HEMISPHERIC INTEGRATION:
U.S.-BRAZILIAN ECONOMIC
RELATIONS DURING WORLD WAR II

Myron J. Frankman
McGill University
(c. 1979)

 
The relaxation, weakening or absence of ties between metropolis and satellite will lead to a turning in upon itself on the part of the satellite ...
 
Examples of such active capitalist involution are the industrialization drives of Brazil, Mexico Argentina, India and others during the Great Depression and the Second World War, while the metropolis was otherwise occupied.
-Andrˆ© Gunder Frank[1]
 
The paradox of inter-American relations during the Second World War is rarely appreciated even today.... the war did more than anything else to help the United States maintain and even strengthen its traditional position of influence over the nature and direction of Latin American economic development.
-David Green[2]
 The two quotes with which I have chosen to commence this e-x-position provide quite contrasting views of relations between the Latin American periphery and the United States metropolis during World War II. Both are true to an extent and both are incomplete to an even greater extent. I shall argue that in the case of Brazil, the United States was not otherwise occupied as Gunder Frank would have us believe, but was more intimately involved directly in the management of the Brazilian economy than at any other time before or since. I wish also to suggest that David Green's reference to a strengthening of the traditional position of influence of the United States is, in the case of Brazil, a quite substantial understatement: before World War II the U.S. vied for dominance in Brazil with the United Kingdom and Germany, while during and immediately after the war its role was hegemonic.

Yet another proposition with which I wish to take issue, using as evidence Brazilian-American economic relations during World War II, is the observation by Benjamin Higgins that the wartime experience of some of the advanced countries "may hold valuable lessons for countries now embarking on a 'big push' with respect to economic development."[3] Higgins has observed in this regard that the ’Äúreallocation of resources involved was much greater in the fighting of a major war than is required for economic development.’Äù[4] That there was a major reallocation of resources during World War II in undeniable; however, it was not merely national, but rather global. One can very well speak of hemispheric economic integration on a major scale during World War II as a consequence, or more properly a corollary (in part) of the disruption of pre-war supply arrangements. Just as supply uncertainties for crude petroleum, today have spawned the strong advocacy of a North American Free Trade Area, so concern over access and disposition of strategic materials, including rubber, caused Washington to forge exclusive supply links with many of the other nations of the Western Hemisphere. The U.S. dependence today for oil supplies on imports from the OPEC countries, pales by comparison to the almost total reliance of the U.S. on rubber imports from the Far East prior to the Japanese attack on Pearl Harbor in 1941.

One final prefatory note is in order relating to the introductory quote from Frank. It is almost a truism to observe that the industrialization of a country with a limited capital goods industry requires substantial imports of machinery and equipment. It is hard to imagine that an "industrialization drive" by a country such as Brazil, with very limited facilities for the manufacture of machinery,[5] could have gathered much momentum during the war if the metropolis had been truly "otherwise occupied". In point of fact, Washington exercised virtual veto power over the pace and direction of Brazilian industrial growth during the period from at least 1942 through 1945.

Well before the formal entry of the United States into World War II, the Roosevelt government was making every effort to assist the Allied powers and to frustrate the Axis. Heading the agenda at the first and second emergency meetings of the Ministers of Foreign Affairs of the Americas in Panama in September-October 1939 and Havana in July 1940 were continental security and the coordination of defense.[6] The hemispheric manifestations of United States activities extended to the closing of the Panama Canal to Japanese vessels in July 1941 and diplomatic efforts to generalize export licensing throughout the hemisphere in order to exclude sales of strategic goods to the Axis. To this were added American measures to bring shipping throughout the hemisphere under the control of Washington.

The allocation of shipping space in accord with strategic needs was no doubt the decisive bottleneck blocking independent economic initiatives in Latin America. Moreso yet for Brazil because foremost among her needs to maintain the level of industrial activity was a requirement for imported coal to fuel the Brazilian steel industry and to keep essential transportation and electric power facilities in operation.[7] Coal absorbed some seventy per cent of the volume of space available for transporting goods from the United States to Brazil.[8] Although Brazil was able to stipulate its desires for imported material, the go-ahead had to be given in the U.S. either to ship or even to produce the goods in question. The snail-like progress during World War II of the U.S. financed Volta Redonda integrated steel mill project effectively illustrates this point. The mill was to have been completed by 1944, but with the many wartime delays, it was not until April 1946 that production of coke commenced, while operation of the rolling mill began only in 1948.[9] Production and shipping .of key components, such as a turbo-generator, required that Washington specifically accord the highest priority designation.[10] Although Brazilian steel production increased during the war, Brazil was no less dependent on steel imports in 1945 than it had been in 1940. In the case of ingots, however imports rose from 4.5 to 11.8 per cent of apparent consumption.[11]

As Brazil lacked a trans-Atlantic merchant fleet, its dependence on foreign, and more particularly U.S., shipping was virtually complete.[12] As early as mid-1941, Brazil's dependence on shipments from abroad showed itself in the collapse of established factories in Sˆ£o Paulo in the face of requisitioning by the U.S. of Latin American bound merchant shipping for the war effort. Nelson Rockefeller, Roosevelt's appointee to the position of Coordinator of Inter-American Affairs, spoke of the withdrawal of shipping as constituting a blockade of Latin America which could well undermine the Good Neighbor Policy.[13]

In 1942 shipping space from the U.S. to Brazil was limited to 100,000 tons per month, the bulk of which, as already mentioned, was absorbed by coal. Even so, Brazilian coal imports fell in 1942 by over forty per cent of the quantity imported in the preceding year, with a marked debilitating effect on the Brazilian economy. Despite the increased mixing of gasoline and alcohol and the machine shop production of "gazogene" devices to allow trucks to burn alcohol and charcoal, it became necessary for Brazil to deprive private motorcars of fuel and to limit at times haulage by rail between Rio de Janeiro and Sˆ£o Paulo to foodstuffs and wood.[14] Adjustment to one shortage created others: the conversion of Brazilian industry and transportation to new fuels heightened the domestic demand for metals which were already in woefully short supply.[15]

The impact of supply and shipping shortages on Brazil was not limited to manufacturing firms: official rationing by Washington extended even to newsprint, U.S. exports of which fell during at least one month in 1942 to less than one-tenth of the ’Äúrock bottom’Äù Brazilian requirements.[16] In a context in which administrative allocation replaced the price mechanism, the U.S. State Department requested of the Brazilian authorities figures on newspaper circulation and on reductions in stock of newsprint.[17]

On the import side, Brazil’Äôs dependence on the U.S. clearly increased quite markedly both statistically and strategically, supplies from the U.S. being essential for the maintenance of the Brazilian economy. The U.S. share of Brazilian imports had been an average of 22.7 per cent in 1936 and 1937; a decade later in 1946 and 1947 the average was 59.8 per cent,[18] the difference in shares being well above Germany's prewar share of Brazilian imports. Strategically, many of the extreme shortages experienced during the early days of the war eased considerably later, in part as experience in economic administration was gained. Nonetheless, even in the closing days of the war after the German surrender, the U.S. Ambassador in Rio, Adolph Berle, had to plead with Washington on behalf of the Brazilian government for an additional monthly allocation of petroleum if food and textile production were not to suffer. Berle reported that the lack of petroleum, which translated in part into a lack of transport facilities, led to a situation in which one million bags of rice were rotting in the state of Goias.[19]

On the export side, Brazil supplied the United States with certain commodities which were indispensable in the prosecution of the war effort. As early as May 14, 1941, the U.S. and Brazil had signed an agreement by which Brazilian exports of a number of commodities were to be limited to the western Hemisphere, i.e., in practice, largely to the United States.[20] Among these commodities were bauxite, ferro-nickel, manganese, mica, quartz, rubber and titanium. To assure, Brazil's support in the war effort, the U.S agreed to purchase quantities beyond its own needs of some of Brazil's principal agricultural export crops.[21] While mica and quartz may have been indispensable strategically to the U.S.; coffee, cotton and cacao, which together accounted for 67 per cent of Brazil's exports in 1938, were indispensable financially to Brazil. The U.S. even used its good office to try to obtain Canadian agreement to commit itself to acquire a portion of Brazilian cotton exports.[22]

David Green, whose book The Containment of Latin America: A History of the Myths and Realities of the Good Neighbor Policy I commend to you, summarizes the wartime economic relations between Latin America and the United States as follows:

The exigencies of the war situation began to cause a highly intensified reappearance of the old pre-New Deal pattern under which Latin America supplied raw materials for manufacture in the United States while remaining largely dependent upon American industrial supplies. Ironically, while this relationship had proved unacceptable in peacetime, the war gave the Roosevelt administration an unassailable justification for re-establishing it.[23]
While concurring with Green's judgment, I find it necessary to stress that Brazilian imports consisted principally of industrial supplies and not of a wide range of consumer goods, in part as a consequence of the limited shipping space made available by Washington: machinery rather than manufactured goods constituted the most judicious use of that space.[24] I hasten to add that Brazil was not a passive agent in this trade. The Bank of Brazil and the U.S. Bureau of Economic Warfare cooperated in the selection of goods, which consisted to a large degree of capital goods for the transportation, energy, basic metals, and chemical sectors.[25] The Brazilian government went so far as to prohibit the import of 150 commodities and to request the U.S. not to authorize their export.[26]

Another important deviation from the caricature of trade being limited to raw materials for manufactured goods, was represented by a 1942 cartel-like arrangement between the United States and Brazil which not only divided geographically the tire and tube market of the American republics into those countries which were to be served by exports from the U.S. and those to be served by Brazil, but also called for 25 per cent of the tires manufactured in Brazil to be sold in the U.S.[27] The U.S. pledged to assist by facilitating shipments of materials needed by the Brazilian rubber manufacturing industry[28] and by providing technical assistance in the conversion of existing facilities to the production of essential rubber products.[29]

Industrial production grew at a healthy pace during World War II in Brazil: 5.5 per cent per year on the average between 1940 and 1945.[30] To a large extent this was brought about by employing more workers and running old equipment at full capacity.[31] Although new industries were either established or expanded during the war,[32] the share of value added in manufacturing by traditional activities fell only very slightly in the decade from 1939 to 1949, from 69.9 per cent to 63.5.[33] The transformation of Brazilian industry during World War II was at best limited. Not only was the metropolis not otherwise occupied, it was a partner of sorts in channeling the Brazilian economy into activities defined by Washington as being strategic. For its part, Brazil was one of many countries that participated in the massive international reallocation of resources that allowed the U.S. to play the pivotal role in World War II that it did. It was not the wizardry of U.S. domestic war finance that brought Latin American rubber to the U.S., according to Nelson Rockefeller, at ’Äúabout a fifth of what they could have obtained’Äù[34] and which once again took workers from the Brazilian Northeast into the Amazon.[35]

Perhaps the war-time experience of the advanced countries does provide valuable lessons for countries now developing. Our examination suggests that recourse to self-reliant development is certainly not one of those lessons. The need for interdependence combined with resource reallocation from the rich to the poor, a prescription embodied in variants of the call for a New International Economic Order, is an observation which clearly flows from this consideration of war-time economics. William James' phrase "a moral equivalent of war" has been bandied about recently by the Carter Administration in the U.S. It is perhaps only if global economic development assumes that role that we can expect such a peace-time and peaceful reallocation.


Footnotes

[1] Andrˆ© Gunder Frank, Capitalism and Underdevelopment in Latin America: Historical Studies of Chile and Brazil (N.Y.: Monthly Review Press: 1967). pp. 148-49.
[2] David Green, The Containment of Latin America: A History of the Myths and Realities of the Good Neighbor Policy (Chicago: Quadrangle Books, 1971), p. 85.
[3] Benjamin H. Higgins. Economic Development , 2nd ed. (N.Y.: W.W. Norton, 197 ), p. 492.
[4]Ibid.
[5] As late as 1949, capital goods imports still accounted for 63.7 per cent of Brazil's total supply of investment goods. G.K. Helleiner, International Trade and Economic Development (Harmondsworth: Penguin Books, 1972), p. 102.
[6] Laurence Duggan, The Americas: The Search for Hemisphere Security (N.Y.: Henry Holt & Co., 1949), p. 227.
[7] Rollie Poppino, Brazil: The Land and People (N.Y.: Oxford University Press, 1968)., p. 266.
[8] Corwin D. Edwards, "Brazil's Economy in the War and After," in Seymour Harris, ed., Economic Problems of Latin America (N.Y. McGraw-Hill , 1944), p. 281.
[9] Werner Baer, The Development of the Brazilian Steel Industry (Nashville, Tenn.: Vanderbilt Univ. Press, 1969), p. 79.
[10] Green, p. 90.
[11] Joel Bergsman, Brazil: Industrialization and Trade Policies (London: Oxford Univ. Press, 1970), p. 205.
[12] Poppino, p. 263.
[13] Green, p. 96.
[14] Edwards, p. 284.
[15]Ibid.
[16] Caffery, Oct. 10, 1942, Foreign Relations of the United States. Diplomatic Papers (Department of State), 1942, V, 744.

[17] Welles, October 14,1942, ibid., 745.
[18] The figures below which indicate the percentage share of Brazilian exports and imports represented by trade with the United States are based on data appearing in George Wythe, et al ., Brazil, an Expanding Economy (New York: Twentieth Century Fund, 1949), P. 313.
Imports Exports Imports Exports
1936 22.3 38.8 1942 53.8 45.7
1937 23.0 36.2 1943 53.5 50.6
1938 24.4 34.1 1944 61.1 53.0
1939 33.3 36.1 1945 55.2 49.3
1940 51.8 42.3 1946 58.3 42.2
1941 60.4 56.9 1947 61.3 38.0
[19] Berle, July 10, 1945, Foreign Relations , 1945, IX, 682.
[20] W.N. Medlicott, The Economic Blockade (London: H.M.S.O. & Longmans, Green & Co., 1959), II, 129.
[21] Edwards, p. 282 and Caffery, Oct. 6, 1942, Foreign Relations , 1942, V, 689-90.
[22] Foreign Relations, 1942, I, 565-86.
[23] Green, pp. 87-88.
[24] Warren Dean, The Industrialization of Sˆ£o Paulo , 1880-1945 (Austin: Univ. of Texas Press, 1969), p. 222.
[25]Ibid., pp. 222, 231.
[26] Seymour Harris, Price and Related Controls in the United States (N.Y.: McGraw-Hill, 1945), p. 308.
[27] Cissel, Oct. 2. 1942, Foreign Relations , 1945, V, 718-19.
[28] Caffery, May 6, 1942, ibid., 701.
[29] Hull, Sept. 15, 1942, ibid., 718.
[30] Bergsman, p. 22.
[31] Poppino, p. 266
.[32] Dean, p. 229 provides a list.
[33] Based on figures in Bergsman, p. 23.
[34] Cited by Green, p. 106.
[35] Green, p. 106.