War and Trade

The Venezuelan government has replaced Colombia with the United States as a main supplier of meat, fabric, clothes, cooking oil, and pharmaceuticals among other items.

Since July 2009, when President Chavez ordered a freeze in Venezuelan-Colombian relations, diplomatic ties have been severed with commercial ties under considerable restraint.

Chavez has looked to China, Argentina, Brazil, Uruguay, Bolivia, Ecuador, and now the United States to provide goods that Colombia previously sold to the Venezuelan market.

Obviously, this is a clear case of Chavez placing political considerations over economic good sense. Transaction costs alone dictate that the farther an item has to travel before arrival in market, the higher the cost, apart from the time it takes to establish new relationships, determine which products to buy, and so on.

Replacing Colombia with Ecuador or Venezuela probably doesn't make much of a difference, and given the extremely low cost of Chinese goods, there's probably an acceptable pay off there, economically and politically.

But when Chavez turns to the "evil empire" for a long list of goods, he's increasing transaction costs and further deepening the double standard under which his government operates with the United States.

Chavez is happy to sell the US oil and buy US goods, but he's just as quick to claim that the US is about to invade.

At the core of the decision to purchase goods from everyone but Colombia, however, is that Chavez is distancing Venezuela from his western neighbor, and the de facto nature of the two country's close commercial ties has been the strongest argument for why Caracas will not go to war with Bogota.

Yet the war drums continue to beat. Rumors of war circulate, and on both sides information continues to circulate about military activity on the border, including illegal fly overs and tense troop encounters.

As I wrote before, Venezuela would not do well to enter a protracted war with Colombia, but a quick and dirty firefight that ends before even the media picks up on it would serve Chavez's rhetorical purposes well - all just in time for the September legislative elections…