Just before the two world leaders met, Trump’s National Security Advisor John Bolton stepped outside the White House to tell reporters the visit is “potentially historic … I think it will have a profound impact, not just in this hemisphere but around the world.”
Nothing would have a more transformational impact in the region than a Brazil-U.S. trade agreement, but that can’t happen yet.
In the meantime, it’s important to build a relationship. The pair were certainly able to bond over campaign war stories and their similar worldview. President Jair Bolsonaro, often called the “Trump of the Tropics,” has a similar bravado with crowds, but is also perusing a comparable tax reform, deregulation, and privatization agenda. He’s even relaxing restrictions on gun ownership.
At the recent White House joint press briefing, both leaders blamed socialism for ruining Venezuela, and President Trump thanked Bolsonaro for allowing the U.S. to station “massive aid” in Brazil saying together we could and would be “very happy to feed thousands and thousands of starving Venezuelans.” Both leaders called on the Venezuelan military to stop supporting the Maduro regime and promised to cooperate more on aiding the Venezuelan people.
Bolsonaro won many of the asks he brought to the cornerstone event, including a U.S. endorsement for Brazil to become a “major non-Nato ally” and a technology safeguard agreement that paves the way for investment in Brazil’s aerospace and defense industry.
On trade, Trump called “reciprocity” his favorite word and praised Bolsonaro’s efforts to free the economy. However, both stopped short of more substance.
For good reason. Bolsonaro’s hands are tied by a similar EU-type union called Mercosur, which forbids Brazil from entering a trade agreement without everyone else: Argentina, Paraguay, and Uruguay.
Bolsonaro was able to announce, as a sign of good faith, visa exemptions for U.S. tourists and business travel, which will prove to be a boom to the services economy.
It’s a shame that Bolsonaro can’t go further on trade. Brazil is 93 percent of the Mercosur’s GDP and is responsible for 67 percent of its imports and 71 percent of its exports. By far, most of that trade is with China and the U.S. Brazil’s largest intra bloc partner is Argentina, where 6 percent of its imports originate and the destination for 8 percent of its exports.
Until Mercosur gets its act together, it’s hard for Brazil, the largest beef exporter in the world, to offer anything in exchange for, say, the U.S. allowing Brazilian beef to enter the U.S. market, from which it was banned in 2017. Similarly, Brazil’s sugar exports face a U.S. quota.
In the nearly 30 years of its existence the bloc has inked trade deals with only a few countries. Unfortunately, all of them are in a similar place on the supply chain and lack large consumer markets for the high-tech industries, like space and defense, which Brazil has the potential to grow.
This is a remnant from Brazil’s socialist past that saw competition from the North as a form of hostility. Instead, past leaders sought South-South trade and entrenched the country as a leader of the BRICS group. That didn’t work out well. In fact, Mercosur negotiations with the EU have gone on for nearly two-decades, and continue indefinitely.
Bolsonaro was elected to break that legacy.
The last two presidents, Luis Inacio Lula da Silva and Dilma Rousseff took advantage of their position with the partially state-owned Petrobras by taking bribes in exchange for dolling out lucrative construction contracts. Now, one is in jail and the other impeached.
Trade agreements are about more than tariffs, they’re about rules. Suppose Brazil was constitutionally committed to make sure state-owned enterprises “act in accordance with commercial considerations and to provide nondiscriminatory treatment to other … country firms.” That new rule comes from the recently completed USMCA agreement. Couple that with competition from foreign firms and a non-discriminatory public procurement process, also in trade agreements, then another Operation Car Wash scandal is far less likely.
Currently, all major trading regions are racing to make new rules and update existing pacts. The USMCA is the latest outcome, and it has the most meaningful protections for intellectual property rights and digital trade. They will ensure another era of U.S. companies at the forefront of e-commerce and innovative research. Brazil needs similar rules to break out of a commodity-dominated economy.
In the short-term, Bolsonaro can at least pledge to uphold existing commitments and greatly restrict use of shortcuts, like compulsory licenses to break patents. Such trespasses have kept Brazil’s property rights score below average in the International Property Rights Index throughout the last decade.
If Mercosur, with Bolsonaro at the helm, proves too stubborn to agree to similar provisions, he should seriously consider quitting the group and going for a BRAZ-US agreement. Mercosur certainly needs Brazil more than Brazil needs it, and a “Braxit” will be far less complicated as the economies are less integrated than the EU and the United Kingdom.
An internationally competitive economy run by the highest standard rules is the type of legacy that would outlast Bolsonaro’s term for years to come and transform the region. He can’t afford to squander the opportunity presented by a friend in the White House.
Philip Thompson is a policy analyst for trade and intellectual property at the Property Rights Alliance.
