U.S. and Brazil: How Two Regional Giants Are Split on Trade and Politics

6 MINS READFeb 26, 2018 | 12:56 GMT
Brazilian President Michel Temer and U.S. President Donald Trump, shown together in a photo illustration.

Brazilian President Michel Temer and U.S. President Donald Trump, shown together in a photo illustration. Trade disputes and the crisis in Venezuela will continue to drive a wedge between Brazil and the United States over the next year.

  • Relations between Brazil and the United States will remain difficult over the next year, particularly as a result of trade disputes.
  • Trade disagreements between the two countries will center on a potential U.S. tariff on Brazilian steel, as well as possible retaliation on U.S. coal exports to Brazil.
  • Washington and Brasilia will continue to clash over the best way to tackle the crisis in Venezuela, as Brazil does not support the imposition of new sanctions.

The United States and Brazil might have switched their ideas about trade, but that hasn't brought them any closer to finding agreement. For the longest time, Washington pushed for free trade in the Americas, only to meet Brazilian intransigence. Now, the roles are reversed. Brazil has begun pushing liberalized trade, only to encounter a United States intent on pursuing protectionism. But regardless of their altered positions, the disconnect between the two countries has remained a constant. A Brazilian delegation will meet with U.S. Commerce Secretary Wilbur Ross this week in Washington to learn more about a potential increase in U.S. tariffs on Brazilian steel, an action that could prompt a tit-for-tat response by the South American powerhouse. Steel, however, is just one bone of contention in the relationship as political disagreements have also split Washington and Brasilia, ensuring that there is little chance the pair will find accord anytime soon.

Maintaining the Barriers

For decades, the United States encouraged Brazil to join a free trade area in the Americas, but Brasilia rejected Washington's overtures as it sought to first consolidate its regional leadership through the Common Market of the South (Mercosur). For Brazil, Washington's desire to promote free trade in the Americas represented an impediment to the creation of a more autonomous regional South American bloc, such as Mercosur. Additionally, Brazilian industries that had benefited from protectionist measures exerted pressure on the government to reject any U.S. entreaties on free trade. Despite the lack of a free trade deal, Brazil and the United States share significant economic relations. The United States is Brazil's third-largest trade partner after China and the European Union. In contrast to its trade with China and Europe, however, Brazil generally has run trade deficits with the United States, though it registered a $2 billion trade surplus with the United States last year.

Brazil-U.S. Trade, 2007-2017

U.S. proposals for a free trade area in the Americas have largely foundered because of Mercosur's opposition. Other countries in Latin America, however, have banded together to create a rival bloc dedicated to free trade, much to Brazil's chagrin. In 2012, Mexico, Chile, Colombia and Peru, all of which enjoy close ties with the United States, created the Pacific Alliance to counter Mercosur. Brasilia perceived Washington's hand behind the Pacific Alliance, decrying the new entity as a tool designed to weaken Mercosur's role in the region.

Brazilian-U.S. ties worsened even further in 2013 when documents leaked by former National Security Agency contractor Edward Snowden revealed that the United States had conducted electronic surveillance against then-Brazilian President Dilma Rousseff. In the months leading up to the leaks, Brasilia and Washington had been laying the groundwork for a state visit by Rousseff to the United States, but Snowden's revelations forced the cancellation of the trip. And with Brazil suffering through political and economic crises in the subsequent three years — Rousseff was impeached and forced from power in 2016 — the country had few resources to dedicate toward addressing issues in its relations with Washington.

A Role Reversal on Trade

Mercosur's resistance to a liberalization of trade, however, began to fade in 2016 as leftist governments fell in Brazil and Argentina, paving the way for administrations that favor freer trade. As a result, Mercosur has been pursuing free trade talks with the European Union, Canada and a number of other countries over the past 18 months. Because the administration of U.S. President Donald Trump desires to enact more protectionist trade measures, Mercosur has failed to commence free trade negotiations with Washington even though more economically open governments in Brasilia and Buenos Aires wish to do so. Washington and Mercosur have conducted trade talks — albeit only on specific issues, and without much success. Argentina secured access for its lemons to the U.S. market, for example, but the United States imposed heavy tariffs on its biofuel exports. Likewise, Washington is also considering slapping a 54 percent import tariff on Brazil's steel exports this year.

Steel is not the only point of contention between Brazil and the United States.

Brazil could retaliate by erecting barriers of its own. If Washington approves the proposed tariffs on Brazilian steel, Brasilia could impose restrictions on U.S. coal. Brazil imports more than 6 million tons of coal every year from the United States, making it the second largest buyer of U.S. coal after the Netherlands. Brazil retains hope, however, that it will receive an exemption for its steel, since 80 percent of its steel exports go to the United States as semi-finished products for use by U.S. industries.

Steel is not the only point of contention between Brazil and the United States. Following a massive, 300 percent uptick in U.S. ethanol exports to Brazil in the first half of 2017, Brasilia imposed a tariff-free limit of 600 million liters (158 million gallons) on the product, noting that any additional imports would be subject to a 20 percent tax. Brazil has hinted that it is willing to lift the tariff on ethanol if Washington reopens its market to Brazilian beef. The United States, however, has yet to express an interest in doing so.

Addressing the Caracas Conundrum

In addition to trade, Brazilian-U.S. relations remain frosty in the political sphere. U.S. Secretary of State Rex Tillerson traveled to South America in early February to discuss the Venezuelan crisis but did not stop in Brazil. Brasilia believes that it has a critical role to play regarding Venezuela because of its shared border and because a large number of Venezuelans have fled to Brazil to escape their country's economic and political woes. Brazil, meanwhile, has frequently criticized Tillerson's statements regarding the best method of tackling the crisis, with Brazilian Foreign Minister Aloysio Nunes expressing his disagreement with Tillerson's suggestion that the Venezuelan military could impose political change. By contrast, Brasilia has argued that Venezuela's opposition must unify and solve the crisis itself, since a foreign-backed coup or additional U.S. sanctions would only aggravate the situation and potentially drive even more Venezuelans to seek refuge in Brazil.

Whether the topic is trade or politics, Brazil and the United States remain poles apart. Trade disputes over specific issues such as steel and ethanol, coupled with divergent views on how to best deal with the Venezuelan crisis, will prevent the pair from pursuing anything more than a distant partnership. For the coming year at least, it's never the twain shall meet for the two largest countries in the Americas.

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