BRAZILIAN FOREIGN POLICY AND TRUMP'S DECISION MAKING


The recent evolution and policy reversals of the Trump administration threatens Brazilian foreign trade and raises questions about the Bolsonaro’s plan to forge a strategic alliance with the United States. In April 2017 the U.S. Department of Commerce initiated a study to determine whether steel and aluminum imports undermined national security under Section 232 of the 1974 Trade Act, and in March 2018 the Trump administration moved to impose a 25% tariff on imported steel and 10% on aluminum. On May 31, 2018, the U.S. government lifted tariffs on Argentine and Brazilian steel after both countries agreed to voluntary export restrictions (VERs). Brazilian producers agreed to limit their exports to 3.50 million metric tons of semi-finished steel goods and approximately 687,000 tons of finished steel. Under the VER agreement, Brazilian steel would be exempted from Section 232 tariffs. Brazilian steel exports to the U.S. dropped by 14.6% in 2018 under the VER scheme.


The Section 232 tariffs and the VERs adopted by Brazil are significant obstacles in the way of Foreign Minister Ernesto Araújo’s plan to establish a strategic partnership with the Trump administration. Throughout 2019 the Bolsonaro government and Minister Araújo engaged the U.S. government and entered into trade negotiations to achieve a bilateral trade agreement. However, on December 2, 2019, President Trump used his Twitter account to announce that:


“Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries.”


Trump based his policy reversal on the fall of the Brazilian currency, the Real, arguing that both Argentina and Brazil were manipulating their exchange rates in order to obtain advantages in international trade. In fact, in stark contrast to Trump’s allegations, Brazil’s Central Bank was busy buying up reais with the aim of halting its market devaluation. Bolsonaro did not implement reciprocal trade measures to punish U.S. imports and remarked that he would work with the Trump administration to review the decision to reimpose Section 232 tariffs on Brazilian steel. Trump’s announcement to reimpose tariffs threatened to undermine Brazil’s struggling economic recovery. Moreover, the U.S. government signaled that it was ready to reach an agreement with China to end the “trade war,” raising the possibility that a China-U.S. deal could establish import quotas for U.S. agricultural commodities (animal protein, cotton, and most notably soy) that directly compete against Brazilian exports.


The Brazilian steel industry breathed a sigh of relief on December 20, when Bolsonaro announced that he had spoken with Trump and that the U.S. president had assured him that he would revoke his earlier decision to reinstate the Section 232 tariffs. Bolsonaro reported that Brazil-U.S. “commercial relations and friendship are getting stronger every day.” While Trump did not clearly indicate that he was reversing his earlier decision, he did tweet that he had a “great call” with Bolsonaro and that “the relationship between the United States and Brazil has never been stronger!”. The fact that the expression “great call” was never employed in this particular exchange must be seen as a great omen. It appears that the U.S. government will simply preserve the VER agreement on Brazilian steel, allowing Brazilian producers to export limited volumes to a deteriorating U.S. market where steel prices plunged nearly 50% during the second half of 2019. U.S. producers, including U.S. Steel, AK Steel, Steel Dynamics, and Nucor saw their stock prices tumble by 50% in 2019 with even bleaker prospects on the horizon for 2020.


Brazilian producers might even be content with the preservation of the VERs but Trump’s unpredictable trade policy presents a number of challenges to Brazilian foreign policymakers and particularly to Bolsonaro’s efforts to negotiate a special partnership with Washington. These challenges are likely to mount during next year’s electoral season as domestic steel producers and farmers will have much more power over President Trump, largely at the expense of consumers, taxpayers, and Brazilian trade interests. Brasilia will need to weigh its options carefully as the U.S. elections deepen a bipartisan consensus on using unilateral trade measures to protect domestic producers and jobs in a sluggish global economy.

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