Question

According to The Economist (2019), it is difficult to be optimistic about trade at the moment: almost the entirety of US-China trade is covered by an average 25% tariff (up from an average 5% at the start of 2018), Japan and Korea are putting up trade barriers over a history spat, and the WTO's dispute settlement mechanism looks set to become ineffective in December, with the US blocking the required reappointment of judges. However, unexpected developments are providing reasons for optimism. So far this year, Mercosur has signed meaningful free-trade agreements with both the EU and the European Free Trade Association. A few more are in the pipeline, and those with Canada and Singapore look like they could be signed later this year.

This progress might seem surprising. Until their changes of government a few years ago, which saw protectionist left-wing governments leave power, Brazil and Argentina, the two largest economies in Mercosur, had long had an anti-free trade slant. Notable changes include Jair Bolsonaro (Brazil's president), and his installation of a reformist economic team, as well as a response to US unilateralism. Progress on the free-trade agreements and the imminent passage of pension reform are two key reasons why we expect Brazil's economy to rebound a little in 2020, with growth accelerating to 2%, from 0.8% this year.

That will be enough to lift GDP per person, which is still below the level of five years ago. There are some risks to the forecast, particularly from international concern about deforestation and the long-standing vested interests that work against reform, and so the recovery remains fragile for now.

Are you surprised to see Brazil emerging as a force for free trade?

Answer 1

Brazil is almost at the bottom in trade freedom index by heritage foundation. Latin American countries often argued 'infant industry' protection in their country is their topmost priority rather than allowing for free trade.

Trade barriers and protectionism did not allow many multinationals to set up plants in Brazil. Brazil also has low productivity as compared to other countries using sim liar kind of resources.

All these problems led to less rate of Economic growth for Brazil post 2008 recessionary gaps in world economy. Brazil has export of agricultural goods and free trade definitely befits them. Lessening tariffs and allowing foreign investments will lead to increase in productivity and new jobs will be generated in Brazilian economy. Brazil, Russia, India, China (BRIC) countries are also in talk and are considered to be countries with high growth potential and if Brazil is opening up then it will only help them to grow at faster rates.

Considering all benefits from free trade, Brazil opening borders is not a surprise.