from Latin America's Moment and Latin America Studies Program

Brazil’s Brewing Trade Debate

March 22, 2017

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Brazil is in the midst of a grand debate on its future in the global economy. The debate has been happening behind the scenes, obfuscated by the fireworks of the Lava Jato corruption scandal, overshadowed by the flashier discussions of political reform and the Temer administration’s fiscal reforms, and hidden from view by explosive scandals, such as the recent meat-packing disaster that threatens one of Brazil’s key export markets.

But as a recent paper by David Trubek, Fabio Morosini, and Michelle Sanchez-Badin highlights, policy elites in Brazil have been rethinking the country’s place in the global economy. The debate takes place against a dramatic domestic recession and political crisis, but also against a highly uncertain international backdrop, which has fueled questions about development strategy, export markets, and Brazil’s foreign policy preferences.

Trubek and his co-authors argue that three schools of thought have emerged, with different feelings about the role of the state in the economy and the priorities for market expansion and global alignment:

  1. The most deeply embedded of these schools of thought is the so-called “developmentalist” school, which has endured since the 1930s, and historically has had support from both left and right sides of the political spectrum. Developmentalists support a strong role for the state in the economy, and downplay the need for closer ties with developed economies, for fear of being shoehorned into neoliberal economic policies or constrained by restrictive trade agreements that might limit national options. Developmentalism has been knocked down but not beaten by the combined drama of the Lava Jato investigation that originated at state-owned behemoth Petrobras and the impeachment of President Dilma Rousseff. Developmentalism’s continued influence pushes Brazil away from alignment with the United States and toward South-South relations, including with both Latin America and the BRICS.
  2. A second school is the pro-opening group of free traders and open economy advocates that Trubek et al. label the “aberturistas.” They advocate a radical rollback of heterodox economic policies and state intervention, and seek free trade and greater integration into global value chains, from which Brazil is largely absent. They are eager to turn toward the United States and the European Union, and more importantly, to shift the dominant economic paradigm toward greater global integration. But historically, they have been few and far between; their influence in some academic institutions has not been matched by real power, save for a few rare appointments in the Treasury and Central Bank.
  3. Somewhere in the middle lies the “nationalist developmentalist” group ascendant in the Temer administration. Trubek and his coauthors describe this group as “chastened” developmentalists, seeking to preserve policy space and promote developmental policies, while “reining in” some of the most interventionist policies adopted by the Lula and Rousseff administrations. Foreign Minister José Serra was an exponent of this perspective, seeking accommodation with the United States and increased access to Northern markets without unduly constraining policy flexibility. His departure from the Temer administration last month is a loss to the nationalist developmentalist cause, but that group continues to have strong support within the government, not least because Temer is a pragmatist who is not hellbent on reforming the status quo beyond the changes immediately required by markets and ratings agencies.

The authors are quick to note that Brazil may have concretely fewer options than the largely academic debate between the three schools suggests. The United States has withdrawn from the Trans-Pacific Partnership (TPP) and become far less interested in even discussing a bilateral agreement. Mercosur negotiations with Europe continue at their usual glacial pace. China is a treacherous trading partner, given that its exports compete directly with Brazil’s weakened manufacturing sector. As a consequence, “the idea that trade policy can easily be used to leverage major changes” in the developmental model seems “far-fetched.” More importantly, the authors note that alignment with many of the global trading agreements would require major changes to Brazilian industrial policies, to its state-owned enterprises, and to the regulation of foreign direct investment. None of these—with the partial exception of regulation—seem to be in the works.

Nonetheless, the debate over trade may soon be pushed into the political arena. In the wake of the United States’ withdrawal from TPP, trade negotiations in the hemisphere are shifting in a more Latin America-centric, Asia-focused direction. In mid-March, ministers from Latin America and Asia met in Viña del Mar to discuss paths forward. It is telling that while neither China nor Brazil was a party to the original TPP, the Viña del Mar meeting included China, but not Brazil. The train toward Asia-Pacific integration is already picking up steam, with the Pacific Alliance countries – Chile, Colombia, Mexico, and Peru – energetically shoveling coal.

As Trubek and his coauthors note, the Temer administration does not have a stable or strong mandate to undertake trade reform, nor does the administration seem inclined to move beyond its “nationalist developmentalist” posture. But this need not mean total immobility: Mercosur partner Argentina is increasingly demonstrating interest in inter-bloc negotiations, bilateral agreements remain a possibility, and the sensation of missing the trade train just as it stops in Latin America enroute to Asia could yet change the calculus of key economic players as Brazil heads into its momentous 2018 presidential campaign.

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