Trade Analysis between Brazil and the USA - Term Paper Example

?Trade Analysis Trade Analysis between Brazil and the USA Insert Insert Grade Insert 7th November Trade Analysis between Brazil and the USA Brazil is the fifth largest country in the world and is in South America. The Atlantic Ocean borders Brazil from the North. Brazilian capital city is Brasils and the official language in Brazil is Portuguese. She is made up of twenty six states and a federal state. Administrative duties are carried out in Brasils as it is where the elected federal officials reside (Lara, 2010, p6). She is the 6th largest economy after she over did UK in 2011. She has a population of approximately 180 million people with majority of the people living in urban centres. Brazil was colonized by the Portuguese. She has a modern economy with agriculture servicing about 9 percent, industry and manufacturing servicing about 37 percent and service industry servicing about 53 percent of the total GDP. Brazil is the largest producer of coffee, sugarcane and oranges in the globe. She also produces beef, poultry, soybean and corn. In industrial production, Brazil is a leading producer of automobiles, aircraft and steel. Over a long time, her largest business partner has been the United States though greater trends are emerging with China and the middle-east countries taking shape in the international business scene with her. United States on the other hand is not an individual country but rather a merger of 39 states that relate as a single unit. These states are found in the North and South American continents. The US economy has evolved gradually over time. She originally rose from agricultural based economy to manufacturing economy though agriculture still makes a great means of livelihood to the majority of her citizen. However, the last century has noted a great revolution towards specialized manufacturing, technology products, and retailing, finance and business services. Between 1930s and 1960s Brazilian economy was dominated by import substituting industrialization. She has, however, undergone through a great ideological reversal since then (Cardoso, 2009, p5). She has been seen as a great voice in the formation of trade agreements and trading blocks in the developing countries. She led to the creation of Southern Common Market and participated in the formation of the G-20 as a coalition to represent developing countries in the World trade organization negotiations. Brazil works bi-laterally with the U.S due to her influence in the trade groups. She also co-chairs the Free Trade Area of the Americas (FTAA) negotiations as with the U.S. Indeed for the two countries, closer ties serve advantageously both economically and politically. There is mutual benefit when there are good trade relations and the partners have stable political governance. Political stability of any country greatly determines the economic performance of the country. This is evident from the economic recession experienced by the two countries during the Word War II. Economic ties in the U.S and Brazil are much dependent on the two-way trade that is far much empowered by the World Trade Organization. Additional resources and economic growth are the direct benefits realized by the countries in relation to export-import trade relations (Schott, 2003, p 2). US recorded the highest imports from and exports to Brazil in the year 1997. However, a sharp decline was noted in 2002 due to the financial crisis experienced in Brazil. A contrast was sited as US imports from Brazil rose in 2002 than in 1997. Bilateral trade between U.S and Brazil has grown rapidly since 1992. The US had commendable trade surplus with Brazil between 1990’s and 2002 when she recorded a drastic merchandise trade deficit with Brazil. United States’ basic exports comprise of industrial manufactured goods such as electric machinery, air crafts and computers. On the other hand, she relies on imports from Brazil that comprise of steel, iron, footwear and mineral fuels. Approximately about 70% of United States’ exports to Brazil comprises of Industrial goods. On the other hand, industrial goods form about 6% of Brazilian exports to the United States. A great difference is notable between Brazilian export interests and those of the other Mercosul partners (Schott, 2003, p3-4). As an export market, Brazil is rated 15th in taking volume of USA exports. She is also the second top trading partner to USA from China. Investment and trade is in an upward trend between the two countries, with a potential of deeper economic engagements in the future. A meeting held between President George W. Bush and Luiz Inacio Lula da Silva in November 2005 established that the two countries were trading rather little with each other and the investment between the two countries was growing. They noted on the following ways to improve the trade relations: building on bilateral working groups and increase work at the World Trade Organization among other ways. The two countries have gone a great way in constructing trade liberalization in the region. In terms of the conduciveness of its institutional environment to business, Brazil ranked 129th out of 183 countries in the 2010 Ease of Doing Business index. The Logistics Performance Index, a measure of the ease of trade facilitation, rates Brazil at 2.75 on a scale from 1 to 5 with 5 being the highest performance. The 2010 release of the index of Ease of doing business, which ranks183 countries, saw Brazil ranked 129th. This index compares countries in terms of business institutional environment and conduciveness. Another index, the logistics performance index rates Brazil at 2.75 on a scale of 1-5 with 5 indicating the excellent performance. A great reserve of various resources exists in Brazil. In 2006, potential reserves of Iron ore were estimated for 48 billion tones, manganese was rated approximately 208 million tones among other industrial metals. The country also has large quantities of industrial diamonds, bauxite, gemstones, zinc, nickel, tungsten, tin, uranium, lead, quartz crystals, and copper. Dramatic trends in the consumption of the Brazillian resources have been noted since the Second World War. Charcoal energy dominated the country’s energy supply in the 1946 totaling to approximately 70%. However, this has changed gradually and year 2002 recorded 92% of the power consumed taken from hydroelectric power and coal. Nevertheless, this coal is of poor quality, containing a high proportion of ash and sulfur, and therefore cannot be fully used for cooking purposes and also in the steel industry. Other coal deposits were discovered in the 1970’s and this complemented the limited oil reserve that was discovered by then. By 2005, Brazil’s discovered oil reserves were approximately 11 billion barrels. By 2003, domestic production had reached 88 percent, and in 2007, Brazil became self-sufficient in petroleum production. The hydroelectric potential of Brazil is one of the largest in the world, at an estimated 150,000 megawatts (Baer, 2008, p5). A rationale for free trade was advanced by David Ricardo. He argued that if countries exploited their comparative advantage by exporting in bulk those products that they are relatively at an advantage in production and importing the rest, then that would improve their national welfare. This theory has been adopted well in the trade relations between the two countries as indicated by the prevailing trends. Later, arguments for trade pointed to the benefits arising from intra-industry trade and investment. Through these, specialized production along with scale economies, more efficient exchange and innovation-driven productivity increases could be realized. These foundational ideas explain the importance of free trade. More so, they explain why trade liberalization has been at the center of the economic reform debate in much of Latin America. Brazil has been portrayed as a regional leader due to her great fight for the South American trade integration. Her strategy is better explained by the “trade preference” framework. Brazil trade priorities ranked in the following preferences in order of priority are: expand and strengthen Mercosul, where Brazil is the undisputed industrial hub and political leader; advocating developing country interests in the Doha Round, especially on agricultural issues, and; resisting what she views as a welfare reducing, U.S.-designed FTAA, and to a lesser extent, also a preferential trade arrangement with the European Union unless it serves as a counter influence to the FTAA (Hornbeck, 2006, P 1-2). Brazil major merchandise traded wit the US, 2009-2010          UnitedStates       exp imp Agricultural products 2009 3.34 0.64 2010 4.12 0.91 Food 2009 2.39 0.26 2010 2.73 0.37 Fish 2009 0.07 0.00   2010 0.11 0.00 Other food products 2009 2.32 0.26   2010 2.62 0.37 Raw materials 2009 0.94 0.38 2010 1.39 0.54 Fuels and mining products 2009 3.25 2.31   2010 4.85 5.06 Ores and other minerals 2009 0.29 0.09   2010 0.38 0.17 Fuels 2009 2.59 2.12   2010 4.14 4.73 Non-ferrous metals 2009 0.37 0.10 2010 0.34 0.16 Manufactures 2009 8.83 17.25   2010 10.06 21.29 Iron and steel 2009 1.04 0.30   2010 1.57 0.33 Chemicals 2009 1.32 5.92   2010 1.75 7.42 Pharmaceuticals 2009 0.13 1.07   2010 0.15 1.38 Other chemicals 2009 1.18 4.84   2010 1.59 6.04 Other semi-manufactures 2009 1.76 0.97   2010 2.12 1.31 Machinery and transport equipment 2009 3.75 8.33   2010 3.66 10.11 Office and telecom equipment 2009 0.24 1.02   2010 0.17 1.32 EDP and office equipment 2009 0.07 0.39   2010 0.06 0.50 Telecommunications equipment 2009 0.16 0.46   2010 0.10 0.56 Integrated circuits 2009 0.01 0.17   2010 0.01 0.26 Transport equipment 2009 1.78 2.04   2010 1.53 2.53 Automotive products 2009 0.33 0.50   2010 0.38 0.84 Other transport equipment 2009 1.45 1.54   2010 1.15 1.69 Other machinery 2009 1.72 5.28   2010 1.96 6.27 Power generating machinery 2009 0.67 1.96   2010 0.57 1.82 Non-electrical machinery 2009 0.81 2.59   2010 1.17 3.50 Electrical machinery 2009 0.24 0.73   2010 0.22 0.95 Textiles 2009 0.23 0.13   2010 0.21 0.18 Clothing 2009 0.02 0.01   2010 0.02 0.02 Other manufactures 2009 0.72 1.59   2010 0.73 1.93 Personal and household goods 2009 0.47 0.10   2010 0.45 0.11 Scientific and controlling 2009 0.08 0.91 instruments 2010 0.10 1.13 Miscellaneous manufactures 2009 0.17 0.59 Source: table a2 A quick analysis from the table reveals a constant increase in quantities exported to the U.S over the two years. The same trend would be noted in import trade from U.S except in fish, where the imports are nil. The reverse would explain the U.S-Brazil trade. United States surplus with Brazil was $11.6 billion in 2011, up 0.9% ($104 million) from 2010. The global financial crisis and the U.S. recession, during the 19 months from December 2007 to June 2009, caused the U.S. trade deficit to decrease, or lessen, from August 2008 to May 2009. Since then it has begun to increase again as recovery has commenced. The financial Crisis caused United States imports to drop faster than the exports, but that trend has reversed as her demand for imports is on the recovery trend (Williams, 2012, p1). United States foreign direct investment to Brazil accounts for approximately 13.5% in the Caribbean and the Latin America. Massive investments in financial services however lead the share to climb to about 22%. Over 67% of the U.S foreign direct investment is in transportation and chemical equipment, in the manufacturing industry. World trade in commercial services by region and selected country, 2011. Source: Appendix table 2 < http://www.wto.org/english/news_e/pres12_e/pr658_e.htm> Many countries have turned down the idea to open up their boundaries to free trade. Maintained trade barriers are thus a common feature to many countries despite the costs associated with the barriers. Firms and workers often bear the burden in the costs incurred with free trade even with the well stipulated trade benefits accruing to a nation. With free trade, diversity ensues in the product selection for the consumers especially from imports and there is an overall efficiency. There are diverse trade policies to be adopted by a country based on political, social and historical facts that can only be explained by evaluation of economic benefits and costs associated to each. There is a notable difference in the approaches adopted by both US and Brazil in trade liberalization. U.S adopted the competitive trade liberalization while Brazil adopted a narrower approach restricted much to market access and regional trade dominance by competition. With the US, gains can be made through bilateral and regional trade agreements. This approach is competitive in that gains made in one level of agreement can stimulate incentives to further the negotiations to other levels. Brazilian approach has benefits in that there is greater bargaining power through Mercosul coalition, time for economic adjustment and domestic economy is protected by enhanced national influence (Hornbeck, 2006, p2-3). US exporting trend with Brazil has in the past decade been positive. A national Export Initiative was established by president Obama to create new jobs and double the United States exports by 2015. For these goals to be realized, then building trade with growing markets is inevitable. Brazil is such a partner for the well being of the two countries. As Locke noted in Sao Paulo, “The cooperative efforts already under way between our two countries will increase America’s and Brazil’s global competitiveness. Increasing our competitiveness means creating jobs—good-paying jobs—and helping our economies flourish.” (Ward, 2011, p1-3) Brazil subjects a number of taxes to her imports. These include the Industrialized Product tax, the Brazilian importers and the US exporters must register with SECEX, the foreign trade secretariat. However, there are no specific export controls to Brazil by the US government. Only normal controls are maintained. These include controls on military equipment, equipment of highly sensitive measures and high tech information systems (Anonymous, 2011, p1). Coordination of export promotion activities is conducted through inter-agency bodies. Approximately 20 federal government agencies are involved in supporting U.S. exports directly or indirectly (Harahan, et al, 2012 p1). Conclusion In Brazil and the United States, closer ties majorly brought about by the trade relations serve both for economic and political reasons. The two countries have common objectives in trade. Opening markets is beneficial to both boosting innovation and competition. They both have a role to play in order to deepen their trade relations especially bilateral. The success of trade negotiation in WTO and in the hemisphere largely depends on them. An increment in trade and investment in both countries will lead to boosted employment and income. This would also lead to greater cooperation politically, culturally and economically in the hemisphere. Brazil and the U.S both share a role to play in order to deepen their bilateral relations. They have a challenge to ensure better results for their citizen and entire trading block partners (Schott, 2003, p22- 23). Free trade is an essential emerging aspect in these countries’ trade. However, Brazil is still a way off to understanding the benefits associated to the trade and thus is yet to open up her boundaries for the trade. Countries adopt trade policies at will and this explains the difference in trade liberalization between the United States and Brazil. Bilateral and regional trade agreements have put the United States at an advantage in trade relation to Brazil. Prospects are good over future trade relations going with the current signing of trade agreements to enhance mutual trade. It is also crucial that these two countries maintains and develops the already established trade partnership for the well being of the two economies. The two countries participation in trade blocks in the region is beneficial, both politically and economically. Indeed for the two countries, closer ties in Free Trade Area of the Americas (FTAA) have served the purpose. References Anonymous, (2011). Trade Regulations and Standards. Retrieved from http://export.gov/brazil/static/CCG%202011%20-%20Chapter%205%20-%20Trade%20Regulations%20and%20Standards_Latest_eg_br_034997.pdf Baer, W. (2008). The Brazilian Economy: Growth and Development, sixth edition. New York: Lynne Rienner Publishers Cardoso, E. (2009). A Brief History of Trade Policies in Brazil: From Isi, Export Promotion and Import Liberalization To Multilateral And Regional Agreements, First Draft 2009, The Political Economy of Trade Policy in the BRICS. Hanrahan, C. E., Ilias, S., and Villarreal, M. (2012). U.S. Government Agencies Involved in Export Promotion: Overview and Issues for Congress, Congressional Research Service, 2012 Prepared for Members and Committees of Congress Hornbeck, J. F. (2003). Brazilian Trade Policy and the United States, Congressional Research Service The Library of Congress. Jeffrey, J. S. (2003). US-Brazil Trade Relations in a New Era, Institute for International Economics. Lara, A. (2010). A View of Brazil: The Culture and Geography, A Lesson Plan for Grades 4–6. Ward, J. (2011). Brazil and the United States: Working to Advance Their Common Prosperity, US department of commerce, International Trade administration. Williams, B.R., & Donnelly, J. M. (2012). U.S. International Trade: Trends and Forecasts, congressional research service. WTO (2012). Trade Growth to Slow In 2012 after Strong Deceleration in 2011. Retrieved from http://www.wto.org/english/news_e/pres12_e/pr658_e.htm Read More