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Brazil makes concessions for U.S., despite cuts on Brazilian steel quotas

. Sep 01, 2020
steel industry brazil united states Photo: T photography/Shutterstock

Traditionally, Brazil’s trade policy — along with almost all dealings with foreign countries — has been based on the principle of reciprocity. Raise tariffs on Brazilian goods? Expect the same to happen in return. However, this long-held credo is being cast aside during the Jair Bolsonaro government, with the Foreign Affairs Ministry led by anti-globalist Ernesto Araújo happy to make concessions to Donald Trump’s U.S. As we explained in this morning’s Daily Briefing, Mr. Araújo is pushing for a 90-day renewal of Brazil’s tax-free quota for foreign ethanol, benefiting U.S. producers — just days after Donald Trump’s White House imposed reduced import quotas on Brazilian semi-finished steel.

</p> <p>According to President Trump, the measure came as a result of the slowdown of the U.S. steel industry, due to the dwindling demand during the coronavirus pandemic. Brazil&#8217;s Foreign Affairs Ministry says it is confident quotas will be lifted as economic conditions improve.</p> <p>Import quotas allow Brazilian producers to sell their products to the U.S. tariff-free up to a given volume. Since 2018, the U.S.&#8217;s steel and aluminum import tariffs have risen to 25 percent, going against the <a href="https://brazilian.report/newsletters/brazil-daily/2020/07/22/brazil-joins-us-taking-wto-stand-against-china/">rules of the World Trade Organization</a> (WTO).</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3630206"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>In justifying the measure announced on Friday, Mr. Trump <a href="https://www.whitehouse.gov/presidential-actions/proclamation-adjusting-imports-steel-united-states-082920/">proclaimed</a> that shipments of steel from domestic producers fell 15 percent in the first six months of the year, and that the capacity utilization rate of U.S. firms in the sector was below 70 percent on a year-to-date basis from August 15.&nbsp;</p> <p>&#8220;Moreover, imports from most countries have declined this year in a manner commensurate with this contraction, whereas imports from Brazil have decreased only slightly.&#8221;</p> <p>The price of steel in the U.S. fell 12 percent this year, because the Covid-19 pandemic crushed demand across all related sectors, from home appliances to civil construction. At a steel sector conference last week, American executives said that the recovery process is likely to take between one and two years.&nbsp;</p> <p>However, among representatives of the private sector and members of the Brazilian government, the U.S.&#8217;s aggressive move is largely down to the proximity of presidential elections in that country. They highlight that Mr. Trump&#8217;s decision on Friday was a gesture to the steel industry, which comprises important Republican Party backers and could boost his re-election chances. Throughout his term, the president has been keenly tuned to the message of protecting American jobs to the detriment of foreign imports.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3630321"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <h2>Sharp Q4 downturn</h2> <p>Brazil is the world&#8217;s 12th largest exporter of steel products and the U.S. is its biggest market. Brazilian steel sales to the U.S. add up to an average of USD 2.6 billion a year, and around 85 percent of the total volume consists of semi-finished steel used as raw materials for American industry. In the other direction, Brazil imports around USD 1 billion in metallurgical coal and USD 4.3 billion in machinery and equipment every year from the U.S.</p> <p>The Aço-Brasil Institute, representing steel producers in the country, says that the restriction will result in a sharp fall in sales for Q4 2020, from 350,000 tons to 60,000. Since April, Brazil has been working with a quota system estimated at 3.5 million tons per year, adopted in the place of a 25-percent increase in import taxes on Brazilian steel.</p> <p>CNN Brasil reported that U.S. pressure on Brazil to adopt new quotas began in June, when U.S. Trade Representative Robert Lighthizer telephoned Ernesto Araújo, asking the country to voluntarily restrict its sales to the U.S. due to the reduced demand for steel caused by the pandemic. After consulting with the private sector, Mr. Araújo replied that contracts had already been signed for Q3 2020.</p> <p>The Foreign Affairs Minister did not comment on these talks, but Aço-Brasil confirmed that negotiations have been in place for the last month to formalize the reduction of quotas.&nbsp;</p> <iframe src="https://open.spotify.com/embed-podcast/episode/3ulkklC6bRRy1yXQvDqUjH" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>December trade talks</h2> <p>Brazil has already exported 90 percent of its annual quota, with restrictions now falling upon the remaining 350,000 tons to be shipped — now, only 60,000 tons may be exported, the future of the other 290,000 will be discussed in December.</p> <p>In a joint statement on Saturday evening, the Foreign Affairs and Economy Ministries affirmed that, despite the reduction, tariffs on intra-quota steel would remain at zero. The same statement confirmed that the two countries will negotiate once more in December.</p> <p>&#8220;The Brazilian government upholds the firm expectation that the recovery of the U.S. steel sector, the frank and constructive dialogue on the issue — to be resumed in December — and the exceptional quality of bilateral relations will allow the full reinstatement and the increase of trade levels of semi-finished steel,&#8221; read the statement, banking on Brazil&#8217;s perceived &#8216;special relationship&#8217; with Donald Trump&#8217;s White House.</p> <h2>Measure contradicts President Bolsonaro</h2> <p>Belief in the existence of this &#8216;special relationship&#8217; increasingly appears to be one-sided, as was exemplified in a brief meeting between President Jair Bolsonaro and President Donald Trump in September of last year, at the UN General Assembly.</p> <p>While the Brazilian leader blurted out an &#8220;I love you!&#8221; to his U.S. counterpart, Mr. Trump replied: &#8220;it&#8217;s nice to see you again.&#8221;</p> <p>In June of this year, in another attempt to show his closeness to Donald Trump, Mr. Bolsonaro said he had spoken to the White House and asked for an increase in export quotas of Brazilian semi-finished steel. Last week, he claimed he had solved the issue.</p> <p>&#8220;Some months ago there was news that the American president was going to tax our steel and the press criticized me. I held my tongue for almost 30 days. Obviously I spoke with Mr. Trump, and 30 days later tariffs on our steel were not raised.&#8221;

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Renato Alves

Renato Alves is a Brazilian journalist who has worked for Correio Braziliense and Crusoé.

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