Economy

Cuts to tariffs are unlocking Brazil’s economy, according to Wall Street Journal

WSJ writer Paulo Trevisani analyzes the recent shift away from protectionism in Brazil and its possible effects on the biggest market in Latin America

  • Led by the Economy Minister Paulo Guedes, a significant number of tariffs on imports have been recently cut;
  • These tariff cuts have accompanied trade talks with the US, as well as the pivotal trade deal between the EU and the Mercosur Group.

Since taking office in January, President Jair Bolsonaro’s government has been making an effort to open Brazil to free trade. Led by the Economy Minister Paulo Guedes, a significant number of tariffs on imports have been recently cut, affecting “more than 2,300 products and exposing local industries long accustomed to protectionism to the challenges of free trade,” writes Paulo Trevisani in his article for the Wall Street Journal.

These tariff cuts have accompanied trade talks with the US, as well as the pivotal trade deal between the EU and the Mercosur Group, under the auspice of Brazil’s administration during negotiations that have taken decades to crystallize into a concrete proposal. Unlocking the stringent system of tariffs is no easy task, but it is one of the objectives of the current administration in Brazil.

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“This administration is pushing for trade openings harder than its predecessors,” explains Filipe Carvalho, a Washington-based analyst tracking Brazil for the Eurasia Group. “An increase in commerce can have a significant impact on the economy and also give Brazil a bigger role in global affairs.” 

Traditionally shielded from international competition, the Brazilian industries have for decades enjoyed tax breaks and the imposition of tariffs as high as 35% on competing imported goods. Yet these sky-high tariffs also have negative effects on businesses that rely on imported technologies.

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More than half of foreign products are subject to permits from numerous government agencies—sometimes up to six different agencies—according to a study by the National Confederation of Industry. This makes importing products to Brazil not only costly, but also bureaucratically burdensome.

Although this longstanding tradition of protectionism in Brazil has sustained businesses that may now find it difficult to adjust to the floodgates of free trade so quickly. “We have always had a protectionist model,” said João Ebert, chief operating officer at Xalingo SA, a toy maker in Southern Brazil.