RIO DE JANEIRO, BRAZIL – The waiting climate in the Brazilian economy will have an outcome in the coming days, when the result of the U.S. presidential elections, which take place this Tuesday, November 3rd, will be announced.
The elections will define not only the paths of the greatest economic power but also its line of interaction with the rest of the world. For Brazil, the victory of Democrat Joe Biden, who led the election polls until this weekend, or the re-election of Donald Trump will influence important agendas such as infrastructure and agriculture chains.
The White House occupant for the next four years will also be the one to decide on the continuation of a free trade agreement between the two countries as well as issues that Brazil has been pressing for, such as accession to the Organization for Economic Cooperation and Development (OECD). The Trump government has given Brazil a signal in this direction, as well as to expedite a bilateral trade agreement.
Experts claim that, in the short term, a change of government would have little impact on the Brazilian economy and on the trade balance between the two countries. But Trump’s inclination in his government and Biden’s speech in his campaigns offer some insights. The environmental agenda, particularly with respect to the protection of the Amazon, should gain extreme relevance in an eventual Biden government, at a time when Brazil’s image is greatly undermined by the record-burning fires in the region.
During the first presidential debate of the American elections, Biden even said that the international community should work to grant Brazil a US$20 billion (R$100 billion) fund to protect the Amazon forest. The Democrat also stressed that unless it is protected, the country will face significant economic consequences. The statement was criticized by President Jair Bolsonaro, who accused Biden of attacking Brazilian sovereignty.
The trend is that under a potential Biden administration, Brazil will be pressured to comply with carbon emission reduction standards and to effectively commit to limiting deforestation. Environmental policies would also be included in trade agreement discussions, as is already the case today under the Mercosur-EU trade agreement.
According to the American Chamber of Commerce in Brazil (AMCHAM Brasil), if the Democrat wins, it is possible that the Bolsonaro government, faithful to Trump, will embrace a pragmatic approach and make commitments, “even if symbolic, to build good relations with the U.S.” “There is a new relationship to be built: new players and new goals. If Brazil succeeds in maintaining a pragmatic agenda and a diplomacy focused on results, we have a chance to further develop the bilateral relationship,” says the CEO of AMCHAM Brasil, Débora Vieitas.
AMCHAM also sees an opportunity for cooperation on Biden’s clean energy platform, with Brazil’s relevance in ethanol production, as well as in increasing solar and wind energy production. Consultant Julio Borges, partner-director of JOB Economics and Planning, considers that it is still too early to know how Brazil could benefit from a greener economy as advocated by Biden: “It is difficult to say if Brazil could expand the market. Perhaps Biden will encourage ethanol production in the domestic market and protect it. Today they have a quota of foreign alcohol use. If they raise it, it can hinder American production. Difficult to say, the interests involved are conflicting.”
President Trump’s environmental policy, on the other hand, tends to be a continuation of the policies of his first mandate. It is unlikely that in a republican reelection there will be an increase in demands on Brazilian environmental practices, which would not be included in commercial discussions among the countries. As Trump supports increased domestic production of fossil fuels, he is likely to continue to limit the prospect of Brazilian ethanol imports invading the U.S. market.
Trade war with China should continue
The trade dispute between the United States and China, which has driven the increase in Brazilian exports to the Asian country – Brazil’s main trading partner – should continue. With Trump, there is a renewed buzz on important negotiations, from the 5G auction to the purchase of the vaccine, while Biden’s position is still unknown, although he is the opposite of his rival’s profile in terms of commercial diplomacy. Biden’s campaign rhetoric is also one of confrontation with the Asian giant.
The Democrat challenger seems to share Trump’s assessment that China is a dangerous competitor, implying that tariffs on Chinese products will continue. Although Biden called the trade war fought by his competitor in the electoral race self-destructive, his campaign refuses to pledge to lift the tariffs, saying only that they will be reassessed.
If this dispute is calmed under Biden’s administration, Brazilian agribusiness and exporting companies could suffer a blow. The rapprochement of the two major powers could cause Chinese importers to go back to buying commodities from Americans, such as soybeans and meat, rather than importing them from Brazil.
Dawisson Belém Lopes, professor of international politics at UFMG (Federal University of Minas Gerais), says that if Biden wins the electoral race, he will not be able to escape the paths adopted by Trump in several agendas.
“I would not expect a turnaround in foreign and domestic politics. I find it difficult for Biden to return to the status quo of a peaceful relationship with China. In the economy, this Trump protectionism should not be disrupted either, since the U.S. economy is weakened after the Coronavirus pandemic,” Lopes says, pointing out that the pandemic agenda will be on the agenda next year.
Brazil is far from being the center of attention of either presidential candidates. This is good news for Bolsonaro. “Brazil’s adjustment will be in a smaller degree in a potential Biden management, economically it changes little in the short term.”
José Augusto de Castro, president of the Foreign Trade Association of Brazil (AEB), agrees that the priority of any government that takes over the White House in the new year will be the health crisis produced by Covid-19, which should not make room for changes in agreements with Brazil. “Trade between the two countries is conducted predominantly by private companies and not the Government. I think it is very unlikely that Biden will place any kind of tariff barrier for Brazil or that the environmental issue will reduce exports,” he says.
Today the United States, Brazil’s second-largest trading partner, has become the largest buyer market for Brazilian manufactured goods, but it is far from the numbers of the past, according to Castro. Around 60 percent of Brazilian exports to the United States are of value-added products and for years the two countries’ trade balance is in deficit for Brazil. “In the past 12 years, we only had a mini surplus in two years,” he says.
With the pandemic, trade between Brazil and the U.S. dropped significantly in the first nine months this year, compared to the same period last year, and Brazil’s deficit with the Americans exploded. According to data from the Foreign Trade Secretariat of the Ministry of Economy, Brazilian exports to the U.S. fell by 31.5 percent to US$15.16 billion. This is the lowest figure in over ten years. Imports also fell, albeit to a lesser extent, by 18.8 percent, closing at US$18.3 billion.
Experts agree that despite the ideological differences, both Biden and Bolsonaro want to preserve the business and commercial interests between the two countries. The mutual stock of investments exceeds US$110 billion per year. “The U.S. is the main foreign investor in Brazil, which is the second trading partner of the Americans in Latin America. This relationship should not suffer a retreat in either scenario,” says Vieitas.
But what in fact has changed during the Trump-Bolsonaro relationship?
The arrival of Jair Bolsonaro to the presidency in 2019 opened a foreign policy based on an automatic alignment to Trump’s United States, as the two presidents share an ideological right-wing stance, conservative in customs and populist. Although Bolsonaro bet many chips on this relationship, its fruits fell short of expectations, and according to most experts, Brazil was ultimately at a disadvantage in some sectors in the name of strengthening the partnership in a submissive manner.
If on one hand, the U.S. reopened its market to Brazilian fresh beef, Brazil granted a number of concessions: it increased the import of wheat and ethanol from the USA and accepted restrictions on exports of Brazilian steel plates by the Americans. “The case of steel surtaxing is vexing for Brazilian diplomacy because after Brazil was penalized, the Foreign Minister thanked Trump and wished him success. Something unbelievable, which hinders our own domestic market,” says Lopes.
Through an act of “kindness” and an eye on the American’s public support to join the Organization for Economic Cooperation and Development (OECD), Brazil has also given up on being treated as a developing economy within the World Trade Organization (WTO) and on reciprocity in the granting of visas, Lopes explains. “In other words, Americans enter without visas but the reciprocal is not true.”
Last year, Brazil and the United States also signed an agreement on the use of the Alcântara missile launch base in Maranhão, which will allow the U.S. to use the facility commercially. The agreement was promulgated earlier this year. “Brazil has made a concession without clarifying what it gains if the counterpart is worthy,” says Lopes.
According to Vieitas, from AMCHAM, the good relationship between the two presidents favored the resumption of the relationship with the largest economy in the world and yielded a mini commercial package this October. The agreement provides for the simplification of bureaucratic procedures, good regulatory practices, and anti-corruption measures. “By simplifying the whole customs process and easing the processing of goods, we reduced the cost of transition by an average of 13 percent, according to the OECD. It is a tangible result, the first stage of a trade agreement,” she says.
Castro of the Foreign Trade Association of Brazil says the mini-package is welcome but modest. “If we don’t have a good export price there is no ease in trade. The challenge lies in the high production costs and taxation, the so-called Brazil cost, which we need to solve internally,” he says.
From a diplomatic standpoint, Brazil is collecting defeats by choosing Trump as its great international partner, according to Lopes. “Brazil is alienated from the game, it has few friends on the international stage. Even heavily dependent on China, Brazil now openly hostilizes the Asian country, with xenophobic remarks that the Coronavac vaccine’s problem was that it came from China, which did not inspire trust. Bolsonaro emulates Trump in a shameful way,” he says.
The professor also points out that Brazil has had good environmental credentials in the past. “The country has always been a serious player. But the current government has ruined all the environmental and diplomatic capital in two years and become a villain,” he says.
If Biden wins, it will be difficult to uphold Minister of the Environment Ricardo Salles’ policies, according to Lopes. “The tradition of the Democrats is also to support multilateralism. Chancellor Ernesto Araújo’s discourse will also need to be adjusted,” he says.
Source: El País