What’s behind Trump’s new “trade war” with Brazil?

. Dec 03, 2019
U.S. President Donald Trump. trade war Photo: Evan El-Amin U.S. President Donald Trump. Photo: Evan El-Amin

Good morning! We’re covering today Donald Trump’s “trade war” with Brazil. A gaffe putting Brazil between Taipei and Beijing. GDP figures for Q3. And Brazil’s education problem. (This newsletter is for platinum subscribers only. Become one now!)

Erratum: Yesterday’s Weekly Report contained a mistake. Our chart “Who is more protectionist?” informed that the data was related to 2008-2009, where it should have read 2008-2019. The information has been corrected in our archives.

With no China deal, Trump charges at Brazil

Negotiations between China and the U.S. have as yet failed

to produce a deal to end the trade war between the world&#8217;s two major powers—but that isn&#8217;t stopping U.S. President Donald Trump from picking new fights. Yesterday, he announced on Twitter that he would slap new tariffs on steel products from Brazil and Argentina, claiming both countries have intentionally devaluated their currencies.</p> <p><strong>Why it matters.</strong> The U.S. is the biggest importer of Brazilian steel products—and Brazil&#8217;s second-largest overall trade partner.</p> <div class="flourish-embed" data-src="visualisation/1031196"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>What&#8217;s behind?</strong> Mr. Trump&#8217;s arguments don&#8217;t hold water. The Argentine Peso and the Brazilian Real have lost value <em>despite</em> the interests of these countries&#8217; governments. &#8220;We could interpret this move as political retaliation for Brazil&#8217;s recent rapprochement with China—and a warning to Argentina&#8217;s soon-to-be-inaugurated leftist president—that U.S. interest must be dealt with care,&#8221; said political scientist Mauricio Santoro, speaking to <strong>The Brazilian Report</strong>.</p> <p><strong>Impact.</strong> Logic would suggest that Brazilian steel companies would feel the blow. But, in actual fact, stocks of Brazil&#8217;s main steel players closed on a high, as their exposure to the new tariffs is actually fairly limited reduced. Only Gerdau relies heavily on the North American market, but it has plants in the U.S. that will not be affected.</p> <p><strong>Diplomacy.</strong> Brazil&#8217;s foreign policy under Jair Bolsonaro has put &#8220;America first,&#8221; with the president preaching total alignment with the White House. The Brazilian government may now learn the hard way that, in diplomacy, there are no friends. Just interests.</p> <hr class="wp-block-separator"/> <h2>Brazil facilitating visas to Taiwan</h2> <p>With Brazil&#8217;s relationship with the U.S. hitting some stormy seas, a new report could undermine the country&#8217;s recent efforts to get closer to China. In October, President Bolsonaro announced that his government would pursue visa exemptions for Chinese and Indian tourists, when in fact the move was only toward allowing them to apply for e-visas, which are cheaper and faster. But the <em>BBC</em> reported that Brazil&#8217;s Foreign Affairs Ministry has also been working on granting that privilege to Taiwanese citizens since at least August.</p> <p><strong>Why it matters.</strong> China claims Taiwan as part of its territory—and has done everything in its power to isolate the island diplomatically. Prioritizing tourists from Taiwan before those from China could rub Beijing up the wrong way.</p> <p><strong>Trade.</strong> This is not Mr. Bolsonaro&#8217;s first nod to Taiwan, after he visited the island as a presidential candidate. But the move is rather puzzling: Brazil trades around USD 3 million with Taiwan, and USD 100 billion with mainland China.</p> <hr class="wp-block-separator"/> <h2>Brazil&#8217;s Q3 GDP: what to expect?</h2> <p>Later this morning, Brazil announces its GDP figures for the third quarter of 2019. Estimates indicate toward meager but continuous economic recovery propelled by the private sector, especially family consumption and gross fixed capital formation—a measure of investments in capital goods.</p> <p><strong>Why it matters. </strong>If predictions are correct, Brazil will record positive growth in nine out of 11 quarters since escaping recession.</p> <div class="flourish-embed" data-src="visualisation/632440"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Not the government. </strong>As the administration focuses on slashing public expenditure, growth is expected to come from the private sector. Stimuli such as allowing workers to withdraw money from a mandatory severance fund, as well as a government-backed week of discounts in September may have enticed consumers to spend more. It will also be important to monitor <a href="https://brazilian.report/money/2019/04/07/brazil-economy-construction-sector/">how the construction sector performed</a>.</p> <p><strong>Trade alert.</strong> The crisis in Argentina, Brazil&#8217;s third-largest trade partner, will have a negative effect on Brazilian exports—especially of industrialized goods.</p> <p><strong>Also important.</strong> As usually happens in Q3, Brazil&#8217;s official statistics agency will review GDP numbers for 2018—but major changes from previously informed numbers are not expected.</p> <hr class="wp-block-separator"/> <h2>Pisa scores show Brazilian education has stagnated</h2> <p>The <a href="https://www.oecd.org/pisa/PISA-results_ENGLISH.png">results</a> are in for the OECD’s latest global test of 15-year-olds in math, science, and reading. The test, known as Pisa (or Program for International Student Assessment), is taken every three years. Brazil ranks in the lower half for all categories. But even more worrying is that the country&#8217;s performance has stagnated since 2009, after a noteworthy improvement until that point.</p> <p><strong>Why it matters. </strong>Pisa is used to measure how countries are preparing for the future. And, clearly, <a href="https://brazilian.report/society/2018/12/07/brazil-education-productivity/">Brazil is failing to do so</a>.&nbsp;</p> <p><strong>Not a matter of money. </strong>Even wealthier Brazilian teens—who have access to better, private schools—are ranking lower than poor students in ten countries: China (Beijing, Shanghai, Jiangsu, and Zhejiang only), Macao, Estonia, Hong Kong, Singapore, Canada, Finland, Ireland, South Korea, and the UK.</p> <p><strong>What&#8217;s ahead?</strong> Brazil&#8217;s current administration has yet to present a consistent education plan to take Brazil out of this slump.</p> <hr class="wp-block-separator"/> <h2>What else you should know</h2> <p><strong>Terrorism.</strong> Yesterday, the Federal Police carried out an operation in the cities of Três Corações and Alfenas (Minas Gerais state) to investigate a possible plot to kill President Jair Bolsonaro. On Friday, a man was arrested for posting on social media what was reportedly a group of videos and photos of a plan to kill the president—who was visiting a military school in Três Corações. The suspect could receive up to ten years in prison.</p> <p><strong>Innovation.</strong> Health Minister Luiz Henrique Mandetta said São Paulo&#8217;s Butantan Institute should be, within a year, producing vaccines for dengue fever. He said the inoculation is in advanced stages of licensing in several countries—and that the institute already has a deal with Big Pharma companies to produce it on a large scale. The number of <a href="https://brazilian.report/society/2019/09/17/aedes-aegypti-dengue-fly-brazil-cant-swat/">dengue fever cases in Brazil spiked in 2019</a>—way before the usual season has begun—after two years of low levels of infections.&nbsp;</p> <p><strong>Internet.</strong> Tomorrow, the Supreme Court was expected to start a trial on whether content producers should be forced to remove offensive material posted by third parties, such as comments on a news story. The current regulatory framework of the internet states this should only happen when it comes to pornographic material. It is worth remembering that hate speech, threats, or spreading false information about someone are already regulated by other laws.</p> <p><strong>IPO.</strong> XP Inc., Brazil&#8217;s biggest brokerage firm not controlled by big banks, is holding its initial public offering on Nasdaq next week. The company will sell off 72 million shares at a price range of USD 22–25—bringing its market value to up to USD 2 billion. That would put XP at a standing similar to BTG Pactual, Brazil&#8217;s seventh-largest bank according to assets controlled.</p> <p><strong>Congress.</strong> Members of Brazil&#8217;s Congress presented 5,003 bills this year—more than ever before. But only 36 of them have passed through a floor vote (an average of one every nine days). Politicians see the act of submitting bills as a way of giving visibility to their work—and after a record renewal rate of 47 percent in the House this year, everyone wants to have something to show for.

Our content is protected by copyright. Want to republish The Brazilian Report? Email us at contact@brazilian.report