Note: This piece originally appeared in Spanish in El Observador. To read the original article, click here.
After the conclusion of the successful renegotiation of the North American Free Trade Agreement (NAFTA)—now known as the United States-Mexico-Canada Agreement (USMCA)—U.S. President Donald Trump seems determined to continue using trade as a tool to make good on campaign promises.
Throughout his presidency, negotiations—especially when related to trade—seem to have benefited President Trump in two senses: legitimacy and compliance. With less than a month until mid-term elections that could change the U.S. political landscape until the end of his term, Trump is in desperate need of victories of this type.
Trade is increasingly being wielded as political tool, mainly in service of nationalism: it generates good press emphasizing the defense of what the nation claims as its own, and at the same time is a complicated enough issue that the average voter is unlikely to become involved in depth. For example, the text of the new USMCA contains many similarities to the Trans-Pacific Partnership (TPP), from which President Trump withdrew the U.S. within hours of assuming the presidency. Democrats can make the valid criticism that, had the TPP been advanced, the U.S. would have reaped greater rewards from an agreement that extended beyond North American and promised to serve as a counter-balance to growing Chinese economic prowess. This irony is lost on the average voter, and as a result prominent Democrats have tended not to bring it up on the campaign trail.
The truth is that, after completing something as momentous as the successful renegotiation of NAFTA, President Trump seems determined to open a new battle front. A few days ago during a press conference, President Trump singled out Brazil, calling the environment for trade with the South American giant as “among the most difficult, perhaps the most difficult in the world.” He continued: “That’s a beauty. They charge us whatever they want,” alluding to Brazil’s notoriously closed economy.
Why Brazil? For one, Brazil had a trade surplus of $2 billion with the United States in 2017; its exports totaled $26.87 million, compared to $24.85 billion in imports.
Looking at the list of the principal U.S. trading partners, it’s not surprising that following the renegotiation of NAFTA, conflict with Brazil would be inevitable. The U.S. primarily trades with its NAFTA partners, the European Union, Eastern Asian nations, and India. Brazil is the twelfth largest trading partner of the U.S., and the only one in South America.
So, given the looming potential of conflict, what would a trade battle with Brazil look like?
The U.S.-Brazil economic relationship is quite different from that of the U.S. relationship with other economies. First, Brazil’s trade relationships with the rest of the world are technically—with the exception of certain drilling regulations—under the regulatory framework of Mercosur, which, although imperfect, is still a functioning customs union. As a result, if trade conflict between the U.S. and Brazil flares up, it will also likely affect Argentina, Uruguay and Paraguay. It’s not out of the realm of possibility that President Trump will eventually suggest a review of trade with all of Mercosur.
This situation likely favors Brazil, especially given President Trump’s relatively warm relationship with Argentine President Mauricio Macri. If a potential trade conflict with Brazil moves from a bilateral negotiation to an agreement with all of Mercosur, it will help to take some of the intensity out of the situation. It remains to be seen, however, if Argentina is willing to involve itself in trade conflict between Brazil and the U.S. and risk any good will it’s earned with the Trump administration, especially given the rocky road ahead for Argentina’s economy.
In general terms, the main difference between Brazil and other markets with which Trump has reviewed trade (for example South Korea) is that the U.S. doesn’t currently have a trade agreement with Brazil. Without a bilateral regulatory framework, even starting negotiations will be very difficult.
The same is true with the U.S.-China relationship. One of the main reasons for the lack of progress in bilateral talks between the two giants is that there’s no existing agreement from which to base the negotiations.
Whether eventual negotiations are bilateral or with all of Mercosur, a new Brazilian government must closely follow and attempt to anticipate President Trump’s movements. Today, the U.S. is the second largest destination of Mercosur exports, accounting for about 15 percent of the bloc’s total exports in 2017. If it hasn’t happened already behind closed doors, the heads of trade of the Mercosur countries must get together to prepare for any potential disturbances of trade with the U.S. In matters of global trade, as in life, it’s almost always preferable to treat preventatively instead of searching for a cure when it’s already too late.
