South American Denim Wars Highlight Brazil Dominance Across Industries

Brazil's denim dominance is also playing out in sectors as diverse as banking and cement.

This week’s first meeting between the female presidents of Argentina and Brazil in Buenos Aires was full of fanfare, photo ops and pledges of mutual cooperation. “Argentina gets tough with Brazil on trade imbalance” was the rosy spin downtown; yet, 600 miles to the northwest, the ink was still drying on a deal that underscores Argentina’s short-sighted, protectionist policies and Brazil’s ability to capitalize on them.

Sao Paulo-based Vicunha Textil S.A. is Brazil’s largest textile company; they produce blue denim for the likes of Calvin Klein, Diesel, DKNY, Gap, Guess and Levi’s. Vicunha’s business in Argentina was squeezed in recent years by import tariffs imposed by the current administration. But rather than stimulating the local textile sector and boosting competitiveness, the measures will lead to Brazil now controlling 75% of Argentina’s denim business.

O Globo reports Vicunha will invest up to US$40 million to acquire three plants in San Juan Province. The deal comes on the heels of recent acquisitions by Alpargatas Sao Paulo and Tavex-Santista meant to increase market share and circumvent the trade barriers implemented by Argentina. Not surprisingly, Argentina’s US$4 billion annual trade imbalance with Brazil is forecast to grow 40% this year to US$5.6 billion.

While denim is the latest example, Brazilian dominance is playing out in other sectors of the economy like banking and cement. La Nacion sums up the status quo: “Argentina is at a disadvantage in relation to Brazil as a result of short-term policies. Far from boosting domestic industry as Lula did in Brazil, Argentina is simply increasing the size of the state each time it has a chance to do so.” (Full Story in Portuguese)