International Economics

Module Code: BUS020N519S

Student ID: CAR21510221
Module Convener: Viktorija Mano
Word Count: 2660
Table of Contents

Introduction 3
Background Info on Brazil 3

Competitive Industries 4

Protectionism 5-6

Globalisation 6-8

Trading Blocs 8

Conclusion 9

References 10-12

‘The Analysis of the Trade Performance of Brazil as an Emerging Economy.’

Introduction
An emerging economy is when a country has a shift in structure from being an underdeveloped nation
into one that is experiencing high economic growth and accelerated and increased levels of
investment and trade activity. However, Brazil is classed as an emerging economy due to the country
being in the transition process from developing to developed. In the 21st century, there have been
sharp declines in poverty and unemployment and there is a movement towards decreased inequality in
relation to income across certain demographics.
This essay aims to analyse and detail the methods used in Brazil’s initial transition as well as
emergence, within the last half-century as a BRIC nation. The research will be executed to discover
their measure of protectionism; trading blocs and the impact globalisation has had on their structures
in place.
Background Information on Brazil
Prior to the 1980s and 1990s, with the country having a military dictatorship regime overthrown in
1985, the country experienced significant growth in exports, particularly manufactured goods, and
commodities. After the Second world war, Brazil experienced import substitution industrialisation
where they adopted the economic theory of wishing to decrease their dependence on developed
countries. It was in this period Brazil struggled some, there was an oil crisis, and the prices of the
barrel were decreasing, along with the harrowing interest rates, Brazil prepared for the future and
encouraged a focus on the machine industry, telecommunications, and transportation. This allowed
Brazil to gain access to the following opportunities:

 Access to new markets

 Begin the growth of their importing portfolio.
 An increase the standard of living through employment.
Additionally, inflation peaked at 2950% in 1990 and the government privatised many industries
which resulted in an increase in foreign investment. On the contrary, the economic system used by the
Brazilian government by combining state-owned businesses with a free-market capitalist structure
enabled corruption. Today, Brazil’s main industries are refining, agriculture and iron and steel
production. Since 1990 the GDP has shifted from -4.35% to 4.62% today with the highest seeing
7.53%, however, its economy is very closed and its trade flows – exports plus imports – average 25%
of its GDP meaning it is one of the most closed G20 nations.

Competitive Industries
The three main industries in Brazil are Refining, Steel and Agriculture.
Refining
The refining sector is the biggest market for the industrial industry in Brazil, their refinery is very
advanced, and they are key in the sub-sector of petroleum processing. The oil and gas industry has
been integral in the investment of the Brazilian economy emerging and is responsible for around 10%
of the total GDP. Their oil production is mainly offshore and is headed by the state-owned
multinational corporation Petrobras which accounts for 27% of the country’s oil and gas production.
Brazil owns a prolific pre-salt province, and this means that the oil is of pristine quality and the
productivity is heightened, and the International Energy Agency (IEA) believe that Brazil will be
responsible for around half of the world's offshore oil by 2040, estimating at 5.2 million barrel per
day. However, since the currency has depreciated and the imports are essential products, commodities
may not provide Brazil with economic leverage as it has in recent years.
Agricultural
Brazil is a major agricultural power as it is the fourth
largest agricultural-producing nation on the planet, it is the
main producer of coffee, citrus and sugarcane. The coffee
plantations came after the independence and the
production is concentrated around the southeast area of
Brazil, the sugarcane represents the colonial era of Brazil
where Portuguese and Spanish conquistadores employed
natives or Africans through slave labour. Despite the
agricultural sector only representing 5% of the gross
domestic product, it is a huge generator of employment
foreign exchange and income for many underprivileged
demographics. In 2021, Cargill Agricola S.A. was the
leader in the Brazilian agricultural sector generating R$101 billion, with Bunge Alimentos coming
second with R$68.4 billion. However, with the modernisation of machinery, many groups of people
have been put out of work and this is influencing poverty levels in Brazil.
Steel
This industry has been backed by government members for around 70 years and facilitated the
economic growth of the country in the 20th century. In the 1990s steel industries were privatised and
today, Vale S.A. produces around 14 billion metric tons of iron ore meaning it’s the world’s largest
iron ore production company. The company’s production annually accounts for 80% of Brazil’s iron
ore exports. Brazil is the tenth-largest steel exporter in the world, and export to more than 110
countries and territories. Some other large producers are Gerdau, ArcelorMittal and USIMINAS, these
companies are all involved in the advancement of the economy and with an increase in demand from
the civil construction sector, companies will have to modernise the industry and help grow the
economy further. However, globalisation has had a major impact on the industry as in 2021 for
instance, the Chinese economy performed relatively poorly resulting in lower revenues for Brazil.

Protectionism
Protectionism is a process that governments use through policies to restrict international trade to help
markets and industries domestically. They seek to improve economic activity and import quotas,
tariffs and subsidies are usually the policy tools a government uses to practice protectionism.
The world trade organisation (WTO) is an international organisation that deals with implementing
rules of trade between nations. In principle, the WTO and its agreements and negotiations are signed
by most of the world’s nations and are then practised by these nations in their parliaments or
congressional governments. They settle disputes in trade between WTO members and support
developing nations, which ensures that trade flows smoothly and freely.
Brazil has been a member of the WTO since 1995 and as they are still in transition from being a
‘developing’ country to a ‘developed’ country they are given support by the WTO to ensure all trade
deals that they are involved in are fair. This enabled Brazil the ability to gain economic strength and
in the first 12 years of the 21st century the economy’s average annual GDP growth rate was over 5%,
and this was because of efforts made to improve economic fundamentals and strengthen
macroeconomic resilience being undertaken. Brazil experienced its highest growth rates in exports,
from $243.29B in 2020 to an increase of $80.07B in 2021 which equates to 20.10% of the GDP. This
equates to an increase of 33% which is a magnificent return when compared relatively to 2008’s
$229.51B to $180.89B in 2009 which only accounted for 1.33% of the GDP respectively. One of the
main reasons for Brazil’s poor economic performance in 2009 is because of the impact of the
international financial crisis.
There is a consensus amongst economists that protectionism has had a negative effect on economic
growth and welfare, while free trade and the depletion of barriers have positively affected economic
growth. Moreover, the ‘Old’ Argument for Protectionism is a theory o trade that states that there are
two exceptions to free trade and protectionism: the optimum trade tariff and the infant industry
argument.

Figure 1 Sourced from Anand 2018

The optimum tariff is a tariff which maximises the welfare and refers to a country of large importing
history shifting the economic burden of an import tariff from business in their country to an
international supplier if a country has monopoly power in import and export markets. Brazil has
already benefited from this approach as they have had some of the highest trade barriers whilst being
a commodity-heavy country. An example of when they used this was in the 1950s when they used
government subsidies to force major carmakers like Volkswagen, Ford, and Mercedes to open
factories in Brazil. Many uncompetitive industries such as textiles began to flourish because of this
approach being implemented and this made foreign products to expensive to import resulting in local
companies being able to compete with global companies, thus having a greater impact on Brazil’s
economic growth.

Figure 2 Sourced from SaylorDotOrg

The infant industry argument argues that developing countries can place tariffs on specific imports in
industries that are new or need developing to further diversify their economy. It was articulated first
by Alexander Hamilton in 1790 and then revised by economist Friedrich List in 1814. Smaller
companies domestically will not have the economic power or leverage to compete with international
companies if they are newly established and therefore Brazil placing a tariff on international suppliers
gives the domestic business a better chance of survival in the market. This would help Brazil as it
would reduce any possible reliance on foreign markets, as well as bring new employment
opportunities. However as seen with the US relationship with Brazil, imposing restrictions can impact
trade relations with countries, for instance, an Apple iPhone is 50% more expensive in Brazil than in
the US.
Globalisation effects on Brazil’s Trade Relations
Globalisation is when an increase of integration o economies in the world occurs, genuinely through
trading and financial operations, as well as the migration of citizens and ideologies between
economies and nations, which was facilitated by the advancement of telecommunications and
transport (Salvatore,2010). Brazil for a long time was plagued with economic instability, inflation,
income inequalities and high levels of poverty. The results of globalisation have been somewhat
positive for Brazil as it now has the biggest economy in Latin America with a GDP of $2.1 trillion.
Brazil has developed an interdependent trade relationship with China concerning imports and exports.
China accounts for 31.3% of Brazil’s exports and 22.8% of its imports and this relationship remains
strong despite political shifts as of 2023. In 2021 Brazil exported $46.2B in iron ore and exported
$28.9B to China alone. Brazil also has relations with China, US, India, and Portugal relating to oil
exportation. These relations will positively impact economic growth upon the increase in oil
production.

Figure 3 sourced from

MacroTrends
Figure 3 shows Brazil’s GDP percentage growth from 2009 to 2021. Over the end of 2009, Brazil
experienced a decrease of 5.22%, which would highlight that globalisation did not impact the
Brazilian economy positively as international business was hit by an economic recession. On the
contrary, from 2016 to 2018 the GDP increased by 5.33% over the three-year period resulting in a
GDP of $1,916.95B. In mid-2014, Brazil began to experience a serious economic crisis that coincided
with a political crisis that resulted in the impeachment of President Dilma Rousseff. The cause of the
crisis is known as the 2014 commodity price shock which would have disabled the possibility of
globalisation for the Brazilian economy.
Trade relationships for commodity trading are important for Brazil as it increases international trade
resulting in performance levels increases. The positive consequences of this are that Brazil could be
able to provide a higher standard of living, and employment opportunities, thus decreasing the
inequality gap in income for disadvantaged demographics. Additionally, they gain the ability to invest
in advanced technological methods to ameliorate business processes as well as educated the future of
their economy.
Brazil has experienced a staggering economic success in the last half-century, but besides this Brazil’s
social and cultural globalisation has had a major impact. Once a very quiet country economically they
were irrelevant and socially despite its size they were unknown, due to its display in football culture
and lifestyle displayed to the world, Brazil has become very popular. Brazil was the host of the FIFA
World Cup in 1950 and 2014 and around the time of the tournament KPMG economist F. Blackmore
stated that tourism was ‘around 20% higher than it would’ve been at that time of year’. The rise in
tourism in Brazil meant that jobs were being created and a skilled and bilingual workforce was
needed. In 2016, the National Council of Education, Ivan Siqueira created a regulation for bilingual
schools. Globalization would work here as Brazilians operating in domestic industries could now
communicate with foreign suppliers to complete a business transaction.
Brazil having a group of citizens that are multi-lingual will mean that the economy will grow, and this
will result in the migration of foreigners for economic reasons as opposed to conflict reasons such as
the Italians and Germans in the mid-1800s. moreover, an influx of expatriates could result in network
branches widening and imports increasing as they seek business opportunities.
The Gravity Model (which is based on Newton’s law) refers to the volume of trade between two
countries and the distance between these two countries having a positive correlation. In the case of
this model applied to Brazil’s economy, Brazil’s economy acts as an anomaly. Brazil’s economy is
emerging and due to trade barriers and different economic approaches implemented, they have
perhaps been able to debunk this model. While the reasons why are still unknown, geopolitical risks
may be a factor, with neighbouring nations being worried about the size of Brazil’s economy in
relation to other Latin American countries. Increased trade relations between Brazil and other Latin
American countries could result in other economies becoming dependent on Brazil meaning Brazil
will have a monopolistic impact on exports to other neighbouring economies.
Trading Blocs
Nations will operate within different trading groups, and this is dependent on what continent or region
they are located in. Trading blocs are groups of countries in regions that promote and manage
activities, without the intrusion of protectionism methods (Tutor2U). Trade creation is ‘the formation
of a free trade area or custom union leaders to increased trades between two countries’. Trade
diversion is when the formation of a free trade area shifts trade away from more efficient producers
outside the group.
Globalization is the interconnectivity between different economies, governments, and nations. Brazil
has become an emerging economy by utilising the trading bloc that it is a part of, called Mercosur.
Through Mercosur, Brazil can negotiate various free trade agreements (FTAs) with the European
Union. FTAs are agreements between two or more nations to reduce trade barriers under a free trade
policy which allows little to no government tariffs, subsidies, or quotas. The benefits of Brazil joining
and working amongst trading blocs are evident as the EU is Brazil’s second biggest trading partner,
making up 18.3% of all trade, with Brazil being the EU’s eleventh. Additionally, Brazil is the biggest
exporter of agricultural products to the EU (European Commission). Brazil has also been involved in
banking trade deals with China as recently as 2023, this will expand their global presence and FTAs
used will be pivotal to increasing the GDP, stimulating economic growth.
 Figure 4 Sourced from EconomicsHelp
Brazil has helped to create trade creation through deals that they have executed. The deals they have
partaken in have increased the welfare of its members as the lower-cost producers lead to an increase
in consumer surplus. Brazil joining Mercosur enabled trade liberation and opened them up to markets
where they can trade with lower or no tariffs resulting in cheaper imports. Additionally, Brazil trading
with other trading blocs like the EU allows for networking, along with the BRICS (which is an
informal group of trading states) and Community of Portuguese Language Countries, where relations
can be built.
Conclusion
In conclusion, Brazil has three main industries in which they generate the majority f their GDP, and
these are the industries used to grow international trade relations globally, by achieving this they
would be able to decrease the unemployment levels which is one of the main societal problems the
Brazilian government faces. Brazil should constantly be reviewing their protectionism methods to
ensure that it can protect domestic businesses from international powerhouses, however, it should
attempt to adopt a freer trade style as they have one of the most closed markets out of the G20 nations.
Mercosur is working well for the Brazilian government, but Brazil should attempt to grow trade
relations further with BRICS nations as they are all emerging and it will benefit all parties. Brazil’s
evolution from pre-dictatorship rule to ISI into the emerging economy they are today is very
impressive even with the economic crisis they have faced. By continuing to embrace globalisation,
profiting from their trading blocs, and further softening the implementation of protectionism the
economy will remain prosperous.
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