Brazil’s International Economic Strategy, 1945-1960: Revival of the German Option Open Access

International political and economic analysts in the 1970s were profoundly impressed by Brazil’s aggressive Drang nach Europa, which had an eager West Germany as its primary target. In the spring of 1977, the new German ambassador announced that his government intended to make Brazil “a kind of bridge-head” for an economic push in South America, and trade between the two countries doubled over the next biennium. At that time, one-fourth of West Germany’s total foreign investments and two-thirds of its capital in Latin America were found in Brazil, and from 1971 to 1976 that economic stake almost tripled in value.¹ The dramatic highlight of German-Brazilian cooperation during the period was a 1975 agreement that, in the words of Brazilian President Ernesto Geisel, “marked the threshold of a new era for the Brazilian economy,” because it called for the transfer of complete nuclear technology, a step that the United States had been unwilling to take. Contemplating the country’s future autonomy in the sector, the head of Brazil’s state atomic agency proclaimed that the transfer would occur “in a form and to a degree without precedent in the history of relations between countries of different levels of development.”² The dimensions of the German-Brazilian partnership were new, but it had existed for nearly a century despite periodic traumas. Indeed, even more extraordinary, perhaps, than the intensity of the relationship was its resiliency, a phenomenon best illustrated by its remarkable reappearance following the devastation of World War II—a process whose examination yields insights into the bases of modern German-Brazilian economic relations, and sheds light on Brazil’s postwar industrialization drive.

Prior to the Second World War, Germany had played a prominent role in Brazilian economic life. The flow of settlers from that country to Brazil had been considerable, and German immigrants and their descendants had become leaders in manufacturing and import-export activities. During the Nazi era, as the Getúlio Vargas government (1930-45) sought to enhance Brazil’s international maneuverability through a strategy that combined export diversification and industrialization, a tremendous boom in bilateral trade occurred. Largely because the Third Reich was interested in purchasing a broad variety of Brazilian products, it doubled sales to Brazil by 1938, replacing the United States as the major supplier, and consolidated its position as the second leading market for Brazilian exports. Much of the machinery, fuels, and technical expertise for Brazilian industrialization came from Germany, and Brazilian raw materials, in turn, helped to keep the latter’s factories running. The war, however, ravaged that mutually profitable relationship. Commerce with Germany declined abruptly from 1939 to 1940 as the British blockade took effect, and it halted altogether after 1942, when Vargas broke formal ties with Berlin. Brazil was now forced into massive dependence on the United States, whose share of Brazil’s trade from 1940 to 1945 vaulted to almost 53 percent a year, compared with a prewar average of 30 percent.³ As compensation for damages to Brazilian life and property caused by U-boat depredations, and in some cases as punishment for involvement in espionage, the Vargas government moved vigorously against German-owned or German-controlled industrial and commercial firms, seizing and, in various cases, selling their assets. Late in 1942, after the sudden sinking of several Brazilian merchant vessels, with a loss of several hundred lives, Vargas declared war on the Third Reich, whose economy was in the process of being shattered by Allied bombing and invasion. A valuable economic partnership seemed to have been destroyed. Nonetheless, within seven years of the end of the war a truncated (West) Germany emerged once more as Brazil’s second leading trade associate, and by the Juscelino Kubitschek administration (1956-60), Brazil had become the principal recipient of German foreign investments, and the Federal Republic the second leading investor in Brazil. Why and how was the prewar economic alliance restored with such striking rapidity?

When economic analysts, government leaders, industrial spokesmen, and exporters began clamoring in the immediate postwar period for a revival of economic relations with Germany, they did so in part out of short-term considerations, but underlying their lobbying was a broader strategic factor—the expectation that those relations would prove to be a particularly useful weapon in Brazil’s drive to attain greater international autonomy through the related processes of industrialization and diversification of clients. By then, there was no disagreement about the necessity of industrialization, since Brazilian elites were convinced that a global economic struggle was under way in which underdeveloped nations were being systematically victimized by industrial powers. That belief, part of an embryonic North-South debate, was an outgrowth of trends that Brazilian leaders had studied in the 1930s and that the war apparently had intensified.⁴

Not surprisingly, when Brazilian planners late in the conflict had looked ahead to the postwar period, the dominant theme of their discussions had been the need to protect and broaden the country’s recent industrial gains. As the war ended and peacetime problems emerged, political leaders, high-level civil servants, economic administrators, editorialists, and military spokesmen joined manufacturers in forming a chorus on behalf of accelerated industrialization. “Basically agrarian countries are countries of pauperism . . .,” General Eurico Dutra declared as a presidential candidate in 1945. “Instead of importing manufactures, let us import machinery for our industrial sector, enriching our people, raising their standard of living. Without creating “an industrial civilization,” added his major opponent, Brigadier Eduardo Gomes, Brazil would be relegated permanently to an inferior position in the hierarchy of nations. Indeed, an agrarian country was “a synonym for a colonial people, a subjugated people, a provincial people and an economically manacled people,” a political columnist exclaimed in 1946, while a federal congressman agreed that Brazil had to free itself from its “enslavement to the external market.” The minister of labor, industry, and commerce exhorted President Dutra (1946-50) at this time not to acquiesce in an international trade system that called for Brazil to furnish primary products in exchange for manufactures, an argument that Roberto Simonsen, industry’s most prominent representative and a senator, used in persuading the government to endorse his guidelines for Brazil’s delegation to the Geneva Conference on Trade and Employment in the spring of 1947. Brazil’s platform for that gathering included the right of “new countries” to shelter existing industry, promote further industrialization, and receive the necessary capital goods and financial aid from developed countries. General Anápio Gomes, Coordinator of Economic Mobilization during the last phase of the war and now director of the Federal Foreign Trade Council (FFTC), also urged extensive import-substitution as a means of eliminating “the colonial character that still weighs heavily on the Brazilian economy.” To be sure, the government must strive to remove all obstacles to industrial growth, the National Security Council admonished Dutra early in 1949, stressing what had become axiomatic in military spheres.⁵

Foreign assistance was indispensable to Brazil’s industrialization goals, and it was to the United States that national leaders at first looked. During World War II, Brazil had cooperated closely in Washingtons hemispheric defense program, supplying critical materials and military bases, and ultimately becoming the only Latin American country to send troops to the European theater. As a reward for those services, and in compensation for what they perceived as considerable wartime sacrifices, Brazilian authorities anticipated two basic postwar compensations: reparations from Germany and especially substantial developmental aid from the United States. On both counts they suffered sharp disillusionment. Beginning in August 1945, Itamaraty (the Foreign Ministry) pressed Brazil’s case for representation in reparations talks, but the U.S. State Department argued that the German assets seized by the Vargas government constituted adequate payment for Brazil’s losses. Itamaraty retorted that Brazil’s claim far exceeded those assets, and in January 1946, the government established a War Reparations Commission to prepare definitive claims. Despite repeated entreaties, Brazil failed to receive an invitation to the Paris Reparations Conference in mid–1946. This prompted Dutra to write directly to President Harry Truman, recalling Brazil’s role during the war, and complaining that it was being excluded from “any share whatsoever in the division of Germany’s industrial establishment or merchant marine, which the other Allies are parceling out among themselves. ” Rio de Janeiro ultimately had to content itself with the proceeds from German enterprises which had already been liquidated or nationalized, and with retaining control over those still under federal intervention.⁶

Brazil’s lack of success in securing the scale of reparations that its leaders desired was paralleled by its experience in negotiating developmental aid with the United States. Reflecting general expectations, Dutra, a month after his inauguration, wrote personally to Truman about such assistance, and then in March he had Itamaraty formally request a loan of 1 billion dollars. To Rio de Janeiro’s rapid disgruntlement, Washington granted it only 46 million dollars that year, despite Dutra’s personal bid and a round of talks that spring between his minister of transportation and American authorities. When Secretary of the Treasury John W. Snyder visited Brazil in July 1947, his hosts were unimpressed with his argument that Brazil should eschew nationalistic measures and allow private foreign capital an open door; instead, the Brazilian finance minister handed Snyder a request for a short-term loan of 300 million dollars for essential imports and 1.5 billion dollars for “development and defense. ” The result of Brazil’s campaign was 90 million dollars in aid that year—and nothing in 1948.⁷

The rebuffs in the areas of reparations and economic assistance set the stage for Brazil’s reaction to the international debate over European reconstruction that culminated in the Marshall Plan. National leaders understood the strategic challenge posed by the Soviet Union, and they realized, too, that the Brazilian economy would benefit from the rebuilding of Europe, but they decried what they saw as an exclusivist emphasis on Europe to the detriment of Brazil’s own developmental requirements. They were apprehensive from the beginning, in fact, that agencies such as the International Bank for Reconstruction and Development would stress European recovery and neglect Brazil’s needs. The minister of transportation voiced precisely that concern to the U.S. State Department in 1946, and at the United Nations late that year Brazilian delegates condemned what they labeled a “continentalist” preoccupation that failed to establish a linkage between European recovery and Latin America’s economic situation. Announcement of the Truman Doctrine early in 1947 reinforced Brazil’s doubts about the thrust of American policy, leading the ambassador in Washington to lodge a tart complaint about the commitments to Greece and Turkey at a time when Brazil, a former ally, was experiencing increasing difficulties in obtaining American aid.⁸

That summer, when Secretary of State George Marshall made his epochal pronouncement launching the broad plan for European recovery, Brazilian resentment crystallized. American authorities remonstrated, in discussions with Brazilian representatives, that the rebuilding of Europe was a much more urgent problem than Brazil’s development, and one whose solution would ultimately benefit Brazil and the rest of Latin America. Marshall himself made the point in a speech in Rio de Janeiro in August 1947, and Snyder privately admonished the Brazilian ambassador that “as the European Recovery Program comes into full-scale operation Brazil will find itself in increasingly favorable economic circumstances.”⁹ Brazilian observers understood that, but the fact that the United States was willing to underwrite an economic resurrection of Europe while, in their eyes, it simultaneously dragged its heels on the question of much more modest aid to Brazil, arguing instead that the answer to that country’s problems was self-help and liberal investment laws, left them dismayed and bitter.

In their resentment, influential Brazilian analysts perceived the Marshall Plan as an attempt to reassert North Atlantic industrial hegemony over Latin America, whose participation in the plan, although undefined, clearly was to involve merely the sale of raw materials and foodstuffs. Assis Chateaubriand, owner of the largest newspaper chain in Brazil and an Americanophile, quickly gave voice to general sentiment when, immediately after Marshall’s historic speech at Harvard University, he condemned what seemed to be preferential American largesse toward Europe and neglect of Brazil’s developmental needs. Business and industrial spokesmen universally accepted the criticism articulated by Simonsen even before the United States Congress approved the Marshall Plan. His argument was that, unless Latin America were allowed to participate in structuring the European recovery program, and unless it were transformed into a triangular system that involved aid for Latin American industries, it would cause dislocations in the Brazilian economy and reinforce colonial trading patterns. The elevation of Europe’s standard of living, Simonsen declared, should not be bought at the cost of maintaining a low standard of living in Latin America. João Daudt d’Oliveira, president of the National Confederation of Commerce, frequent member of government planning groups, and occasional delegate to international conferences, heartily endorsed Simonsen’s views, and over the next two years assailed the perceived unfairness of the Marshall Plan. “We cannot accept the colonial or semi-colonial status of exporters of raw materials that later come back to our country in the form of manufactured goods with their value increased ten-fold or a hundred-fold,” General Gomes said energetically in agreement. “The Marshall Plan, for Europe alone, will represent the continuation, if not the aggravation, of that subordinate situation of Brazil,” he charged, citing anew Brazil’s contributions to the Allied cause. Valentim Bouças, a businessman, financial expert, and frequent official delegate, also criticized Washington’s apparent intention to reserve loans and capital goods exclusively for Europe. An editorial in the country’s leading economic journal, which he owned and managed, succinctly stated Brazil’s resentment: Europe was receiving the dollars and industrial equipment, while Brazil bad been “delivered over to its own fate.” At the United Nations, Brazilian delegates pressed their case, and Gomes, in private government council, bitterly denounced American failure to reward Brazil for its wartime services as it was doing European countries. Even rural associations, while hailing the opportunity to intensify sales of primary products to Europe, urged the administration to take steps to counteract the feared detrimental effects of the Marshall Plan on Brazil’s drive for industrialization.¹⁰

As United States dollars flowed to Europe, colonial powers there, especially Great Britain and France, found it possible to channel resources into their African possessions to stimulate the production of raw materials and foodstuffs. This was one of the consequences of the Marshall Plan that most alarmed Brazilian leaders,¹¹ and their anxiety was compounded when the United States itself began to aid African countries directly, countries whose products competed with Brazilian exports. By 1949, the question had become the subject of intense national debate in Brazil. While political and economic analysts took the issue to the press, spokesmen for business interests and government economic administrators weighed it in private session as part of a special FFTC inquest, typically criticizing the United States—one member of the FFTC went so far as to charge that Washington seemed to have declared “economic warfare” against Brazil—and lamenting the character of the Marshall Plan. The director of the civil service, who had responsibilities in overall federal budgetary planning, sent a special memorandum to Dutra in April on the apparent transfer of Marshall Plan funds to Africa and urged diplomatic representations in Washington. As head of the FFTC, Gomes also took the matter up with the president. “The programs for the economic development of Africa and other regions that are being executed by various European countries . . . and by the United States itself surely constitute,” he wrote solemnly, “the most serious threat that ever arose for Brazil’s foreign trade.” The administration’s apprehension and disgruntlement were reflected in the fact that Dutra’s foreign minister raised the issue with State Department officials at least twice during 1949-50.¹²

Certain other aspects of Washington’s foreign economic policy, particularly its management of the economy of western Germany, strengthened the growing skepticism about American interest in assisting Brazil’s development, and reinforced the pervasive conviction that agroexport countries could expect harsh, selfish treatment from the great industrial powers when the latters’ interests were at stake. During the 1930s, Brazilian cotton exporters, for example, had wrested the German market away from American competitors, a major triumph in Vargas’s push for export diversification, but wartime circumstances gave growers in the United States immense advantages. Late in the conflict, as Brazilian economic planners looked ahead to European demand for cotton, they feared powerful competition from the United States, and the attitude of American occupation authorities in early postwar Germany seemed to justify those anxieties. Under the “pretext” of reviving the German textile sector, one editorialist complained in January 1946, the United States was keeping rivals such as Brazil out of the German market. General Anor Teixeira dos Santos, head of the new Brazilian Military Mission attached to the Allied Control Council in Berlin, also complained about the seemingly monopolistic practices of American authorities with regard to cotton sales to Germany, and, although the minister of finance was not explicit, he did caution Dutra privately that American trading procedures were hindering Brazil’s reentry into the import programs of the “great world textile centers.” Brazilian observers continued to keep a close watch on what they saw as exclusivist policies designed primarily to promote United States trade interests, and in December 1946, the Brazilian Embassy raised the issue with the State Department, arguing that if it would facilitate the resumption of Brazilian cotton sales it would help to allay the general suspicion in Brazil that Washington was endeavoring to “monopolize” the German market. In ensuing weeks, editorialists for the prestigious O Estado de São Paulo called public attention to Allied commercial selfishness in Germany with regard to cotton and coffee, and in September 1947, the FFTC told Dutra that other Brazilian products could be shipped to Europe if it were not for the fact that international agencies favored great power interests “at the expense of Brazil.”¹³

The rapid erosion of confidence in American intentions and policies stimulated a strategic interest in reviving a European, and especially German, option. “Many difficulties we are struggling with will disappear if we have a market for our goods in Europe,” one editorialist declared in 1947, “and if we have someone to furnish what we need to equip our industries.” The ideal step, he said, would be to make Germany the “center of attraction” for the country’s commercial interests. Bouças’s journal, emphasizing the advantages of having a “multiplicity of sources of supply,” also urged a reopening of European markets, and future presidential counselor Augusto Frederico Schmidt added his voice to the chorus. A spokesman for the broadening nationalist sector of Brazilian opinion, Schmidt returned from a trip to Europe arguing that it was “useless and lyrical” to expect that the United States would willingly transfer industrial know-how to Brazil. What Brazil needed, he affirmed, was “a union with Europe, with European industries, with stricken Europe’s technology.” Early in 1949, members of the FFTC specifically underscored the benefits that would accrue from Germany’s reentry into the Brazilian market.¹⁴

The historic relationship with Germany held intrinsic value for Brazil in any case. In contrast to its two major historic competitors in Brazil—the United States and Great Britain—Germany, for example, had supplied immigrants to Brazil who represented a significant infusion of human capital. On the eve of World War II, the German-speaking community had numbered approximately 900,000 persons and constituted an important reservoir of entrepreneurial and technical skills. Indeed, during the conflict General Dutra himself, as minister of war, had intervened on more than one occasion to prevent the liquidation of German firms because they possessed irreplaceable technical expertise from the standpoint of national defense.¹⁵ The unique circumstances of Germany in the aftermath of crushing military defeat generated great optimism on the part of Brazilian authorities and private industry regarding a resumption of German immigration in general, and the acquisition of industrial technicians in particular.

While immigration experts pressed the government to act in the early weeks of 1946, the Military Mission in Berlin stressed the possibilities in its initial reports. The fact that the Russians were seizing plant facilities and conscripting skilled laborers in eastern Germany for shipment to the Soviet Union, wrote General Teixeira dos Santos in June, explained why “industrialists and technicians living in the Russian zone are trying, with our help, to emigrate to Brazil.” Dutra responded by dispatching an official to Germany to select immigrants from among the displaced persons congregated there, but American occupation authorities would not allow any significant exodus of German technicians, precisely the category of individuals that “profoundly” interested Brazil. Some observers publicly charged that the German immigration issue showed that Brazil’s interests were being sacrificed on the altar of the cold war, a judgment that found increasing resonance in informed circles, as Itamaraty, under instructions from Dutra, continued to strive without major success to secure German technicians. In a message of 1948, Dutra emphasized to the congress the “extremely delicate” nature of the discussions with Allied authorities, and acknowledged that his administration had been able to negotiate the release of only “a small quota” of German technicians. The possibility of receiving them in substantial numbers remained nonetheless an important stimulus to normalization of relations with Germany. If the experience of a contingent of over 500 German technicians who arrived in January 1950 was typical, the National Immigration Department worked assiduously to see that they found employment. A few months later, Teixeira dos Santos told the press that there was “an elevated number” of such technicians in Germany who could make an “enormous” contribution to Brazilian industry. As Brazilian leaders subsequently studied the apparently successful campaign by the Juan Perón regime in Argentina to attract skilled workers from Germany, their own interest heightened even more.¹⁶

More important to Brazilian planners than the immigration of technicians, however, was the hope that Germany would contribute to Brazil’s industrialization more directly by providing capital goods and investment funds. Obviously such collaboration would depend on Germany’s own economic revival—voilà much of Brazil’s ambivalence about the Marshall Plan—but Brazilian economic strategists had in mind the prewar pattern of cooperation in which German firms consistently had displayed a readiness to support Brazilian industry, indeed, to participate in the long-term development of the country. In this regard, Brazilian authorities perceived a crucial difference between the Germans and the Americans, who seemed interested only in light consumer goods, extractive industries, and other activities that promised quick profits. It had been Germany in the 1930s that supplied most of the machine tools and equipment for Brazil’s factories, especially in the metallurgical and steel sectors.¹⁷ During the prewar years, moreover, various German companies, among them Krupp and Siemens, had expressed keen interest in collaborating in development projects in Brazil. Krupp negotiated seriously for participation in Vargas’s plan for a national steel mill until the outbreak of war in Europe made such cooperation impossible. The fact that he then turned to private American groups, headed by United States Steel, and that the latter, after encouraging signals, finally declined to underwrite the venture,¹⁸ reinforced perceptions of private American capital as being disinterested in Brazilian industrialization.

During the war, in fact, economic administrators and industrial representatives complained frequently and sharply about the allegedly hostile attitude of American manufacturers of such items as plate glass and aluminum toward efforts by Brazilian entrepreneurs to establish their own plants, and in the early postwar period Brazilian strategists were incensed because the plant equipment offered for sale by companies in the United States tended to be obsolete or worn out by hard wartime use. Speaking in February 1946 at a closed session of the FFTC attended by Dutra and several cabinet members, one official urged the government to “avoid or even prohibit” the importation of such equipment because it would only reinforce the technological gap. Gomes, in public comments about the Marshall Plan the following year, was blunt in his resentment. “While we encounter every facility to import canned peas, nylon hose, radios, and cheap items of all kinds, ” he said tartly, “they [i.e., the United States and Great Britain] create all sorts of impediments for the importation of basic production equipment, such as machines for the modernization and expansion of our industrial sector.”¹⁹

The establishment of the Joint Brazil-United States Technical Commission in 1948 to identify bottlenecks in the Brazilian economy did little to allay those suspicions. Indeed, as the U.S. Embassy reluctantly acknowledged, even the moderate press displayed a “vacillating and passive” attitude toward the work of the commission, and the head of the American delegation, John Abbink, quickly learned why: the United States was preaching to Brazil “the importance of greater self-reliance,” while simultaneously extending substantial economic assistance to Europe. Gomes, a member of the Brazilian team, saw his doubts reinforced by the anticlimax that the so-called Abbink Mission represented, and in private sessions of the FFTC in 1949 he resumed his criticism of United States investors, who concentrated, he charged, on producing “soft drinks, chewing gum, bar soaps, toothpaste and the like,” and therefore did not satisfy Brazil’s development needs, but simply drained funds from the country.²⁰

Could Germany and other European countries supply the capital goods that industrialization demanded? Gomes, in mid-1943, had urged the formulation of a plan for postwar industrial expansion that took that possibility into account. Thinking perhaps of the mutually profitable prewar compensation trade with the Third Reich, he pondered that European states probably would not have convertible currencies to pay for imports from Brazil, but that they would have “machines and machines are vital to us.” What Brazil needed, he said, with veiled criticism of American exporting traditions, was not “machines for simple comfort (automobiles, refrigerators, etc.), but machines to manufacture machines.” The dismantling of German industries by occupation authorities suggested opportunity to the Brazilian Military Mission, and it set the acquisition of plant equipment as one of its priority tasks, recommending to Itamaraty that any contracts with private German firms for their transfer to Brazil be avoided because it might prove possible to acquire them as part of the projected reparations settlement. The deepening schism between the Western powers and the Soviet Union, however, led quickly to efforts by the United States and Great Britain to protect and rebuild factories in their zones, thus reducing the opportunities for Brazil. Nonetheless, the “great interest” that European capitalists continued to manifest in shipping plant facilities to Brazil fueled the hopes of planners there and led to discussion of requirements by relevant agencies. The National Petroleum Council also saw West Germany as a promising source of equipment for the refineries it was planning to erect; in fact, General Sténio de Lima, who was in charge of the Cubatão refinery, told colleagues in February 1950 that it was the only country in a position to supply such equipment.²¹

The immediate task was to start trade flowing again. Prodded by both the government and the press, the Military Mission began its campaign almost on its arrival in Berlin. A major problem, of course, was that the Allied occupation powers tightly controlled German commerce, and each individual transaction had to be approved. But American authorities were interested in several Brazilian products, especially coffee and other foodstuffs, and they agreed to notify the mission about any German equipment that might be of value to Brazil.²² There were no commercial transactions in 1946, but in the first half of 1947, the mission “constantly” was receiving requests from both German and Brazilian firms for information about trade possibilities, and the FFTC began publishing the names of importers and exporters in Hamburg, Bremen, Stuttgart, Berlin, and other cities who were seeking to reestablish contacts with Brazilian companies. Anglo-American authorities now agreed to permit a small Brazilian trade delegation to visit the western zones, and late in July they set up a monthly quota of visits by Latin American traders, news which Itamaraty quickly relayed to the influential commercial associations of Rio de Janeiro and São Paulo. Commerce between Brazil and western Germany for that first year was slight, consisting solely of Brazilian exports, primarily coffee, valued at just over 10 million cruzeiros (approximately 535,000 dollars), but a start had been made.²³

The rhythm of contacts and transactions between German and Brazilian trade groups increased substantially during 1948. Commercial interests in Brazil by mid-year were pressing Itamaraty to negotiate a formal agreement with Allied authorities. The Commercial Association of Rio de Janeiro, in fact, late that summer announced plans to send Wilhelm Beutner to Frankfurt to help prepare talks between Allied control authorities and Brazilian agencies for such an agreement.²⁴ Beutner, now a naturalized Brazilian citizen, had been a lawyer-businessman in Berlin before the war, associated with the firm of Monteiro & Aranha, which had established in 1936 a consortium that, with official blessings from both Berlin and Rio de Janeiro, had played a prominent role in secret trade negotiations between the Vargas and Hitler governments.²⁵ In preparation for his trip, Beutner obtained information on industry’s needs in capital goods from the National Confederation of Industry, which was already participating in an industrial exposition in Mannheim, helping to publicize the possibilities of importing German machinery and industrial raw materials. The government, for its part, actively assisted the private sector in its undertakings, knowing well, as the minister of finance reminded Dutra, that it was by selling primary products that the country could acquire the “capital goods that we so badly need.” The overall result of the efforts to revive commerce with Germany that year were encouraging: in part because of a resumption of German exports to Brazil, total transactions that year vaulted to over 249 million cruzeiros, a still modest amount but one that represented a more than twenty-fold increase.²⁶

That progress, coupled with what seemed to be an international rush to the convalescent German market, led chambers of commerce from one end of the country to the other to join the powerful São Paulo Industrial Federation and other manufacturers’ groups in appealing to the government for a broader, formal agreement with Germany.²⁷ For their part, German interests and Anglo-American occupation authorities also welcomed the resumption of trade with South America, viewing Germany’s “traditional connections” there as a necessary component of the country’s economic recuperation. The 1949 budget of the Joint Export–Import Agency (JEIA) for western Germany included larger allocations for the importation of Brazilian foodstuffs, ores, and other industrial raw materials; and in the face of a bid from Itamaraty, where the possibility that competitors such as Colombia might hurt Brazilian sales of coffee and other products to Germany was causing the “greatest apprehension,” the JEIA readily agreed to open negotiations for a trade pact. It explained, however, that any such agreement would have to provide for a clearing or compensation arrangement since foreign exchange was in short supply in Germany—a gesture replete with irony, since during the 1930s Berlin and Rio de Janeiro had insisted, to Washington’s sharp disgruntlement, that they were forced to adopt bilateral methods of payment because of the exchange shortage.²⁸

Tapping the real potential of the German-Brazilian economic relationship still depended on various things, aside from full recovery of the German economy. Germany’s unique political situation, which prevented traditional diplomatic ties, was a significant barrier. Brazil received permission in 1949 to open a consulate in Frankfurt and then in Hamburg, which represented important progress, and Itamaraty watched closely the moves toward formal establishment of a separate government in West Germany, pressing the State Department about the possibility of normalizing Brazil’s diplomatic situation vis-à-vis that country-to-be. The Council of High Commissioners invited Rio de Janeiro in September to designate a representative to it, although he would not enjoy diplomatic status, and following the creation of the Federal Republic in October, the Dutra administration abolished the Military Mission and appointed such an agent, becoming early in 1950 the first Latin American country to open an “embassy” in Bonn.²⁹ Although its sovereignty was still restricted in foreign trade, the existence of the new West German government meant that a major hurdle in economic relations had been cleared.

Before any possible industrial transfers could take place, at least on the scale Brazilian planners dreamed of, the government’s intentions regarding the German properties, including trademarks and patents, seized during the war and not yet disposed of, had to be clarified. The exact number of German firms involved is not clear, but there had been a total of 196 enemy companies impounded; of those, by April 1946, 35 had been nationalized (i.e., sold to Brazilian citizens); 36 had been liquidated and the proceeds deposited in a special fund; and another 50 were in the process of either being broken up or sold to Brazilian nationals. Some of the German firms scheduled for nationalization, such as the Siemens-Schuckert electrical company, had not been sold because there had been no bidders,³⁰ while others, such as the Theodor Wille company, formerly one of the most active and long-standing German enterprises in Brazil, had been dissolved. In 1948, the Brazilian Congress began debating the subject, but initial bills went further toward freeing German assets than the administration was willing to go. It then sponsored one of its own that called for the total liberation of the properties belonging to German nationals residing in Brazil, but continued control, as possible reparations, over seized assets belonging to German citizens living abroad—assets valued at slightly more than 572 million cruzeiros (30.9 million dollars) by Itamaraty.³¹ The bill provoked “heated” debates in 1950, and led to the energetic intervention of high-ranking members of the government, including Foreign Minister Raul Fernandes, to bring recalcitrant congressmen into line.³²

Progress toward a normalization of diplomatic relations and the signs of official goodwill in resolving the question of German assets smoothed the way for direct commercial negotiations. In April 1950, Bonn dispatched to South America its first postwar trade mission, headed by Baron Vollrath von Maltzen, chief of the Department of Foreign Trade, whose goal in Rio de Janeiro was to negotiate a payments agreement and commercial accord. The discussions took place under the watchful eye of a special emissary of the Allied High Commission, which wanted to ensure that the two governments undertook nothing contrary to its policies. His presence served to heighten Brazilian suspicions, manifest for some time, that the United States was not really interested in seeing a revival of German competition in the Brazilian market and therefore was delaying a full resumption of commerce between the two countries.³³ But Brazilian doubts were unwarranted, at least insofar as they signified suspicion of official American intentions. The United States government was “most anxious” to see expanded Brazilian-German commerce, a State Department officer had informed an American business agent in Brazil shortly before the trade negotiations; it was Washington’s “firm policy,” he added, not to seek commercial advantage from its tutorial position in Germany. John J. McCloy, the United States high commissioner in Frankfurt, made the same point when he asked Ambassador Herschel Johnson in Rio de Janeiro to assist the German negotiators. “Naturally, from the point of view of American interests, I am anxious to increase German exports as much as possible . . .,” he explained. Renewed German sales to Brazil would compete with American exports, McCloy realized, but broader policy considerations were involved. “In this case there are American interests on both sides of the scene,” he put it, “and the most I want is to get as good a reception as possible for this German delegation in order that they will be able to have their fair share of trade.” What had to be avoided, he indicated, was any revival of the “unfair methods of trade” that the Nazis had used in the 1930s.³⁴

Despite Brazilian misgivings, the negotiations went smoothly under the benevolent eye of the Allied observer. On June 6, the two governments initialed bilateral trade and payments agreements, and formal signature took place in Bonn in August. The agreements had a one-year duration, starting from the date of their ratification by the respective legislatures; pending such ratification, they were to go into provisional effect and could thereafter tacitly be extended for one-year periods simply by not being abrogated. The ceiling on the bilateral commerce for the first year was set at 230 million dollars and specific export lists were defined. Brazilian sales were to consist almost entirely (i.e., 96 percent) of raw materials and foodstuffs, primarily coffee and cotton. Itamaraty agreed to a quota of 30 million dollars in coffee, Fernandes explained to Dutra, because of Germany’s traditional importance as a consumer and also because the sale of coffee would make it possible to import German products that up to that point Brazil had been forced to acquire in “strong-money” areas such as the United States. In determining what goods would be imported from the Federal Republic of Germany (FRG), Brazilian negotiators, according to Fernandes, utilized certain basic criteria: (1) preference for capital goods; (2) “rigorous limitation” of nonessential items; (3) the need to protect domestic industry; and (4) preference for goods currently being purchased in hard-money countries. Over 83 percent of Brazil’s imports, therefore, were to consist of industrial and transportation equipment, industrial raw materials, and semimanufactures.³⁵

Brazilian observers enthusiastically applauded the accords, pointing to the opportunity to acquire machinery and equipment on more favorable terms than those offered by American manufacturers,³⁶ stressing the possibility of reducing dependence on the United States, “which unhappily has been frugal and tardy in aiding Brazil’s economic development,”³⁷ and welcoming progress toward beating competitor nations out of the German market.³⁸ Inauguration of the Câmara de Comércio Teuto-Brasileira, symbolically on July 4, in the headquarters of the Commercial Association of Rio de Janeiro, was another sign of the private sector’s confidence in the improving economic relationship. In a speech to the group, which, in its founder’s words, consisted of the “most politically unobjectionable and commercially competent Germans and Brazilians,” Daudt d’Oliveira had glowing words for the new possibilities of trade between the two countries. Citing the “long-standing and solid” reputation of German traders in Brazil, he attributed it to their commercial integrity, the quality of their products, and their “liberal vision” in trying to adapt goods to suit Brazilian needs and tastes. Congressional approval later that year of the bill freeing the impounded assets of German nationals residing in Brazil, a bill immediately signed into law by Dutra,³⁹ was one highly important dividend of the commercial rapprochement and another major signal that Brazilian authorities were eager to restore fully the prewar economic alliance.

In Germany, the already keen interest in the Brazilian market seemed to heighten considerably. The trade delegation returned to Bonn pointing to the “great success” of the negotiations in Rio de Janeiro, and the government in August sent another official to Brazil for further commercial talks and to discuss the reopening of consulates.⁴⁰ Hailing the agreements with Brazil, one German analyst argued that expanding commerce with South America should rank “at the top” of Bonn’s foreign economic goals. Ambassador Mario de Pimentel Brandão, responding to the multiple signs of growing enthusiasm for trade with Brazil, urged Itamaraty to add a permanent commercial attaché to his staff in Bonn—Brazil’s relations with the “greatest industrial, commercial center of Europe” required the step, he admonished Fernandes—and recommended, too, that the Ministry of Labor, Commerce, and Industry open a trade promotion bureau in Bonn. A report from the consulate in Frankfurt in September advising Itamaraty of a tremendous upsurge in inquiries from German individuals and groups about trade and emigration was a further encouraging signal. “Regarding industries and factories,” he commented, “there have been many small and large industrialists who want information about the possibility of transferring their equipment and units.” The decision by the Norddeutsche Lloyd to reestablish regular shipping service to ports in northeastern Brazil in 1951 was an additional indication of both purpose and promise in the bilateral relationship.⁴¹

The return of Getúlio Vargas to the presidency in January 1951 augured well for German-Brazilian relations. In the 1930s, he had sanctioned secret compensation agreements with Berlin, defending them on the grounds that Germany was a more interesting market for Brazilian exports than the United States; eagerly approved armaments contracts with Krupp; and welcomed the interest of German capitalists in his development projects. He undoubtedly had been sincere when, in mid–1940, he lamented to the German ambassador the fact that the European war had interrupted Brazil’s commercial ties with the Reich.⁴² He was now more than ever committed to greater economic autonomy through rapid industrialization and diversification of external clients, and West Germany’s role could be critical. On at least three occasions late in 1950, he had called for an intensification of relations with Europe, a potential source, he noted on one occasion, of the “capital goods we so badly need.”⁴³ Brazil, moreover, faced a severe dollar shortage at this time and, because of the international crisis provoked by the outbreak of war in Korea, it was experiencing serious problems in securing industrial supplies from the United States. Vargas’s foreign minister, João Neves da Fontoura, and his assistants pressed United States authorities in the early months of 1951 about developmental aid and critical imports, but they made little progress—the State Department rejected the idea of a bilateral supply agreement—and trade experts found themselves scrambling to find alternative sources of supply.⁴⁴ The fact that commerce with the FRG reached 56 million dollars in 1950 suggested the opportunities, and the continuing escalation of German interest in Brazil’s industrialization—the embassy in Bonn reported in April 1951 that the German press was carrying stories “with surprising frequency” on Brazil’s developmental progress and possibilities—enhanced the FRG’s attractiveness as an economic partner,⁴⁵ one whose revival would also mean more diversified dependence.

The Vargas administration was diligent in its efforts to exploit and expand those opportunities. In mid–1951, he sent his vice-president, João Café Filho, on a goodwill and observation tour of Germany and other European countries, and at the same time had his political lieutenants prod the Senate into action on the trade and payments agreements, which were then ratified in September. Economic planners, meanwhile, were pushing the issue of the immigration of German technicians, studying industrial needs in conjunction with immigration authorities. By October, the government had approved the entry of 500 German families, and Itamaraty was negotiating with Bonn to raise that number to 20,000. Rio de Janeiro also concluded negotiations for the full restoration of diplomatic ties, which was effected late that year. In 1952, the Brazilian chief executive authorized the creation of consulates in Munich and Düsseldorf and honorary consulates in Stuttgart, Cologne, and Hannover—the site of Germany’s largest annual industrial fair, Itamaraty pointed out to Vargas. The following year, another honorary consulate was established in Strasbourg, and early in 1954 Itamaraty laid plans to open a consulate in West Berlin, into which poured “daily many hundred, if not thousands, of refugees from the Soviet zone,” many of whom wanted to go to Brazil, “the preferred destination of German immigrants.” There also appeared, said Itamaraty, to be “very interesting” possibilities of securing industrial plants from that city.⁴⁶

Bilateral commerce, in the meantime, had flourished. The total value of such trade was 195 million dollars in 1951, more than three times that of the previous year; Brazil, Fontoura told Vargas with satisfaction in March 1952, now accounted for over half of Germany’s trade with South America. Fontoura was so impressed with that expansion that he recommended that a special trade mission he sent to Germany and other European countries to explore further opportunities. European industrialists and businessmen, he noted, were following with “the keenest interest” Brazil’s economic development. “It behooves us, on all accounts, and especially for the advantages we will derive from maximum diversification of our clients and suppliers,” he reminded Vargas, “to stimulate and increase the cooperativeness displayed, in regard to Brazil, by the highly industrialized European economies . . ..” That broader strategic considerations influenced the thinking of Brazilian decision makers was likewise evident from private remarks by the minister of finance the following month. “I do not want to have both feet in America [i.e., the United States],” he confided. “I want to have one foot there and one in Europe.”⁴⁷

The upshot of Fontoura’s proposal was a mission, headed by João Alberto Lins de Barros, head of Itamaraty’s Economic Department, that visited Germany in May and smoothed the way for the continued expansion of bilateral trade—much to the consternation of British analysts, who watched with dismay the weakening of Great Britain’s position as the second leading supplier of goods to Brazil. British exports were declining, but British merchants remained complacent, a writer for The Times (London) lamented in mid-June. “Meanwhile, an increasing number of German business men are visiting Brazil and traveling through the country reviving associations and making new ones,” he warned. “The Bonn mission in Rio is one of the most active here.” That fall the same writer renewed his complaint, bemoaning the fact that only a handful of British manufacturers were seeking to take advantage of Brazil’s industrialization, while the “real response” was being made by German competitors.⁴⁸

British fears were justified: the FRG ended up dislodging Great Britain that year as the second leading exporter to Brazil. German sales in fact became so heavy by August that Brazil was 60 million dollars in arrears (i.e., its offsetting shipments to Germany were falling seriously behind, largely because the prices of Brazilian products, especially cotton, were higher than those of competitors). German authorities took steps that spring to slow down exports to Brazil, but as the deficit grew, formal talks proved necessary. Brazil would maintain the “greatest possible volume” of trade with the FRG, Fontoura assured the chief executive, but, as the minister of finance explained, although Brazil had benefitted immensely from “most useful” imports of German capital goods, the payments account had to be brought into balance. As a result of the talks, the two governments agreed to adopt the requisite administrative measures to establish a ratio of 100:80 for Brazilian exports to and imports from Germany in order gradually to eliminate the imbalance. Bonn, furthermore, pledged itself to use exchange mechanisms to lower the cost of Brazilian products to German importers, and Rio de Janeiro, for its part, agreed to allow German importers to reexport Brazilian products.⁴⁹

Brazilian economic strategists, pointing to the country’s acute need for industrial raw materials and equipment, decried the fact that Germany’s exports to Brazil actually had to be restricted, a situation that contributed to the “daily more grave” supply picture, but Brazil’s indebtedness was clearly a constraint on trade.⁵⁰ Bilateral transactions for 1952 were valued at 264 million dollars, but Brazil’s deficit surpassed 100 million dollars, a fact that led Barros to undertake another round of talks in Germany in May 1953. One of Rio de Janeiro’s primary concerns was that Bonn might insist on payment in free dollars, a legitimate demand according to the 1950 agreement, but Barros, taking advantage of the Germans’ manifest cooperativeness, was able to channel discussion toward investments and capital goods transfers, persuading von Maltzen to return to Brazil later that year for further negotiations.⁵¹ In the interim, the measures to bring trade into balance took effect: commerce with the FRG for the year showed a slight decline to 255 million dollars, but Brazil’s exports increased by more than 80 percent and the bilateral deficit dropped to less than 79 million dollars.⁵²

Attracting German investments, especially in basic industrial sectors, was a priority goal of the Vargas government, one whose realization was made relatively easy by what seemed to be eagerness on the part of German entrepreneurs. Underscoring the “vertiginous” industrial recovery of the FRG, the commercial attaché in Bonn called Itamaraty’s attention in March 1951 to the “growing” number of technicians and manufacturers who were asking the embassy for information on immigration and the transfer of plant facilities, and Vice-President Café Filho came away from his visit in August similarly impressed with the dynamism of the country and its readiness to participate in Brazil’s industrial plans. Whereas European manufacturers in general seemed interested in transplanting factories to Brazil, they did so in large part because their equipment was obsolete or badly used, he discovered, but in Germany, where there was “less old iron” to export, industrialists seemed willing to invest in Brazil’s future. Barros likewise brought back reports the following year on the “extremely favorable” reaction of German manufacturers to his bid for developmental cooperation. The reason was simple, von Maltzen explained: South American industrialization spelled greater export opportunities for German equipment and machinery. “Germany’s interest in Brazil is really extraordinary . . .,’’ Schmidt wrote in July 1952 from Düsseldorf, where he was on a mission for the newly created Industrial Development Commission. “Wherever one goes, there are technicians wanting to know things . . . [and] businessmen sounding Brazilian possibilities.”⁵³

Concrete projects initiated by German industrialists and Brazilian as sociates during the period fueled official interest in the embryonic alliance with the FRG. A major proposal came from Mannesmann Roehrenwerke of Düsseldorf, a traditional supplier of seamless steel tubing to Brazil, which proposed to set up a plant in Minas Gerais that would make the country self-sufficient in such items. With German equipment and technicians, Brazilian labor, and bilateral financing—including the participation of state banks, which were prodded by Governor Juscelino Kubitschek—work on the 20 million dollar project was launched late in 1951. A few months afterward, another German firm agreed to supply the machinery and equipment for a federally financed nitrogen fertilizer plant under construction in São Paulo, and in the first half of 1953 the Kloeckner group worked out an agreement with the Vitória Iron and Steel Company to supply the technical assistance, machinery and equipment, and part of the financing for expanded steel-making facilities in Espírito Santo. At the same time the Opti-Werke of Essen announced the formation of a Brazilian subsidiary in São Paulo that, with technical supervision and plant equipment from the parent company, was to make precision tools, dies, and molds.⁵⁴ A project of considerable potential importance, promoted by Krupp, involved the formation of a local company, the National Locomotives Factory, that would assemble and eventually manufacture locomotives and other railway materials. The Krupp Locomotivfabrik in Essen was to hold 25 percent of the stock, in return for the cession of licenses and patents, and would provide managerial and technical supervision. The Industrial Development Commission endorsed the plan in November 1952, recommending, however, that to protect an existing Brazilian company which itself recently had signed a contract with a German firm for the coproduction of diesel motors for locomotives the favors requested by Krupp—among them, federal contracts and exemption from import duties—should also be granted to it. The minister of finance that same month seconded the commission’s suggestion.⁵⁵ Several decks thus had been cleared, but important questions involving substantial expenditures on Brazil’s part still had to be resolved before the Krupp proposal could be executed. The plan, nonetheless, was another demonstration of German disposition to participate in Brazil’s long-range development, and it was that disposition that the Vargas administration wanted to exploit on a broader scale.

The negotiations with von Maltzen and his advisers later in 1953 reflected the developmental character of Brazilian-German relations. The major result was an investments agreement—the first that Brazil had ever signed—by which the Bonn government committed itself to ensuring that one-third of the FRG’s annual exports to Brazil consisted of capital goods payable over a period of five years. The equipment, thus financed by the German government, was to be channeled “expressly and exclusively” to developmental projects. In the short run, the FRG would be allowing Brazil greater flexibility in making payments to it, Fontoura’s successor pointed out to Vargas; in the long run, it would be helping Brazil to increase national income, so that paying for its assistance would be easier. By the same agreement, the two governments established a joint economic development commission with powers to pass judgment on the projects, which might involve simple investments, coproduction ventures, or German financing for industrial undertakings by the Brazilian government or mixed enterprises. With this investment pact, the secretary-general of Itamaraty later declared, “Brazil inaugurated a new phase in its international relations, certain that the epoch in which raw materials-producing countries and industrial ones represented worlds of conflicting interests had passed.”⁵⁶

The question of German properties still subject to wartime legislation remained a bothersome impediment to full exploitation of the potential of the bilateral relationship, and von Maltzen urged a definitive settlement. Vargas in March 1952 had signed into law a bill that allowed German nationals to dispose freely of property acquired after April 1950, but there was still the problem of the assets seized during the war that belonged to German citizens residing outside Brazil. Among such properties were patents and trademark rights, and these were now returned to their original owners by an agreement signed in September 1953. As for industrial assets, Itamaraty opted to suspend all liquidations until a solution to the problem could be found. By international agreement to which Brazil was not a party, Bonn was prohibited from making direct indemnification for war damages, but the German negotiators suggested that a consortium might be formed which would pay the obligations still outstanding. The War Reparations Commission early in 1954 reported that the unsettled claims amounted to 140 million cruzeiros (approximately 5.4 million dollars), and Itamaraty then began negotiations with the German consortium to secure that amount.⁵⁷

German trade and investments, meanwhile, continued to expand. The use of exchange manipulation to lower the cost of Brazilian products and the reduction of tariffs and taxes on coffee by the FRG spurred commerce in 1954, which reached 345 million dollars, an increase of 35 percent over the previous year, and by November the two governments were considering the possibility of switching from bilateralism to limited multilateralism.⁵⁸ Like exporters, German capitalists intensified their search for opportunities in Brazil. Indeed, within a year the joint development commission, whose Brazilian section was headed by Vargas’s brother-in-law, Wälder Sarmanho, the president of the National Economic Development Bank, was holding an average of 14 meetings a month. Krupp had continued to campaign for its locomotive factory, and both the São Paulo state government and the German Embassy lobbied on its behalf. The factory would be a “gigantic step” toward the development of heavy industry in Brazil, the paulista governor admonished federal authorities in mid-September 1953.⁵⁹

Other German industrialists were moving into the nascent automotive sector during this period. Motor vehicles, parts, and accessories had been Brazil’s major imports during 1951-52 and, given the severe balance of payments problems, the Vargas government sought to reduce those expenditures by devising an import-substitution program that included increasing restrictions on the purchase of automotive parts and accessories, a ban (April 1953) on the importation of assembled vehicles, and fiscal incentives to lure foreign companies into setting up branches in Brazil.⁶⁰ In part, then, to tap the great potential of the market, but also to avoid being excluded, German firms joined the race. Volkswagen, for example, announced plans in 1953 to build in São Paulo its first plant abroad and, after study by the joint commission, it began construction in early 1954; Monteiro & Aranha held 20 percent of the shares in the new enterprise.⁶¹ Mercedes-Benz also broke ground at the site of its future plant for the assembly and ultimate manufacture of diesel trucks and automobiles, optimistically intending to be in production by the end of 1954. A third German auto manufacturer, Auto Union of Düsseldorf, revealed its plans to produce, in cooperation with Brazilian investors, its DKW vehicles, starting first with simple assembly and, as in the case of the other automotive projects, progressively nationalizing the parts.⁶²

The visit to Brazil by Minister of Economics Ludwig Erhard in April 1954—“a well-timed and brilliant piece of advertising for German trade,” British observers enviously noted—was a clear sign of the mutual importance of the expanding relationship. His first stop was the industrial center of São Paulo, where the press hailed the German partnership, which was leading Krupp, Mercedes-Benz, Volkswagen, and other firms “to employ in our state not only the most modern equipment and their most perfected methods of production, but also contingents of their most efficient technicians.” Vargas subsequently received Erhard in Rio de Janeiro with praise for the FRG’s cooperation in Brazil’s development, citing the Mannesmann steel project nearing completion as an ideal example of the mutually advantageous union of German capital and technical expertise with Brazilian labor and raw materials. “Rarely,” Erhard agreed, “have two countries been able to offer so many positive and reciprocal advantages as Brazil and the Federal Republic of Germany presently do.” On his return to Bonn, Erhard announced that his government would take further steps to encourage German firms to invest in South America. “Western Germany, he said, enjoyed a high reputation in Latin America, and opportunities for participating in economic development must not be missed,” the British diplomatic mission in Bonn reported. The multiplying instances of cooperation by the German government and private sector delighted Brazilian strategists, who emphasized the enhanced international “bargaining power” that such collaboration gave their country. Privately observing that the Europeans were displaying “maximum interest” in shipping capital goods to Brazil, Itamaraty contrasted their attitude with the hesitancy of other sources of aid. Symbolically, one of Vargas’s last public acts was to inaugurate the Mannesmann plant on August 11.⁶³

With Vargas’s suicide days later, a strong advocate of an intense German-Brazilian relationship disappeared. By this time, however, the two countries were cooperating along an increasingly broad front, and the bases for continued expansion of economic ties had been firmly established. Ambassador Brandão, now secretary-general of Itamaraty, visited Germany in December 1954 and reported that nearly 50 additional companies there were planning to open branches or invest in other ways in Brazil. “Germany is perhaps, in all Europe, the country where Brazil is best known,” he observed. In July 1955, during Café Filho’s caretaker administration, the two governments abandoned the 1950 bilateral payments system and adopted a semimultilateral one in which earnings from exports could be used for payments to various other European countries; simultaneously they created two joint trade commissions in Bonn and Rio de Janeiro. British analysts welcomed the move toward multilateralism in the hope that United Kingdom merchants could compete more effectively. “Since 1947 Britain’s contribution in Brazil’s imports has fallen from 12 percent to 1 percent, and Germany’s has risen from nothing to 11 percent,” one editorialist glumly remarked.⁶⁴ In the area of foreign investments, German participation had grown so rapidly by the end of 1955, reaching 75 million marks, that Brazil had become the major field of German investments abroad, far outdistancing Canada, and the FRG had consolidated its position as the second most important foreign investor in Brazil.⁶⁵

During the Kubitschek administration, the motto of which was “Fifty Years’ Progress in Five,” German and foreign capital in general entered Brazil on an unprecedented scale. Kubitschek himself was eager for European collaboration. As governor of Minas Gerais he had taken a personal interest in the Mannesmann project, and as president-elect he visited Europe, where he made a special point of contacting German firms in the hope of persuading them to establish or expand operations in Brazil. Speaking at the Industrieklub in Düsseldorf to some 300 industrialists, he was emphatic, a German observer noted, in stating “that he is counting to a special degree on the aid of West German industry.” The man Kubitschek selected as his foreign minister, José Carlos de Macedo Soares, had been head of Itamaraty during the mid- 1930s when he had overseen the secret trade agreements with Berlin and on one occasion had told the German ambassador to regard him as the “representative of German industry for the sale of German products to the [Brazilian] federal government.” One of Macedo Soares’s first priorities now was to resolve definitively the question of impounded German properties; he therefore accelerated the talks with the German consortium, reaching a final settlement in August 1956 and obtaining from Kubitschek a decree that same month liberating all German properties still subject to wartime legislation.⁶⁶

The pace of German economic activity in Brazil quickened progressively. Krupp, in cooperation with a Mannheim firm, opened a factory in São Paulo in 1956 to make tractors, farm machinery, trucks, and heavy equipment. The plans for a locomotive factory had not materialized, but Krupp in 1958 started work on another plant in São Paulo that would produce forged steel for trucks.⁶⁷ The National Economic Development Bank helped finance the joint steel project launched in 1956 by the Vitória Iron and Steel Company and the Essen-based Ferrostahl, which contributed 20 million dollars and technical assistance. The Thyssen steel works during this period began construction of two mills, one in São Paulo that would make automotive parts.⁶⁸ The Farbenfabrik Bayer, which already had six plants in operation near Rio de Janeiro, announced plans to invest several million dollars in a series of new ones to make acids, dyes, insecticides, and other chemical products—import-substituting activities warmly welcomed by Brazilian strategists.⁶⁹

In the industrial sector, the Kubitschek administration became most famous for its endeavors in the automotive field—and here German cooperation was especially prominent. Before taking office, he had visited the Mercedes-Benz truck factory for a special ceremony when the first engine block was cast, and nine months later he officially inaugurated the plant, which started turning out diesel trucks in 1957.⁷⁰ Vemag and Auto Union by this time had signed a contract to execute their plan for building DKW cars, station wagons, and later jeep-style vehicles. In April 1958, 80 DKW-Vemag sedans, the first passenger cars assembled in Brazil—with approximately 50 percent nationally made parts—paraded through the streets of Rio de Janeiro.⁷¹ By the end of the Kubitschek presidency, the motor vehicle was booming. Volkswagen was the major producer of passenger cars, accounting for over 8,400 in 1959 and more than doubling its output in 1960, while Vemag during that two-year period made just under 5,000 cars. Volkswagen was also the most important manufacturer of utility vehicles, selling almost 20,000 during the biennium, whereas Vemag marketed approximately 7,000. Mercedes of Brazil, for its part, produced over 20,000 trucks in 1959-60.⁷² The key role played by German capital and technology in the automotive sector was perhaps the highlight of the remarkable bilateral investment relationship that led the new German ambassador to proclaim in November 1959 that it had been Germany that “discovered Brazil as an ideal territory for investment and the development of future industries.” The following year Heinrich von Brentano, the first German foreign minister ever to visit Brazil, announced in São Paulo that of the 170 million dollars that the FRG had invested in South America, 110 million dollars was in Brazil, a sign, he added, of the commitment of his country to “increasingly greater” economic ties with the South American nation.⁷³

By 1960, then, the prewar German-Brazilian economic alliance not only had been reestablished; it had assumed unprecedented dimensions, setting the stage for further and dramatic expansion in ensuing years. What explains Germany’s extraordinary resiliency? The complementary nature of the two economies was fundamental to that success, but an intriguing suggestion is that German manufacturers may have made a unique effort to adapt to local market conditions. The practice apparently dated back to the late nineteenth century and carried over into the twentieth, a function in part of the presence in Brazil of a sizeable Germanspeaking community. The complaint of a British analyst in the 1920s is suggestive. “We do not take the pains that the Americans do—and the Germans take even greater pains in regard to details—to ascertain the exact requirements of purchasers [in Brazil], and, having ascertained them, to supply exactly the sort of goods required,” he offered. “The Germans send out travellers [i.e., salesmen] who not only know the Portuguese language, but have some knowledge of Brazilian life and Brazilian ideas.”⁷⁴ Extended analysis of the phenomenon is impossible, but contemporary analysts indicated that German exporters in the post–World War II period persevered in that approach. Daudt d’Oliveira lauded their “liberal vision” in 1950, and two years later the British ambassador seemed to be hinting at the same thing when he pointed to American and “severe German” competition in Brazil, urging British exporters to show “greater energy, greater enterprise and a more vigorous competitive spirit.”⁷³ An American, investigating the German trade push in South America, called attention to the phenomenon in 1957. Arguing that “particularly in Brazil” the German exporters displayed “astuteness, energy and willingness to go out and beat the bushes,” he added that German companies had been “far more willing to tailor their products to exact Latin tastes and requirements” than had American or British rivals. “The Germans are more astute than ever in combining their own technical skills with thoroughly Germanic, painstaking studies of Latin conditions and requirements,” he subsequently wrote. “One does not find German goods with instructions written in their own tongue as some United States items are still labeled in English.” Indeed, “the Germans rarely have the take-it-or-leave-it attitude of large United States firms,” he noted in yet another article. “Everything from office equipment, typewriters, adding machines, and new postage meters to milling machines, turret blades, printing and offset presses have been designed for special Latin American conditions.”⁷⁶ Germany, of course, was more dependent on foreign trade than was the United States, which helps to explain the former’s apparent sensitivity to local market requirements.

The disposition of German capitalists to collaborate in, and even to a degree underwrite, Brazilian industrialization was manifest and certainly contributed to Brazilian eagerness to deal with them. Brazilian leaders perceived a contrast in the attitude of American officials and investors. In fact, disenchantment over the failure to obtain what was considered adequate development aid from the United States convinced many Brazilian analysts that it did not look with favor on structural changes in Brazil’s economy—Schmidt, a close adviser to Kubitschek, publicly made that charge in 1949⁷⁷—and concomitantly increased their receptivity to overtures from Europe. Germany’s traditional cooperativeness apparently was reinforced during the period by European political conditions; Brazilian observers, at least, believed that fear of another war contributed to German interest in transferring operations to South America.⁷⁸ An additional advantage that German investors and traders may have enjoyed vis-à-vis counterparts from the United States and Great Britain was that, despite the war, they were free of any political onus (i.e., the real targets of the Brazilian left which railed against “economic imperialism” in Brazil were American and British capitalists). “The Germans are a good deal more enterprising than we are about investment in Latin America,” a Foreign Office specialist mused in 1954, “largely . . . because they have not, like us, seen most of their earlier investments expropriated without compensation”—an exaggerated complaint, but one with perhaps an element of truth. Brazilian strategists, in any case, clearly saw in German trade and investments an instrument for reducing national dependence on the United States. “We have to do everything to favor that movement,” the independent Correio da Manhã said late in 1954, referring to the “increasing number” of German firms that wanted to transfer to Brazil and linking the phenomenon to Brazil’s drive for greater economic autonomy. “For it presents no dangers, but brings great advantages.”⁷⁹ The revival and broadening of the German-Brazilian partnership also took place in international circumstances radically different from those of the 1930s. In the postwar period, the United States regarded West Germany as an ally instead of a rival, one whose reinvigorated economy was vital to Western defense. Thus, in contrast to their attitude in the prewar era, American authorities not only did not oppose, but even promoted, an expansion of German-Brazilian economic relations in the 1950s, removing a potentially troublesome constraint and contributing still further to the favorable atmosphere in which those relations underwent extraordinary development.