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Trump's protectionism might limit Brazilian advantage on farms

The new president of the United States, Donald Trump, has been causing speculations in economies worldwide and the lack of predictability of his actions has already affected negatively players’ expectations. Trump’s slogan “America for Americans” aims to tax imported products and protect the local industry.

 

In late January, Trump decided to leave the Trans-Pacific Partnership (TPP), one of the major commercial agreements of history. Before the U.S.A. left it, the TPP comprised 12 countries, which account for 40% of global economy. The United States is the world’s second major beef exporter; therefore, the U.S.A. exit could favor the Brazilian beef market, as other countries in the TPP could allocate their demands to Brazil. In 2016, the 11 countries left in TPP (Japan, Australia, Brunei, Canada, Chile, Peru, Malaysia, Mexico, New Zealand, Singapore and Vietnam) were responsible for 8.95% of Brazilian exports of in natura beef, 8.5% of pork and 15.3% of broiler, according to Secex (Foreign Trade Secretariat).

 

The fact that the U.S.A. left the TPP might also open a window of opportunity for Brazil in the Chinese and Japanese markets. This is observed as Brazilian political leaderships, namely the minister of Agriculture, Blairo Maggi, aim to establish better commercial relations with the Asian market, which can represent other opportunities for Brazil.

 

On the other hand, protectionist measures in mid and long-terms might reduce or even eliminate technical advantages of the Brazilian beef cattle at farms, one aspect that has led Brazil to be very competitive in international terms. Free trade agreements encourage countries to specialize in sectors where they are efficient. However, as trade barriers increase, leading to protectionism, this efficiency is distorted. Data from Agri benchmark – in which Brazil is represented by Cepea –, for instance, indicate that production costs of one kilo of beef in Brazil is one of the lowest in the world, which boosts competitiveness of the Brazilian beef in the global market.

 

Besides the United States, other actions aiming at deglobalization have been observed, and the decision of Great Britain to leave the European Union is one of them. For 2017, elections in France will be very important for the global economy. Marine Le Pen is the candidate with a higher number of vote intentions, 30%, and she claims to have the intention to remove France from the Euro Zone and limit the entrance of immigrants in the country. As for China, which was the major purchaser of the Brazilian beef for some months in 2016, even if the government claims not to take protectionist measures, it has released plans for the population to reduce meat consumption.

 

Among speculations about the future, decisions, such as Trump’s and the deliberated path to disaggregate Europe, might favor Brazilian beef exports in the short-term, but, in the long-run, the disadvantages to the Brazilian livestock chain might be even higher. Besides, protectionism and deglobalization, still unpredictable, increase even more the asymmetry between developed and developing countries. As for Brazil, the economy has been helped by agribusiness, but in protectionist markets, products have lower value-added compared to other economies, which can affect the trading power and reduce productive advantages at farms.

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