US-Brazil Economic Relations: What Lies Ahead?

 Jair Bolsonaro easily won the Brazilian presidential election with an incendiary home speech but little hints about how he views international ties. As a result, there has been some discussion about Bolsonaro's foreign policy ideas. This work aims to answer the most important of these problems, many of which are still theoretical. Much of the uncertainty derives from the President-elect's lack of foreign-policy definition, as well as the identity of the future Foreign Minister, which is key to many of the issues highlighted here.

Analysis

The unconventional character of candidate Jair Bolsonaro, who spoke extensively on the most sensitive issues of Brazil's domestic agenda - but not on any specific policy details as to how he intends to achieve his goals - is heightened by his election victory in terms of foreign policy. His lack of definition, contradictions, and the fact that the future Foreign Minister has yet to be nominated all make it difficult to assess the policies and diplomatic style that will mark the new government's engagement with the world on January 1, 2019.

After being elected President, Jair Bolsonaro slammed Itamaraty, Brazil's Ministry of Foreign Affairs, in a statement issued on the night of Sunday, October 28: 'We will free Brazil and Itamaraty from the ideological bias to which international relations have been subjected in recent years'. Prior to this announcement, foreign policy was one of the few areas on which the President-elect had not yet spoken in depth. As a result, little is known about Bolsonaro's foreign policy plans.

Paulo Guedes, the future'super-Minister' of Planning, Industry, and Finance, also criticized excessive ideology in foreign policy: 'Brazil has been caught up in ideological alliances, and that is harmful for the economy'. The aggressive tone of his proclamation of principles, beginning with his appeal for economic openness, shows the direction Guedes intends to take his ministerial portfolio. He is also likely to fight for a pro-market stance in the country's future trade agreements. Guedes' involvement is significant because the success of Bolsonaro's presidency, as well as the country's future worldwide image, are heavily dependent on Brazil's economic recovery.

One of Bolsonaro's obsessions, as mentioned repeatedly throughout the recent election campaign, is to eradicate all traces of the Workers' Party's (PT) involvement in national politics. From this standpoint, Bolsonaro feels that Brazilian foreign policy need significant change, notably many erroneous or harmful measures by Lula da Silva. Some of these aspects of foreign policy were amended or addressed during Dilma Rousseff's administration, and even more so under Michel Temer. In any case, the new President is likely to accelerate foreign policy reform.

Bolsonaro had mostly avoided such foreign policy problems before to his electoral triumph. In the months leading up to and during the campaign, he made contradictory statements about the Paris Climate Agreement and the possibility of unifying the Ministries of Agriculture and the Environment, which alarmed environmentalists due to the potential consequences for the Amazon. He also spoke out against the United Nations (a "meeting place for communists"), in support of Israel (and the relocation of the embassy to Jerusalem), and urged for a stronger relationship with the United States. There were also threats of military action against Venezuela, some less veiled than others but always rejected afterwards.

In this regard, the name of the new Foreign Minister remains a hot topic in the debate about the new government's direction. Bolsonaro has already questioned why a diplomat such as Celso Amorim could become Defense Minister but a military official has little chance of becoming Foreign Minister. Not only is such a reflection offensive, but its content has caused considerable concern in Itamaraty, as have Bolsonaro's statements against the ideological slant of Brazilian foreign policy under the Lula and Rousseff administrations. Clearly, 14 years of PT rule had a considerable impact not just on the training of new diplomats, but also on the composition of the diplomatic corps, as well as the country's international aims and style of seeing and inserting itself into the world.

To some extent, nationalism and developmentalism are shared values by key elements of Brazil's most powerful corporations: the military and diplomatic corps. Today, Bolsonaro's long-held ideas conflict sharply with Paulo Guedes' ultraliberal economic stance. His positions clearly support free trade and economic liberalization. They include a deliberate removal of protectionist obstacles and a reduction in the 'Brazil premium', which is the higher differential cost that investors must pay to do business in this South American country. Along with his goal of restructuring the pension system and significantly decreasing the public deficit, Guedes' ambitious privatization plan stands out.

Little is known about the privatisation plan's scope and depth, despite the fact that opposing viewpoints exist on the matter. Some military voices argue that enterprises tied to key sectors of the economy should stay under governmental control. The breadth of protectionism will be another source of conflict, as seen by the plethora of MERCOSUR declarations that failed to specify exactly what the new government expects from this regional integration program or how it will achieve its objectives.

Brazil and its neighbors: MERCOSUR.

Bolsonaro's election sparked two debates across Latin America, particularly in South America. The first is the impact of his electoral triumph on adjacent countries. The appearance of xenophobic voices in various Latin American capitals, along with an increasing need to regulate migration and deport irregulars, appears to indicate that there will be some contagion impact. A more problematic topic is whether other new national leaders in the region would promote the same ideals as Bolsonaro (i.e., defending an anti-abortion, anti-gay marriage, and cultural-values agenda, as well as a hard-line crime strategy, with evangelical churches' support). Such queries are now widespread in almost every country in the region.

Furthermore, given the importance of the Brazilian market to the Argentine economy and the importance of Argentine-Brazilian relations for both countries, the personal and bilateral relationship that Mauricio Macri and Bolsonaro will establish is another factor influencing the future of MERCOSUR. Traditionally, the first foreign journey made by a Brazilian President-elect is to Argentina. However, Onyx Lorenzoni, the future Minister of the Civil House (i.e., the President's chief of staff), stated that Bolsonaro's first informal excursions before becoming president will be to Chile (considering the current ties between the two countries), the United States, and Israel. However, things may change in the end because the incoming President must shortly have surgery (as a result of the attack he sustained during the campaign), which will temporarily limit his movement.

Another key concern will be the relationship with Bolivia, at least while Evo Morales remains in power. Bolsonaro once stated that national interests should take precedence over ideology in international relations. It will be fascinating to watch if he applies the same idea to Bolivia, Brazil's primary supplier of imported gas (especially since the current deal expires in 2019). Another difficult issue is the path of the so-called bi-oceanic railway corridor, which is anticipated to connect Atlantic and Pacific ports (a project closely tied to China's "One Belt, One Road Initiative"). Despite Michel Temer's early commitment to Uruguay, Paraguay, and Bolivia, Piñera is now attempting to influence Bolsonaro. Furthermore, Bolivia has joined MERCOSUR, and its membership—now needing only Brazilian ratification—becomes more relevant in this setting.

One final element influencing MERCOSUR will be the outcome of the Treaty of Association negotiations with the EU. Despite great progress in the negotiations, a few unresolved obstacles prohibit the agreements from being finalized. The highly protected automotive sector of MERCOSUR (which produces at greater costs than the international average) has been a significant challenge in negotiations with the EU. Indeed, Bolsonaro has already been urged to prolong such protection during a lengthy transition period. There remains one last (although weak) hope that a deal will be struck at the next G-20 Summit in Buenos Aires on December 30. However, if the Treaty is not finished by then, time will start to work against it. On the one hand, the impending European parliamentary elections will result in the appointment of new authorities in Brussels; on the other hand, a new Brazilian administration will cause additional delays in the negotiations.

Venezuela

Certain statements implying a future Brazilian military invasion of Venezuela to topple the Chavez dictatorship have prompted widespread debate about Brazil's new stance on Venezuela. This potential has evolved in response to the entry of thousands of Venezuelan immigrants in Brazil, as well as the resulting disruptions in several cities and border towns.

The Trump administration is keen in broadening regional support for increased pressure (even military action) on Venezuela, and it has made some efforts to entice select Latin American nations, including Colombia, Chile, Argentina, and now Brazil. The Trump administration is also considering supporting rebel forces in order to spark an internal rebellion that will damage the Maduro dictatorship. Despite occasional talks with high officials in Washington, there have been no concrete results to date due to the Maduro regime's persistence. At the same time, OAS Secretary General Luis Almagro promotes a Venezuela Plan to combat drug trafficking as the most effective tool for weakening Chavismo. Such an initiative may potentially be positively appreciated by the new Brazilian government.

Relationships with the US, China, and other global actors

The US and Brazilian administrations have exchanged communications showing a desire in a more collaborative approach to creating joint regional initiatives in the medium term. The goal would be to influence not only Venezuela, but also Cuba and Nicaragua. In a recent address in Miami, Trump's National Security Advisor, John Bolton, referred to the three countries as 'the troika of tyranny'. On the one hand, the future of Cuba's Mais Médicos (More Doctors) program, which promotes primary care in Brazil, is in jeopardy, but the depth of the overall relationship with Cuba may also be at peril. Bolsonaro says Mais Médicos is funding the 'Cuban tyranny' and wonders, 'What business can we have with Cuba? Are we discussing human rights?'. Regarding the Brazil-Cuba relationship, he added: "Can we maintain (diplomatic) relations with a country that treats its citizens in such a (bad) way?"'

Bolsonaro stated multiple times throughout the campaign that "Trump wants the US to be great." I too want a fantastic Brazil. In keeping with such views, he has been willing to support the US's Israel policy and to accept Washington's desire to construct its embassy in Jerusalem: 'If a government chooses where its capital is located, we must act accordingly'. He also criticized the Palestinian embassy's location (quite close to the presidential palace) and proposed decreasing the level of diplomatic recognition in place since 2010: 'Palestine needs to be a state to have the right to an embassy'.

Although the President-elect's ideas remain firm, several voices have already expressed concern that such steps could harm Brazilian relations with Arab countries. The PT governments bet greatly on maintaining close connections with Arab countries. Brazil was also the primary proponent of ASPA, the Summit of South American and Arab Countries (four summits have been conducted to date). Furthermore, Arab countries are the second-largest export market for Brazilian meat. In 2017, Brazil's overall exports to Arab countries was US$13.5 billion, resulting in a trade surplus of more than $7 billion. Some of the main Arab sovereign wealth funds have been considering investing in various Brazilian infrastructure projects, a plan that may be jeopardized if the embassy move to Jerusalem proceeds. Another place where Brazil may diminish its footprint is North Africa. This might create significant potential for other countries and other corporations.

The total amount of Chinese direct foreign investment (FDI) in Brazil surpasses $40 billion. It is centered in industries including energy, agriculture and livestock, telecommunications, equipment manufacture, and mining. In 2016, the Chinese business Molybdenum paid US$1.7 billion for a Brazilian niobium mine (which produces steel for aerospace and automotive companies). Bolsonaro, like many of his supporters in the developmentalist military, believes that certain strategic companies should remain under Brazilian hands. Brazil currently controls 85% of the worldwide niobium market.

In the current context of unstable economic growth, Brazil is heavily reliant on Chinese exports and capital inflows (in the form of FDI and loans). This reduces the incoming government's leverage in the face of Chinese claims to keep positions previously obtained in Brazil. If Bolsonaro chooses a closer relationship with Taiwan, or a China policy more in line with the Trump administration's antagonism with the People's Republic, Beijing may respond harshly. However, it is important to realize that Bolsonaro is not Trump, and Brazil is not the US. How far will Bolsonaro take his battle with China? And, regardless of Guedes' claims, will national interests or ideology prevail?

Finally, there are Brazil's ties to the EU and Spain to consider. First, it should be recalled that during the campaign, Bolsonaro made almost little mention of either. Furthermore, neither the EU nor Spain represent any major sources of contention for Brazil or its prospective political agenda. From a European standpoint, the conclusion of the MERCOSUR Treaty of Association discussions is of the utmost importance. The potential connections that Bolsonaro could form with xenophobic politicians or populist movements are also cause for alarm.

The bilateral relationship between Spain and Brazil is unlikely to change significantly. The Spanish Ambassador in Brasilia, Fernando García Casas, conducted an interview with President-elect Bolsonaro, who rated the conversation positively. And, while major changes are unlikely from a diplomatic standpoint (unless serious efforts are made against Brazilian democracy), they are even less likely from an economic standpoint. Guedes' pro-market policies benefit Spanish businesses as well.

Conclusions

In any case, as with Trump's entrance in the White House, after an initial shock of Bolsonaro's election, both regional governments and politicians are adjusting to the new situation. Not for nothing is Brazil the largest Latin American economy with which everyone wishes to maintain good relations, despite the fact that Brasilia has never been eager to be a regional force.

In terms of other extra-regional entities, a closer relationship with the United States appears to be evident, while it is unclear how Brazil's large interests would position themselves. Too close to Donald Trump may cause them to lose positions in other countries, regions, and markets. And, if the Arab countries serve as a clear example, China's position is even more compelling. China's involvement in Brazil rose significantly during the Lula and Rousseff administrations; will Bolsonaro wish to expand or even sustain this presence? Or, on the contrary, would he join others who are already speaking out about the need for more containment of Chinese expansionism? Many of these questions will not be answered until Bolsonaro takes office on January 1, 2019.