A US-Brazil trade agreement benefits us in more ways than one

A US-Brazil trade agreement benefits us in more ways than one
© Stefani Reynolds

President TrumpDonald John TrumpWatergate prosecutor says that Sondland testimony was 'tipping point' for Trump In private moment with Trump, Justice Kennedy pushed for Kavanaugh Supreme Court nomination: book Obama: 'Everybody needs to chill out' about differences between 2020 candidates MORE keeps making friends with the previously unseemly. Not so long ago, the idea of stronger trade ties with Brazil was nearly unfathomable. Today, the leaders of the two countries seem poised to team up. If we can move past recent squabbles and each leader can tame special interests, the United States could seize an opportunity to help our trade agenda and a key neighbor in more ways than one.

The two leaders are off to a strong start. During Brazilian President Jair Bolsonaro’s visit to the White House earlier this year, he and President Trump released a joint statement about their intention to “build a new partnership” focused on “increasing prosperity, enhancing security, and promoting democracy, freedom, and national sovereignty.” The two reinforced their alliance at the G20 Osaka Summit in June. Later, Bolsonaro even suggested that a U.S.-Brazil bilateral free-trade agreement might be on the table.

The two presidents have much in common. For one, they both love Trump. Bolsonaro even ran his campaign on a pro-American, pro-Trump platform, and has been coined “the Trump of the Tropics.”

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Notably, the two leaders share a concern about a rising and state-led China that does not adhere to global trade norms. Bolsonaro has grown increasingly critical of China’s commercial interests in his country. The Trump administration has rejected the status quo on China trade issues, even when that means using self-punitive tariffs.

Brazil’s 210 million people make it an attractive trade partner for the United States: It is by far the largest South American economy – with total two-way trade totaling $103.5 billion in 2018 – and it is our ninth-largest export market. Our trade surplus with the largest Latin American country should put it in a good light through Trump’s eyes as well.

A good trade deal could go a long way in reducing bilateral trade costs. It would lead to lower tariffs and address the behind-the-border barriers that are clearly explained in the Office of the U.S. Trade Representative’s latest Foreign Trade Barriers report. (There are 12 pages on Brazil.) Most of those concerns could be addressed by adopting key chapters of the Trans-Pacific Partnership or United States-Mexico-Canada Agreement that deal with digital trade, intellectual property and state-owned enterprises.

Brazil has been a worthy World Trade Organization opponent. Trade practitioners will recall the WTO cotton case, which Brazil launched against the United States in 2002 with regard to unfair U.S. subsidies to cotton farmers. Brazil won the case in 2004, though only after numerous appeals, arbitration and countermeasures was a real solution reached.

Once Brazil decided it had put up with enough and threatened to raise tariffs on hundreds of millions of dollars in American goods, the two reached a mutually acceptable solution. The United States reformed its cotton program, and in 2014 it agreed to a one-time payment of $300 million to the Brazil Cotton Institute. The case appeared painfully drawn out at the time. But looking back now, it seems to have been an excellent use of the WTO dispute settlement system. Brazil’s actions ultimately nudged the United States toward agriculture policy that was less trade-distorting.

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A new deal won’t be easy, however. At home, Bolsonaro is fighting hard for a pro-growth economic reform agenda. Already he has come under intense scrutiny from trade unions and anxious politicians. But with University of Chicago-trained economist Paulo Guedes by his side, he seems to know what the country needs to do now in order to avoid fiscal disaster later.

It takes a lot of courage and willpower (and a bit of luck) to achieve great reform. If Bolsonaro’s administration can pull it off, the benefits will be felt for years to come. The United States must do what it can to support Bolsonaro’s market-oriented reforms, and that could include a joint trade deal. Just as Brazil has been a tough rival, it would be a remarkable partner. We accomplish more in the region, across the Pacific, and around the world with Brazil as a partner. Stronger trade ties are a good place to start.

Christine McDaniel, a former senior trade economist in the White House Council of Economic Advisors and deputy assistant secretary with the U.S. Department of the Treasury, is a senior research fellow with the Mercatus Center at George Mason University. Hane Crevelari, a Brazil native and Mercatus MA fellow, contributed to this piece.