In a retaliatory response to the U.S. government’s unwillingness to eliminate domestic cotton subsidies, Brazil has announced higher tariffs on over 100 American goods ranging from cars to ketchup.
Trade issues are central to the bilateral relationship between Brazil and the United States. Brazil is an attractive export destination for U.S. manufacturing, parts and capital equipment sectors. The United States has been the largest source of Brazil’s imports in these sectors, with the U.S. producers responsible for about a 15 percent share. The already thriving Brazilian market for U.S. exports has great potential to be even stronger, and could provide a blueprint for future U.S. trade with the region and the world. Indeed, the Brazilian market, with consumer spending growing rapidly, should be a poster child for President Obama’s National Export Initiative, a plan unveiled in the 2010 State of the Union address that promised to double U.S. exports over the next five years and support 2 million new American jobs.
However, the trade-distorting U.S. cotton subsidy programs, which violate the WTO’s Agreement on Subsidies and Countervailing Measures and the Agreement on Agriculture, run great risk of undermining the whole effort.. Retaliatory tariffs against U.S. exports, triggered by the U.S. subsidy programs, will severely hamper America’s competitiveness in Brazil, effectively shutting off markets for many American products that would otherwise be competitive.
Brazil was hoping for a sign from Secretary of State Clinton during her visit last week that the Obama Administration was willing to seriously address the cotton subsidy problem. No such sign was forth-coming, and international hopes for a renewal of the United States’ traditional commitment to trade liberalization were dashed yet again.
As pointed out in Heritage Trade Analyst Daniella Markheim’s recent Web memo:
America’s refusal to comply with adverse WTO rulings erodes U.S. credibility and influence in the debate shaping globalization and undermines the multilateral trading system. America can afford neither trade retaliation nor the loss of its leadership position in international economic issues, and the WTO is already weakened by nations’ inability to conclude Doha Round trade negotiations. The U.S. should not only change its cotton program this year, but it should also take a hard look at other needed reforms if its national export initiative is to be part of a legitimate trade policy.
If we’re seeing the beginnings of a trade war between the United States and Brazil, and the United States fired the first shot.