By Brian Winter
SAO PAULO (Reuters) - Every time Brazil and the United States get to the altar, the roof of the church seems to collapse.
In 1982, U.S. President Ronald Reagan traveled to Brazil for a dinner banquet meant to herald a new era in ties between the Americas' two biggest countries. But when Reagan raised his wine glass and toasted "the people of Bolivia," it seemed to confirm his hosts' worst fears: that the United States saw Brazil as just another poor country in its so-called backyard.
This week, hopes for a breakthrough fell apart once again, in even more dramatic fashion.
President Dilma Rousseff's decision to call off her upcoming state visit to the White House, the only formal event of its kind planned in Washington this year, is an embarrassing setback that will probably stymie cooperation on trade, regional affairs and other issues for years to come.
Rousseff, a pragmatic leftist, was outraged over recent revelations that the U.S. National Security Agency spied on her private communications, as well as her top aides.
While the two countries will retain generally cordial ties, Rousseff plans to take some retaliatory measures, including onerous new taxes and rules for U.S. Internet companies operating in Brazil, and ruling out a purchase of fighter jets from Chicago-based Boeing Co., officials told Reuters.
She said the espionage is "incompatible" with a relationship among allies, and told aides it was pointless to go ahead with a trip whose ostensible purpose was to symbolize growing respect.
The cancellation of such a high-profile visit despite two last-minute, personal appeals to Rousseff by President Barack Obama upset officials from both countries.
It also caused a familiar sense of disappointment among observers who have long rooted for better ties between two giant democracies with similar histories as multiracial melting pots.
In another recent example of a promising moment gone somewhat awry, Obama made a big show in 2011 of taking his wife and daughters on a trip to Brazil, heralding "even greater cooperation for decades to come." But many Brazilian officials felt that, when Obama showed up late at the presidential palace because he was coordinating U.S. missile strikes on Libya, it was a classic sign of a distracted imperial power.
Moises Naim, a senior associate at the Carnegie Endowment for International Peace in Washington, said the state visit would have been a great opportunity to put such episodes firmly in the past and overcome a long legacy of mistrust.
"We were so close this time," he lamented.
"There are no two countries that could create so much progress so quickly as Brazil and the United States," Naim said. He cited potential for bilateral and regional trade deals, cooperation on Latin American political hotspots like Venezuela, and U.S. interest in Brazil's recent offshore oil discoveries.
"But they don't know how to deal with each other," he added. "There are reasons this keeps happening."
TRADE WAS WASHINGTON'S FOCUS
Each country had big hopes for the October 23 event, which would have included a black-tie dinner at the White House and a military salute for Rousseff.
For Brazil, the visit offered validation that after an economic boom over the past 20 years, their country had arrived as a global power worthy of Washington's highest formal honor.
Rousseff hoped the trip would open up a new wave of U.S. investment in Latin America's largest economy, which has struggled since she took office in 2011. A photo-op with Obama would also have brandished her moderate credentials as she prepares for a likely re-election bid next year.
For its part, Washington hoped that rolling out the red carpet for Rousseff would help bend her ear on several issues, above all in securing better access for U.S. firms to a huge market with 200 million increasingly voracious consumers.
Because of high tariffs, Brazil has the most closed economy to trade in the Western Hemisphere. When U.S. Vice President Joe Biden visited in May, he urged Brazil to drop those barriers if it wants to become a strategic U.S. ally.
"It's up to Brazil to decide whether to pursue this path and seize the opportunities," Biden said.
In retrospect, that comment may have reflected an issue that has plagued Brazil-U.S. ties: Unrealistic expectations.
Like most Brazilian politicians, Rousseff harbors a deep mistrust of free trade, particularly on Washington's terms. On several occasions, she has accused the United States of unfairly boosting its exports through expansionary monetary policy.
As the visit grew closer, some Brazilian officials expressed concerns that Washington was placing too much emphasis on trade.
It also became clear the trip would not yield breakthroughs on two long-time Brazilian goals: Visa-free travel for its citizens to the United States and U.S. support for Brazil's push to have a permanent seat on the United Nations Security Council.
'THE GHOSTS CAME BACK'
Diplomats hoped the trip would at least give leaders a chance to build lasting personal bonds at the formal dinners that are part of state visits.
There was a problem with this plan, though, which goes back to another longstanding obstacle.
"They're two countries that just fundamentally don't understand each other," said Dan Restrepo, who until a year ago was Obama's top adviser on Latin America.
Restrepo said that, with the possible exception of Argentina, there is no other country in Latin America whose senior leaders have spent so little time in the United States.
Brazilian officials voice a similar complaint: that, outside of a few key positions, Latin America policy in Washington is dominated by Spanish-speaking Cold War veterans who know about Cuba or Guatemala, but don't understand the nuances of their continent-sized country.
In that context, the NSA revelations seemed to exploit each country's worst suspicions of the other.
Brazil saw the espionage, which also included U.S. monitoring of state-run oil company Petrobras, as another sign that the United States is an entrenched superpower that will do anything to block the rise of others.
Meanwhile, many in Washington saw Rousseff's reaction to the revelations - which included a demand for an apology and a full accounting of U.S. intelligence activities - as further evidence of Brazil's exaggerated sense of self-importance and naivete about what it means to be a major world power.
"All the ghosts came back," said Carlos Eduardo Lins da Silva, editor of Politica Externa, a foreign policy magazine.
Nevertheless, both governments valued the visit enough to push for a solution until the bitter end.
Despite other priorities, namely Syria, Obama spent 45 minutes with Rousseff at a September 5 summit in Russia to try to ease her concerns. He also made a last-minute plea by phone for 20 minutes on Monday.
Rousseff, too, searched for a solution. But she believed she needed a stronger, public gesture of contrition from Obama to make the trip politically viable - to prevent the powerful left wing of her Workers' Party from attacking her as weak.
"The Americans have no idea how hard it is to be pro-American in Brazil," one official close to Rousseff said.
The last-minute push raised the stakes even more, and helps explain why the bad blood could linger for a while.
In the short-term, there will be consequences for both sides.
Rousseff has pushed new legislation that seeks to force Google Inc, Microsoft Corp and other foreign Internet companies to store locally gathered data on servers in Brazil. The bill is designed to improve Internet security and also retaliate for U.S. spying, Brazilian officials have said.
Rousseff is likely to become an even more vocal opponent of U.S. espionage, including at this month's meeting of the United Nations, officials say.
Meanwhile, Rousseff's handling of the episode has solidified impressions that she is unable to insert Brazil more fully into the world both economically and strategically. That's an impression that could linger among foreign companies looking to invest in Brazil, as well as other governments.
"Brazil looked petulant," said Christopher Sabatini, editor of Americas Quarterly magazine. "That's not how major powers are supposed to act."
Restrepo, the former Obama aide, said he thought Brazilian politics were the main reason the trip fell apart. But he also said the episode may finally bury the "wildly simplistic" idea that the two countries are suited for a diplomatic marriage because they share some common traits.
"A lot of what gets people to the altar is all that superficial understanding," Restrepo said. "And then they look and each other and say, 'Hmm, maybe we don't have that much in common after all.'"
(Editing by Todd Benson and Doina Chiacu)