- Current political and economic issues succinctly explained.
This publication is now archived.
In the past several years, Brazil has assumed a more prominent voice on global trade and energy issues. As the global financial crisis took hold in 2008, Brazil appeared poised to recover more quickly than many others mainly due to strong industrial and agricultural exports. Brazil’s economic rise has led it to pursue greater influence in international forums at the same time that it fosters cooperation among countries in the developing world with "south-south" initiatives. Moreover, the selection of Brazil as host of the 2014 World Cup and 2016 Olympics has put the country in the international spotlight as the government accelerates its economic development in preparation for these events. Analysts say that the United States stands to benefit from a stronger Brazil that serves as a partner on energy and regional security initiatives, but it must be careful not to view Brazil’s rise as a challenge, or, during a time of great economic turmoil, neglect the relationship.
Strong Economic Foundations
In the past decade, Brazil became one of the world’s fastest growing economies: It’s the world’s sixth-largest by nominal GDP and the seventh-largest by purchasing power parity. One major sign of Brazil’s growing economic clout is its selection as host of two major international sporting events: the 2014 World Cup and 2016 Olympics, for which the government is expected to invest tens of billions of dollars. The Brazilian government has already implemented various economic acceleration packages aimed at infrastructure and communications in preparation for these events.
Economists attribute Brazil’s growth to sound economic management, which has reduced inflation and attracted foreign investment, and the stabilization of its currency, the real. The country is well-positioned to weather the current economic downturn; its population of roughly 200 million has become a burgeoning consumer market, and its banking system has largely escaped the credit crisis. After several banks failed in the mid-1990s, Brazil tightened bank regulations; some small distressed private banks were taken over by the government, and troubled state-owned banks were closed or purchased by foreign investors. As a result, Brazil’s banks "are strengthening the economy and making it more resistant to fluctuations in local and international markets," says a 2009 article published in the online business journal of the University of Pennsylvania’s Wharton School.
Brazil’s economic growth is largely driven by both agricultural and industrial exports. It is the world’s biggest exporter of sugar, chicken, beef, and coffee. Analysts agree that Brazil has the potential to produce even more agricultural exports. "No other country has such a large untapped reserve of land, water, and farmers with the technology and expertise to add value to natural resources," writes Juan de Onis in a 2008 Foreign Affairs article.
"Brazil is learning to balance meaningful commercial diplomacy with political diplomacy in an unprecented way." - Kellie Meiman
Brazil also harbors a number of homegrown multinational corporations, such as Embraer, one of the world’s largest aerospace companies. These companies have major investments overseas, so "Brazil is learning to balance meaningful commercial diplomacy with political diplomacy in an unprecedented way," writes Kellie Meiman in a March 2009 report (PDF) from the Center for American Progress. In 2008, Sao Paulo’s stock and commodity exchanges merged, which prompted a new inflow of foreign investment. Brazil has made great strides in increasing its total energy production, particularly oil and ethanol; nowadays Brazil is the largest producer of liquid fuels in South America in 2011, and offshore exploration efforts in the last decade have yielded massive discoveries of pre-salt oil fields.
Given Brazil’s strong economic position, the country is defining and cementing a new global leadership role. Together with Russia, India, China, and South Africa, Brazil is part of the BRICS group of leading emerging economies, with significant influence on regional and global affairs. "Brazil wants a say in international affairs, and to be an agent of peace and stability," adds Paulo Sotero, director of the Brazil Institute at the Wilson Center.
Brazil’s ascendancy poses opportunities and challenges for the United States, which would like to have a stronger partnership with the country on security, trade, and energy matters. Under the Bush and Obama administrations, the United States has increasingly regarded Brazil as a significant power, especially in its role as a stabilizing force in Latin America.
While Brazil and the United States share common goals for regional stability, Brazil’s independent approach to foreign policy has led to periodic disputes with the United States on trade and political issues, including how and whether to create a Free Trade Area of the Americas (FTAA), Brazil’s vocal opposition to the war in Iraq, and the U.S. embargo of Cuba.
Experts differ on how the United States should handle this tension. David Rothkopf suggests that the United States should seek "a new special relationship with Brazil" to keep Brazil from feeling slighted by U.S. prioritization of other matters. If the Obama administration "only pays lip service to Brazil but slow walks the most important issues while seeking disproportionate payment in turn from the Brazilians ... then tension and distrust are likely to manifest themselves," he writes. Other analysts say the United States just needs to treat Brazil on more equal footing.
Still, Brazil and the United States have worked closely on a wide range of bilateral and regional issues. Cooperation has increased in recent years with ongoing high-level contacts between the two governments, particularly on energy issues. There are at least ten bilateral mechanisms through which U.S. and Brazilian government and business leaders interface on issues of shared concern.
Other current issues of concern to both Brazil and the United States include counternarcotics and counterterrorism efforts, energy security, trade, human rights, the fight against HIV/AIDS, and the environment. Brazil is also forging strong ties with countries in Africa and Asia as well as with China, which is now its largest trading partner.
The United States and Brazil have agreements aimed at increasing ethanol use throughout Latin America and creating a global market for biofuels, but frictions persist about the U.S. tariff on Brazilian ethanol. The 54-cent per gallon tariff protects the U.S. domestic, corn-based ethanol industry from Brazilian sugar-based ethanol, which is produced at a lower cost. Though some U.S. legislators have proposed ending the tariff, segments of the U.S. agriculture lobby oppose such a measure. The Brazilian government has threatened to file a complaint with the World Trade Organization if the tariff is not reassessed, but Obama has signaled that he plans to continue the tariff. Experts are split on how serious this disagreement is and what implications it has for the broader relationship.
Some policymakers, including U.S. Assistant Secretary of State Thomas Shannon, have highlighted U.S.-Brazil cooperation on ethanol as grounds for a wider partnernship. The cooperation currently is based on a 2007 memorandum of understanding and an announcement one year later that both countries would help Guatemala, Honduras, Jamaica, Guinea-Bissau, and Senegal create biofuel industries. Some experts say these initiatives are too narrow. "This limited dialogue is not broad enough to help address U.S. energy needs, climate change, or to build a global market for ethanol," writes Kellie Meiman. She recommends that the United States reduce its ethanol tariff.
Many experts believe the United States will seek stronger energy ties with Brazil in light of its substantial offshore oil resources. The United States obtains most of its oil from Western Hemisphere suppliers, including Canada, Mexico, and Venezuela. Mexico’s oil output is decreasing, and the United States would like to diversify itself away from Venezuelan oil because of its antagonistic relationship with President Hugo Chavez.
On trade, Brazil has often taken a stance that aligns it with other developing nations and places it in opposition to developed countries, including the United States. Brazil’s trade policy is "not merely about making the nation wealthier, but making the nation more powerful," says Matias Spektor, senior research fellow at CPDOC, a Brazilian research center. In Latin America, it stauchly opposed the Free Trade Agreement of the Americas and announced its intention to increase trade within the Mercosur bloc of countries. An April 2008 report (PDF) from the Wilson Center’s Brazil Institute said that Brazil is reluctant to expand its trade relations with the United States and the European Union because "it fears that this would conflict with its south-south foreign policy strategy and potentially alienate its developing world allies."
Some analysts believe that such a foreign policy goal runs counter to Brazil’s economic best interests. For instance, the Mercosur bloc has not yielded concrete trade benefits for Brazil. A 2009 Congressional Research Service report on U.S.-Brazil relations notes that "the Ministry of Foreign Relations continues to dominate trade policy, causing the country’s commercial interests to be (at times) subsumed by a larger foreign policy goal, namely, enhancing Brazil’s influence in Latin America and the world" (PDF). The CRS report suggests that Brazil’s focus on "south-south" initiatives has "yielded few concrete results for the country." Moroever, Sotero says there is growing recognition within Brazil’s policy circles that Mercosur has become a "problematic" and "limiting" relationship.
On the international stage, Brazil broke with India at the Doha round of global trade talks, pushing for lowered subsidies because they would make Brazilian goods more competitive.
On the international stage, Brazil broke with India at the Doha round of global trade talks, pushing for lowered subsidies because they would make Brazilian goods more competitive. "Brazil was peacemaker between India and the United States and Europe. Brazil was willing to cut a deal and wanted to bring India along but couldn’t do it," says Thomas J. Trebat, executive director of Columbia University’s Institute of Latin American Studies. Many analysts believe Brazil will continue to support global initiatives in South America, but in the end, it does want to trade more with the United States. "Fundamentally Brazilians know what side of the bread the butter is on," Trebat adds.
The United States engages with Brazil on trade and investment through a number of initiatives. On March 19, 2011, President Obama and Brazilian President Dilma Rousseff signed the Agreement on Trade and Economic Cooperation to enhance cooperation on trade and investment by expanding U.S. direct trade and investment. Brazil was the United States’ eighth-largest goods export market in 2011, amounting to $42.9 billion, up 21.2 percent ($7.5 billion) from 2010, and up 180 percent from 2000.
A Seat at the Table: Multilateral Institutions
Underlying much of Brazil’s activism on the global stage is a belief that it should have a more influential role at multilateral bodies like the UN Security Council, the International Monetary Fund (IMF), and the G-8 group of advanced economies. Brazil would like U.S. support in its bid for a permanent seat on the UN Security Council. It would also like a decision-making role at the IMF. "The fact you become a potential creditor makes your voice stronger," Claudio Loser, head of the IMF’s Western Hemisphere Department from 1994 to 2002, told Bloomberg in April 2009. "Brazil has been pushing very hard, together with countries such as India, China and Mexico, for the fund to better reflect the importance of emerging economies." Some analysts note, however, that Brazil will need to contribute funds to the IMF if it hopes to have a stronger role within the body. In June 2009, Brazil announced it will invest up to $10 billion in notes issued by the IMF.
The Wilson Center’s Sotero says the United States should work with Brazil to assist countries in the global south with issues like food and energy security. The United States is interested in helping to increase agriculture yields across sub-Saharan Africa, and Brazil’s agriculture research agency already has an office in Ghana from which it aims to assist other African countries. "If local solutions are to be found for Africa’s chronic food deficiencies, Brazil’s expertise in tropical agriculture, supported by international financing, could prove vital," Juan de Onis writes.