CIAO DATE: 12/03

US-Brazil Trade Relations in a New Era

Abstract

The United States and Brazil are the largest economies in North and South America, respectively. A generation ago, both were relatively closed economies in terms of the proportion of their trade to gross domestic product (GDP), but for sharply different reasons. The US market was highly competitive except for some light manufactures (e.g., textiles, clothing, and footwear) and a few agricultural sectors with high border barriers. By contrast, Brazilian industry was largely uncompetitive and highly subsidized; important commodities like coffee provided the bulk of exports while a large share of the value of most industrial exports was attributable to export subsidies.

Over the following decades, the US economy adapted to the growing globalization of trade and financial markets. The US ratio of trade to GDP almost tripled, with dramatic and beneficial impacts on US income and employment. In Brazil, there have been important economic and political transformations as well, with significant growth in the manufacturing sector abetted by the economic reforms of the 1990s. However, the Brazilian economy is still relatively closed despite a spurt in intra- Mercosul trade in the mid- 1990s. Given the impe rative to boost income and productivity in its economy, Brazil must continue to augment its trade and investment reforms so its industries and workers can keep pace with global competitors. Import substitution policies failed in past decades and are even less viable in a world of increasingly globalized markets.

Full Text (PDF, 32 pages, 841.3 KB)