say in the country's most precious natural resource.

If María Corina Machado were to return, there would be myriad challenges, but let's focus on this one for now. The U.S. could not say they would overthrow or kidnap her if she didn't follow its orders. She would have independent legitimacy that Delcy Rodríguez completely lacks. With that legitimacy she could dictate terms even though she might feel indebted to the U.S. for getting her back in the country. She would have the right to say no. She would not want to ask permission from a foreign power to spend her own country's money.

This will come as no surprise to people who know Latin American political history, but it's far better for the Trump administration to have a pliable, vulnerable, and undemocratic president in Venezuela. It carries its own problems, but it's better. The U.S. might not even need any military force to remove Rodríguez if she doesn't act as Marco Rubio wants--just whisper to political rivals that she's out of favor. Remote control authority doesn't work with democracy (it's not clear how well it works with dictatorship, but it's easier).

The administration has made abundantly clear that democracy is definitely not a short-term goal and is only hazily a long-term one. Aside from the obvious problem of having groups that detest each other, democracy in the best of times is messy and unpredictable. For a foreign country wanting access to oil and money, messy and unpredictable is no good. 

*The term "slush fund" is not out of order here.

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Controlling Another Country's Money

 I was reading through Lars Schoultz's In Their Own Best Interest and found a fun citation in the Foreign Relations of the United States documents. It is Secretary of State Philander Knox speaking to the Senate Committee on Foreign Relations in 1911. The topic is Honduras but it could be Venezuela today.

We can not blink the fact that there is no hope for peace and prosperity for Honduras except through the United States. All she now asks is, Will you assist us to make the security good which we offer for the debt we are incurring, at a reasonable rate of interest, by helping us to secure an honest collection of our revenues, or will you, by withholding that assistance, drive us back upon the usurers and plunderers who have brought us to our present stagnation?

How will this be done?

The convention has been drawn for the purpose of giving security. That is, for the purpose of assuring the regular payment of interest and sinking fund upon the debt. Its provisions, briefly, are:

1. Honduras engages to place the loan in the United States.

2. Honduras pledges her customs receipts for the payment of the interest and sinking fund.

3. Honduras agrees to appoint a receiver from a list of names prepared by the fiscal agent and approved by the President of the United States.

4. Honduras agrees to afford protection to the receiver and that if necessary the United States may give such protection.

5. The receiver is under obligation to report to the fiscal agent of the loan and to either Government regarding the discharge of his duties.

6. Honduras further agrees not to alter the customs receipts during the existence of the loan.

In essence, Honduras hands its economy over to U.S. officials.

The convention would have the effect of affording security to the bondholders; of assuring to Honduras the punctual and complete discharge of her obligations practically without cost to the Government; the enjoyment of continued peace, and the consequent internal development; and to the United States the saving in expense to this Government would alone seem to be a sufficient inducement.

Good for everyone. Except Hondurans.

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Trump's Policy Toward Latin America and China

I wrote a guest blog post for the University of New Mexico Press, which published my book on autonomy. It's not a new story for anyone reading this blog. Not even the Venezuela invasion will suddenly push China aside. Indeed, Latin America doesn't want to it pushed aside. Go read it and give them some clicks.

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Latin America's Response to Mark Carney's Speech

I was watching a webinar put on by the Canadian Council for the Americas, which naturally touched on Mark Carney's speech. Robert Funk, a Chilean professor (but also Canadian) noted how unusual it was to have people talking about a Canadian Prime Minister's speech in casual conversation. And I don't blog very much about Canada.

It resonated elsewhere and Claudia Sheinbaum praised it. Carney will spend a lot of the year traveling, which already includes Brazil and I imagine will include plenty more of Latin America. This isn't exactly new, but the sense of urgency is intensifying.

A question came up in the webinar about whether Canada would lead some sort of group of middle powers, which I think misses the core point. This isn't a "movement" per se but rather just the rational response by sovereign countries with options. There doesn't have to be a leader, which suggests common political views, policies, and the like.

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Delcy Rodriguez's Public Face

Delcy Rodriguez is widely quoted as saying she's had "enough" of U.S. interference and orders. Telesur, which I hadn't looked at in forever, really gets into it but it's getting play in all the major U.S. outlets as well. It is in fact getting so much play and so little official pushback that it feels planned. In that sense, Telesur is (unwittingly or not) following right along with U.S. policy.

She's obviously facing intense pressure from within the regime, but the rest of Venezuela didn't suddenly lose their sense of nationalism. They wonder whether the U.S. is simply sucking the oil and profit out of the country. She has to be allowed to give fiery speeches every once in a while to bolster an image of nationalism and sovereignty. This has plenty of precedent in Latin American history more broadly. Fidel Castro himself was consistently involved in quiet talks with the U.S. while explaining he had to give a certain kind of speech publicly. That could well be what's happening here.

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Don't Make Sweeping Generalizations About Latin American Politics

Michael Reid, who is a highly experienced observer of Latin American politics, should know better than to make sweeping generalizations about it, but he did. He says that the rightward trend in Latin America is different from past pendulums and is likely here to stay. Here are his two main reasons and the problems with them.

1. Latin American voters have been afraid of a repeat of Venezuela so vote for the right instead. The problem here is obvious--in 2022 neighboring Colombia voted in not just a leftist (the first in their history!) but a former guerrilla. The same year, neighboring Brazil chose Lula over a Jair Bolsonaro, who was both incumbent and close to Donald Trump. So this reason doesn't pass muster.

2. "Since the Covid-19 pandemic, which hit the region hard, voters’ focus has changed to the basics of life: finding stable work, putting food on the table and, perhaps above all, keeping safe." The entire first part of this puzzles me because Latin American voters have always, and I mean always, centered on finding stable work and food. That's what gave rise to Hugo Chávez in the first place. And it absolutely relates to incumbency because when the right or left can't fulfill those promises, voters look elsewhere. That said, his point about how drug violence has spread more than in the past is definitely true. But even in countries with serious drug trafficking (take Honduras or Mexico) voters have moved to the left and right.

After making the point that anti-incumbency is less likely now and so the right might well dominate, he hedges:

"In the end, the durability of Latin America’s latest shift will turn on how successful these leaders are in improving the lives of ordinary citizens, in making them safer and less poor and offering them better services like health care, education and public transport."

In other words, if incumbents don't fulfill promises, voters look elsewhere.

He does make the critical point that the current Latin American right is heterogeneous. Different approaches, different personalities, and different priorities. This is the most important takeaway of the piece because it tells us that sweeping generalizations will always lead you astray. What happens in Argentina--always so idiosyncratic--may or may not have significant impact elsewhere. If there is a regional or global recession (let's say the AI bubble bursts badly) then we might soon be talking about a resurgence of the center-left.*

* I do think the revolutionary left is so badly discredited that it will take decades for people to forget about its disasters. But they always do eventually!

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Mark Carney's Speech and Latin America

Canadian Prime Minister Mark Carney's speech at Davos is all about autonomy and fits exactly with my own argument with regard to Latin America.

[M]any countries are drawing the same conclusions that they must develop greater strategic autonomy, in energy, food, critical minerals, in finance and supply chains.

...

Allies will diversify to hedge against uncertainty.

They'll buy insurance, increase options in order to rebuild sovereignty – sovereignty that was once grounded in rules, but will increasingly be anchored in the ability to withstand pressure.

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We are calibrating our relationships, so their depth reflects our values, and we're prioritizing broad engagement to maximize our influence, given and given the fluidity of the world at the moment, the risks that this poses and the stakes for what comes next.

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The past few days, we've concluded new strategic partnerships with China and Qatar. We're negotiating free trade pacts with India, ASEAN, Thailand, Philippines and Mercosur.

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[T]he middle powers must act together, because if we're not at the table, we're on the menu.

This is all exactly right and Latin America has been doing it since the 1990s, with acceleration once the first Trump administration demonstrated the United States could not longer be relied upon. Note the "past few days" comment. In the first year of this second term, governments are working overtime to forge new partnerships.

The United States remains extremely powerful and is always a partner, but just not to the same extent that it used to be. Governments have to hedge, they just have no choice, especially when tariffs are announced based on person dislike. Those tariffs might never materialize, and often don't, but plenty of times they do.

Watch for more trade and investment announcements. They'll be coming for sure.

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Colombia and China

In the midst of all the "Donroe Doctrine" hype I am staying focused on how Latin America maintains and deepens ties with extrahemispheric countries, which would supposedly violate the doctrine. For example, Colombia is deepening technology ties with China with a ministerial visit, following up on Gustavo Petro's visit last year. This includes connectivity, data infrastructure, and AI, plus satellites.

China's relationship with Latin America is embedded within countless contracts and agreements. Chinese and Colombian companies are working together--this isn't just talk between two governments. And it's necessary when the United States is openly an unreliable partner and reneges on agreements. Latin America has no choice but to play the field and at this point they've been doing it for a long time.

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Five (Problematic) Assumptions We're Making in Venezuela

There's a really good piece in Foreign Affairs by a former Bush administration who was in Iraq right after the invasion. She points to mistakes that need to be avoided in Venezuela. Go read that but I want to turn it on its head a bit and lay out what assumptions the Trump administration is making that seem fine in this honeymoon period but need to be watched carefully.

1. Venezuelans don't care about having control of oil. This assumption seems core and it contradicts the entire political history of Venezuela, no matter what political party you're talking about. But it also raises the question of what Venezuelans do as it sinks in that the United States has no interest in their well-being and only wants oil.

2. Venezuelan bureaucracies will work just fine. There is no well-functioning civil service. In its place is a highly politicized institutions that control distribution of just about everything.

3. The threat of U.S. force will prevent criminal groups from operating. I don't think there's much historical precedent for this anywhere.

4. Venezuelans don't mind the dictatorship continuing. Venezuelans hate this government and the repression it unleashes daily. How that translates into behavior isn't clear.

5. The dictatorship is a bloc that will be fine with change. The point O'Sullivan makes in the article is that if drug trafficking and other illicit activity drove allegiance then that will evaporate if the goodies stop flowing. Then you end up with chaos.

We're in the honeymoon period and the article shows how similar optimism on similar points prevailed in the early days of Iraq. There's oil and all we need to do is harness that--we get rid of the leader and the country will start running itself effectively. Right?

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Contradictions in Venezuela Policy

 There are some apparent contradictions, or at least dilemmas, that litter the current situation in Venezuela.

1. Venezuelan in the U.S. want the option to go home but fear they won't be allowed back into the United States (this was a point that came up in the Global Americans webinar today). U.S. immigration policy currently works against stability.

2. Donald Trump says that U.S. oil executives will get on board but the State Department also says Americans should get out of Venezuela.

3. The administration wants to restore the oil industry without a political transition, but the oil industry needs transition to make it work.

4. The administration wants to reduce China's influence in Venezuela and elsewhere but the dismantling of USAID and tariffs make that almost impossible.

5. There is a mixed message when the Trump administration talks a lot about protecting Iranian protesters but nothing when Venezuelans continue to be attacked.

It's mind blowing that the invasion occurred 10 days ago and virtually nothing of consequence has changed on the ground. It doesn't matter to Venezuelans who lack freedoms whether Nicolás Maduro of Delcy Rodríguez is the leader.

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U.S. Framework for Venezuela

Marco Rubio has said that the U.S. has a three-point plan for Venezuela. The country is completely controlled by the United States but "it will be up to the Venezuelan people to transform their country.”

1. Stabilization of the country. This basically means keeping the dictatorship in place while the U.S. sorts out the oil to prevent chaos. That will somehow enrich both the U.S. and the average Venezuelan. There aren't details.

2. Recovery. This means sorting out the oil, which in turn means selling it. To what countries and how is not stated. There aren't details.

3. Transition. This political and has zero details. When does it end? No one knows.

Rubio also said, "This is not just winging it" even though this is textbook winging it. It has the feel of a cocktail napkin plan that took no more than 15 minutes to develop.

Donald Trump talked extensively about the grab operation itself, which involved months of planning, but clearly there wasn't much thought given to the aftermath, except that María Corina Machado, who has the Nobel Peace Prize that Trump openly covets, was to be excluded and the dictatorship maintained. 

At least at the moment, there is a lot of talk but nothing has changed except the leadership. The Venezuelan people are being attacked by their own government, all U.S. sanctions remain in place, and oil tankers are being taken without any sense of what happens to them.

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