The Future of Commodity Trade Agreements Between the USA and Brazil

 The latest proposition of a Free Trade Agreement between the United States and Brazil has the potential to greatly advantage both nations. If enacted, such an agreement would provide the chance for enhanced economic integration, and might substantially enhance bilateral relations. The bilateral commerce between the two nations in 2018 reached a total of $103.5 billion. Brazil purchases aircraft, machinery, petroleum products, electronics, and optical and medical devices from the United States. In return, Brazil mostly sells crude oil, airplanes, iron and steel, and machinery to the United States. Based on a recent study from the State Department, it has been determined that the United States has the position of being Brazil's second most significant trading partner, while Brazil holds the position of being the ninth most significant trading partner for the United States. Both nations are participants in the United Nations, Organization of American States (OAS), Inter-American Development Bank (IDB), Group of Twenty (G-20), International Monetary Fund (IMF), World Trade Organization (WTO), and the World Bank.

However, Brazil still maintains a predominantly protectionist economic policy, limiting its openness to international trade and investment. The absence of trade agreements and the well-known imposition of high tariffs are the enduring consequences of the import substitution industrialization program of the 20th century. The Brazilian government did not address trade liberalization, privatization, competition, and productivity as a means to enhance commodities exports and foster growth in imports of manufactured items until the 1990s. Although there was a period of trade liberalization in the 1990s, the past two decades have seen a resurgence of protectionism, which has hindered the possibility of achieving pan-American regional integration. During this period, Brazil sought to reduce its reliance on the United States, disregarding world trade to its own disadvantage.

However, currently there are compelling reasons to be hopeful about the state of trade relations between the United States and Brazil. A groundbreaking study conducted in 2019 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, emphasizes the potential for collaboration between the two countries. The paper outlines the possibility of establishing a U.S.-Brazil Commercial Dialogue, a U.S.-Brazil Social Security Agreement, an Open Skies agreement, and space cooperation. It also highlights the importance of enhancing regulatory standards and addressing technical impediments to trade. According to the research, a 50% decrease in non-tariff barriers by 2030 would lead to an increase in GDP growth for both countries.

A report by the Atlantic Council in April 2019 highlighted the possibility of increased commerce between the United States and Brazil. Currently, only 2.4% of U.S. exports are sent to Brazil, while Brazilian imports to the U.S. account for just 1.2% of global trade. The United States and Brazil already agree on matters pertaining to intellectual property, as well as customs and trade facilitation. Potential for additional collaboration exists, specifically in the areas of Foreign Direct Investment, patent law, and a double taxation treaty. This can be facilitated through 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. Brazil would particularly benefit from all of these areas of collaboration. Trade liberalization has the potential to stimulate the economy and tackle the problem of high living costs and low per capita income, both of which result from Brazil's economic isolation.

President Jair Bolsonaro's visit to the U.S. in March 2019 demonstrated the positive relationship between the U.S. and Brazil. However, during Foreign Minister Ernesto Araujo's meeting with U.S. Secretary of State Michael Pompeo on September 13, they announced the U.S.-Brazil Strategic Partnership. This agreement encompasses various political and economic aspects and has the potential to facilitate increased trade integration between the two countries. By implementing this deal, the United States can aim to enhance its trade surplus with Brazil, with the goal of surpassing China, which is Brazil's main trading ally. China, with a share of 27% in Brazil's exports, mostly consisting of iron ore and soybeans, continues to be the primary competitor to the United States in terms of trade volume with Brazil.

Undoubtedly, the United States is no longer able to maintain its dominant influence in the region, as evidenced by Brazil's trade agreements with the European Union, the BRICS nations (Brazil, Russia, India, China, and South Africa), and Mercosur (a South American trade bloc established in 1991). These agreements highlight the growing internationalization of Brazil's trade. However, the shared objective of the U.S. and Brazilian leadership to achieve successful trade in the western hemisphere indicates the possibility of enhancing economic relations.

Primarily, Brazil has the potential to enhance its position as the foremost economic force in South America and capitalize on trade with the United States to bolster its international trade competitiveness. Brazilian authorities should leverage Bolsonaro's and Araujo's recent political and economic discussions with the United States to strengthen their country's international presence and reputation as a viable trade power by actively improving their position with trading partners worldwide. Given that Trump and Bolsonaro have expressed a shared objective of promoting trade facilitation, it is imperative for the United States and Brazil to establish a concrete and operational trade relationship that can be sustained by future governments.

While a free trade agreement (FTA) between the United States and Brazil has not been formally discussed, it is widely believed that such an agreement would be crucial in promoting economic growth. During Foreign Minister Araujo's visit to the United States in September, he expressed the overarching objectives of advancing democratic principles, fostering economic growth, ensuring national security, and emphasizing the necessity of establishing an investment fund to preserve the diversity of the Amazon region. Regrettably, an FTA is still a possibility and not an official agreement, expressed solely by organizations like the Atlantic Council and the Brazil-U.S. Business Council. Although Araujo and Pompeo have engaged in recent discussions, the Free Trade Agreement (FTA) currently only exists as an abstract idea and still has a considerable distance to go before it materializes.

In order for commerce to thrive under the leadership of Trump, Bolsonaro, and future governments, the catalyst for growth can only be achieved through the official execution of a Free commerce Agreement (FTA). The mechanisms have been implemented. The establishment of the Strategic Partnership Dialogue in September, together with efforts made by organizations like the Brazil-U.S. Business Council and U.S. Chamber of Commerce, will address the long-standing uncertainty surrounding the trade relationship between the United States and Brazil.