by Peter Sufrin
The recent proposal of a Free Trade Agreement between the U.S. and Brazil could serve to substantially benefit both countries. If implemented, such an agreement would offer the opportunity for greater economic integration, and could significantly improve bilateral relations.
In 2018, trade between the two countries amounted to $103.5 billion. Brazil imports aircraft, machinery, petroleum products, electronics, and optical and medical instruments from the U.S., while its main exports to the U.S. consist of crude oil, aircraft, iron and steel, and machinery. According to a recent State Department report, the United States is Brazil’s second largest trading partner, and Brazil is the U.S.’s ninth largest trading partner. Both countries are members of the United Nations, OAS, the IDB, G-20, IMF, the WTO and the World Bank.
Nonetheless, Brazil remains a relatively closed economy. The lack of trade agreements and notoriously high tariffs are the legacy of 20th century import substitution industrialization policy. Not until the 1990s did the Brazilian government address trade liberalization, privatization, competition, and productivity as a way to increase commodities exports, and promote growth in imports of manufactured products.
Despite this period of trade liberalization in the 1990s, the past two decades have been marked by a return to protectionism, stifling the prospect of pan-American regional integration. During this time, Brazil moved to end dependence on the United States, neglecting international trade to its own detriment.
But today there is significant cause for optimism in U.S.-Brazil trade relations. A pioneering 2019 study by the National Confederation of Industry, the Brazil-U.S. Business Council, and the American Chamber of Commerce commissioned by Brazil’s Getulio Vargas Foundation highlights how the two countries can seek to collaborate. In particular, the report describes the potential for a U.S.-Brazil Commercial Dialogue, a U.S.-Brazil Social Security Agreement, an Open Skies agreement, and space cooperation, as well as an improvement in regulatory practices and technical barriers to trade. The report argues that reduction in non-tariff barriers of 50% by 2030 would stimulate GDP growth for both countries.
An April 2019 Atlantic Council report noted the potential for growth in trade between the two countries, starting from a low base in which only 2.4% of U.S. exports go to Brazil, and Brazilian imports to the U.S. rank as only 1.2% of total trade. The United States and Brazil already concur on issues of intellectual property, and customs and trade facilitation. The possibility for further cooperation exists, particularly in the realm of Foreign Direct Investment, patent law, and a double taxation treaty, and with initiatives such as a U.S.-Brazil Commission on Economic and Trade Relations, a Defense Cooperation Dialogue, an Infrastructure Development Working Group, and an Economic and Financial Dialogue.
All of these areas of cooperation would benefit Brazil in particular. Trade liberalization could provide an economic boost and address the issue of high cost of living and low per capita income, both of which stem from Brazil’s economic isolation.
While President Jair Bolsonaro’s March 2019 visit to the U.S. expressed the general goodwill between the U.S. and Brazil, Foreign Minister Ernesto Araujo’s September 13 meeting with U.S. Secretary of State Michael Pompeo saw the announcement of the U.S.-Brazil Strategic Partnership, a generalized political and economic agreement that could pave the way to greater trade integration between the two countries. With the implementation of such an agreement, the United States can seek to increase its trade balance with Brazil, in an effort to surpass China, Brazil’s primary trading partner. With 27% of Brazil’s exports, primarily iron ore and soybeans, destined for the Asian nation, China remains the main rival to the U.S. in the amount of trade conducted with Brazil.
Certainly, the U.S. can no longer assert regional hegemony, as Brazil’s trade agreements with the EU, the BRICS nations (Brazil, Russia, India, China and South Africa) and Mercosur (a South American trade bloc established in 1991) demonstrate the increasing internationalization of the country’s trade. Nonetheless, the joint U.S. and Brazilian leadership’s goal of prosperous trade in the western hemisphere suggests the potential for improving trade relations.
Most notably, Brazil can develop its role as the largest South American economic power and benefit from U.S. trade, in order to further Brazil’s international trade competitiveness. By seeking to enhance its position with trading partners around the world, Brazilian leaders can capitalize on Bolsonaro’s and Araujo’s recent political and economic dialogues with the United States to further their country’s international presence and reputation as a viable trading power. Now that Trump and Bolsonaro have articulated the mutual goal of trade facilitation, the U.S. and Brazil must go further and define a tangible working trade relation for successive administrations.
Although a U.S.-Brazil FTA has not yet been negotiated, such an agreement seems to be the key to fostering growth. Foreign Minister Araujo’s September visit to the United States articulated the general goals of promoting democratic ideas, economic prosperity, defense, and the specific need for creating an investment fund to protect Amazonian diversity. Unfortunately, an FTA remains a prospect and not a formal agreement, articulated only by organizations such as the Atlantic Council and the Brazil-U.S. Business Council. Despite the recent dialogue between Araujo and Pompeo, an FTA exists only as a concept, with a ways to go before it becomes a reality.
For trade to prosper under Trump, Bolsonaro, and future administrations, the impetus for development can come only from formal implementation of an FTA. The mechanisms are now in place. The Strategic Partnership Dialogue announced in September, and initiatives through organizations such as the Brazil-U.S. Business Council and U.S. Chamber of Commerce will help to overcome the historical ambivalence of the U.S.-Brazil trade relationship. Ideally, the legacy of such agreements will unfold in the months and years to come.
Peter Sufrin holds a Master’s Degree in History from Boston University, a Master’s Degree in Diplomacy and International Relations from Seton Hall University, and a Master’s Degree in Portuguese from the University of Massachusetts/Dartmouth. He is an Associate Member of the Inter-American Dialogue in Washington, D.C. and contributes regularly to the Latin America Advisor, and to Brazzil.com, an on-line Brazilian news aggregator.