Is the US-Brazil mini deal worth it?

Is the US-Brazil mini deal worth it?

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Hello from Washington, where we’re now just a couple of weeks out from the 2020 presidential election and Joe Biden and Donald Trump are gearing up for their final televised debate on Thursday evening. We’ll be watching the showdown for any good trade nuggets.

In trade news for this week, we’ve had the latest Trump administration mini deal, this time with Brazil — but as our main piece today highlights, further progress will be tricky. The chart of the day looks at the sharp rise in global sovereign debt, and our person in the news is deputy White House chief of staff Christopher Liddell.

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Mini deals, maxi displeasure

Mini trade deals — small, piecemeal agreements that stop short of covering everything and anything — have been a hallmark of the Trump administration’s trade policy. 

The US-China deal was a mini deal, as was the US-Japan deal, and the proposed US-EU deal would have been one too (and might still be, should Biden win and pick up the mini-deal mantle). 

This week we’ve seen the latest one, between the US and Brazil, although compared with weightier deals such as US-China and US-Japan, it’s more of a micro deal. That hasn’t stopped it grabbing headlines calling it “a trade deal”, though, but in reality it’s thin. It includes a few small things, like an anti-corruption pledge and an “agreement on good regulatory practices”.

The big thing that it doesn’t touch, because no mini deal can, is tariffs. To alter tariffs or quotas, the US administration must seek approval from Congress. The US has a trade surplus with Brazil, but it faces high tariffs — Brazil has traditionally been a relatively protectionist nation. According to the World Trade Organization, US imports to Brazil face an average tariff of 13.4 per cent, while Brazilian imports to the US face 3.4 per cent.

Even if the US did negotiate a lowering of tariffs, any sort of deal with Brazil would not be a huge economic win for the US — the amount of trade between the two countries is much smaller than the trade between the US and Mexico, say, despite Brazil having a much larger economy. In 2019, the US exported more than $43bn in goods and services to Brazil, and imported $31bn.

Brazil, too, is bound by the Mercosur, the common market trade arrangement it has with Argentina, Paraguay and Uruguay. If Brazil wanted to do a full bilateral trade agreement on its own and not as part of Mercosur, it would first have to change Mercosur’s rules.

So what’s the point? It’s largely a diplomatic engagement driven by political affinities. Brazil’s president Jair Bolsonaro isn’t known as “the Trump of the tropics” for nothing. One of the new generation of conservative leaders sweeping aside the leftists of old in Latin America, he has long courted Trump, showering him with flattery and even imitating many of his playbook lines on the likes of “fake news”. The Trump administration sees Brazil as sympathetic to its values.

But there is a problem here, which is that Trump has just perversely made Brazil’s hopes of a proper trade deal with the US more distant by enraging Congressional Democrats. Earlier this year, influential trade-minded Dems on Capitol Hill wrote a strongly worded letter to US trade representative Robert Lighthizer warning that they would not tolerate a full trade deal with Brazil’s Bolsonaro, citing the “reprehensible rhetoric and actions” of his government, including “its complete disregard for basic human rights, the need to protect the Amazon rainforest, the rights and dignity of workers, and a record of anti-competitive economic practices”.

Influential US lawmakers have cited destruction of the Amazon rainforest among the reasons for opposing a full trade deal with Brazil © Ueslei Marcelino/Reuters

There is a second issue that irks both Democrats and Republicans (although the latter group will only grumble in private) — the increasing use of the mini deal to circumvent Congress, which is supposed to have control over commerce with foreign nations. 

Speaking on Tuesday morning, Lighthizer acknowledged that there was no support for a proper trade deal with Brazil among House Democrats, but said the administration would keep pushing ahead anyway and do as much as could be done short of a full trade deal.

Predictably, Richie Neal, the Democratic chairman of the powerful House ways and means committee (which has the power to block trade deals) issued a furious statement in response to USTR’s announcement of the Brazil development, accusing the administration of passing over Congress “to reward an administration that lacks respect for basic human rights, the environment and its own workers”. “In what may be the eleventh hour of the Trump Administration, USTR has flouted Congress to undermine the United States’ values and standing in the world,” he wrote. 

Annoying Congress this much over foreign relations is one thing when at stake is a lucrative arms deal to Saudi Arabia (for example), but it’s another to enrage lawmakers over a marginal agreement that does nothing much economically for the US.

Lighthizer knows that elected lawmakers are opposed to the development of economic ties between the US and Brazil, but as in other areas, administration officials are moving forwards with presidential desire as the legitimising force — even in areas where Congress is supposed to hold power.

It might well backfire. Mini deals can only go so far. And with what could be his last mini deal, Trump has probably made it much harder for Brazil and the US to ever get a full trade deal, involving the shifting of tariffs. Although Brazil is hardly at the top of the list of countries the US would like new trade agreements with, there is now likely to be more scrutiny and bad feeling about anything put before a disgruntled US Congress.

Charted waters

Covid-19 has left many patients with debilitating symptoms after the initial infection has cleared, an occurrence known as “long Covid”, but what is true of health is likely to be true of the economy as well, writes Martin Wolf. The pandemic is likely to give the world not just a deep recession, but years of debility. However, the policy response to handling this prolonged period of crisis will raise public deficits and debt substantially. Advanced economies are in a weaker position.

Chart showing that sovereign debt has reached historic levels: general government debt as a % of GDP

Person in the news

Christopher Liddell is the US’s nominee for the position of OECD secretary-general © Mandel Ngan/AFP via Getty

Who is it?

Christopher Liddell, deputy White House chief of staff

Why is he in the news?

The Trump administration on Tuesday confirmed that Liddell would be the US’s nominee for the position of OECD secretary-general, having trailed the announcement earlier in the summer. Liddell previously held high-level positions at General Motors and Microsoft.

Members of the OECD are mired in talks over how to fairly tax big tech companies. The US is threatening to impose tariffs on several countries if they come up with their own digital services taxes, but has also previously walked away from talks.

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