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Eric Ehrmann

Eric Ehrmann

Posted: May 27, 2009 05:12 PM

How Sweet It Is... Brazil's Sugar Ethanol Fuels China's Recovery


China has made a $10 billion investment in energy giant Petrobras strengthening Brazil's efforts toward sustainability and putting sugar based ethanol in the center of the geopolitical arena.

Using its own technology and just 1% of its arable land, Brazil efficiently produced 6.57 billion gallons of sugar ethanol last statistical year, roughly half the reported annual oil production of Iraq. Ironically, China's investment in Petrobras would buy about seven weeks worth of the US presence that protects the oil business in Iraq. Brazil could double ethanol production with the right market conditions and if a couple former presidents, now powerful senators, push the government to expand production in Brazil's low income northern states.

Ethanol trade has helped make China Brazil's top trade partner, replacing Uncle Sam, who had been top dog ever since Herbert Hoover was in the White House. Unlike the US, Brazil runs a favorable trade balance with China and will continue to do so as China rebounds from the crisis. Opportunities for expanding US-Brazil trade, meanwhile, are limited by the 54 cents per gallon predatory tariff Washington slaps on sugar based ethanol which president Barack Obama voted for as a senator to gain support from agribusiness and Corn Belt farmers in his quest for the White House.

Washington has shown its displeasure with China's growing footprint in South America. A rebuke from secretary of State Hillary Clinton is a big flip-flop from her days as a Wal-Mart board member. And World Bank president Robert Zoellick, author of the Dubya Bush administration China policy while at State, warned Brazil could have problems getting credit if it continues working with Beijing. For its part, Brazil just made a $13 billion contribution to the International Monetary Fund so that other nations hit by the crisis can go to the lending window and obtain funds to grow.

Dollar diplomacy from Zoellick, streaming on the internet and in newspapers in Brazil, is not playing well. Energy independence is part of the Brazilian national identity and will not fall victim to an obsolete Monroe Doctrine paradigm being invoked by a Bush administration retainer. It also provides grist for the anti-American propaganda machines of Venezuela's president Hugo Chavez and the Castro brothers in Cuba. Interests in both hemispheres would be better served if Washington shined the public diplomacy lovelight on the Kremlin's new military cooperation agreement with Venezuela that counterpoises the US presence in Colombia. The big back to the future package features all the trappings of the Cold War deals the Soviets cut with Cuba, Somalia, South Yemen and Syria and represents a potential threat to North-South relations and trade logistics.

Brazil continues to follow its own geopolitical agenda with a soft diplomatic tone. President Luiz Inacio Lula da Silva has just returned from meetings in Riyadh with Saudi King Abdullah and the Gulf Cooperation Council that were characterized as "strategic" by his spokesperson, Marcelo Baumbach. With a seat on the UN Security Council and a Middle Eastern community three times larger than the population of Lebanon, Brazil can provide balance to peacekeeping and nation building in a region that may soon face a smaller US presence.

Energy independence gained through the biofuels program provided Brasilia with the impetus to turn down an OPEC offer floated by rogue members Ahmadinejad of Iran and Hugo Chavez of Venezuela. Concerned about mounting opposition in his reelection bid next month the Iranian leader postponed a high profile trade mission to Venezuela, Brazil and Ecuador. And in a move that supports US non-proliferation goals, Lula's government backed away from a potentially lucrative Moscow brokered deal to develop nuclear technology transfer between between Iran, Brazil and Russia that could threaten Israel.

Washington would have less motivation to go off on Brazil and China if the US economy put some big points on the board. But recovery you can believe in is still waiting for green lights on Pennsylvania Avenue and K Street. Caterpillar CEO Jim Owens, a member of Obama's Economic Recovery Board, is the only outspoken critic of the president's go slow approach and has given high marks to China's fast acting plan. Workers are returning to their jobs at Cat's big plants in Peoria, and in Brazil, where heavy equipment used to harvest sugar for ethanol is manufactured.

Beyond the blogs, tweets and spinrooms the crisis has upset the three dimensional chessboard of global capital markets, central bank support mechanisms and energy alliances. Brazil is picking up the pieces and restructuring its economy already knowing how to do more with less, and prefers recovery solutions that nation build from the bottom up. But in the US the high impact New Deal approach that creates infrastructure and jobs to empower the working poor and average American families isn't happening. As the world waits, team Obama seems to be all about preserving what's left of the middle class, keeping big oil big with some perks for sustainability and greenwashing, and top down solutions offered by US high tech companies who have a penchant for sending jobs abroad.

Brazil going all in with the China card to secure energy independence is a reminder that nations now need to defend their lifestyles as much as their economies. And Washington's use of streaming diplomacy to call out both nations projects neither trust nor leadership in a changing world that clamors for both. Shift happens and right now the global economy is outpacing America's efforts to redefine itself.