When I was a child, my teachers would often warn me about getting distracted. If I’d gone to elementary school 10 years ago, my parents would likely have been told that I have ADHD. After spending so much time policing myself to stay on target with no distractions, I find it ironic that I’m taking to my site that focuses on Brazilian and Latin American language services and related economic/geopolitical issues to discuss Donald Trump. Love or hate the man, he can dominate news cycles like no other President before him.
No reason for anyone to be alarmed, I’m not writing nor will I ever write my opinion on politics! Like any reasonable human being I won’t discuss religion or politics at the dinner table, let alone on a real publication. The decisions the White House will make this week will have possible world-changing ramifications for every nation on earth, and that affects everyone’s bottom line!
Instead of discussing the politics of the issue, we need to investigate the geopolitics of the issue. To me, geopolitics is the art of understanding the inevitable. The dreary grind of politics is the soap opera that entertains or horrifies us on the way to nation’s destinies unfolding in what can be very predictable patterns.
That may sound grandiose but it borders on understatement. Brazil and Latin America are enormous economies which have never been able to set the rules in international affairs. Their massive commodity resources link them to geopolitical relevance and the sheer size of the Latin languages power on all consumer markets makes Portuguese and Spanish a dangerous game for any company with a serious marketing strategy
That still begs the question of why would steel and aluminum tariffs be so significant to Brazil and Latin America?
In shorter industry terms, Brazil exports nearly 13% of it’s steel to the US with a significant portion going to Mexico. Canada accounts for another 17% adding up to 30% of the US steel industry. The tariff announcement spooked the Brazilian Ministry of Industry, which immediately threatened retaliation.
The ministry added that Brazil’s steel industry is not a threat to the United States, noting that 80 percent of its steel exports are semi-finished products that serve as an important input for the American steel industry. The statement also noted that Brazil is the biggest importer of metallurgical coal from the United States. Two of Brazil’s largest steelmakers, Cia Siderurgica Nacional and Usiminas sold off on the tariff news, closing down 4.4 percent and 4.2 percent, respectively.
In the short term, Brazil has a massive export industry that serves the United States just as Brazil is emerging from a crippling recession. Even if the most optimistic predictions of Brazil’s recovery are true, it will still take Brazilian industry three years to recover from the massive shortfall generated by the recession while navigating murky political waters.
Brazil’s steel industry isn’t without its vulnerabilities either. Brazilian steel is nowhere near the top world exporters, with its top mill coming in at 20 on the world charts. That makes the 13% exported to the US all the more valuable.
The real danger lies in how the tariffs are being rolled out and the precedent they set
The Trump administration is presenting the tariffs as a protectionist measure based on national security. That invites inevitable copycat retaliation from other nations that would like to protect their own national interests and industries by placing tariffs where they see fit.
India can restrict U.S. agriculture imports in the name of food security, China can defend its massive subsidies to industry as a security necessity. The result could be a cascade of unintended consequences that could restrict the ability of Iowa farmers to export corn, automakers to competitively sell cars overseas and increase costs to U.S. consumers.
In the case of Brazil and Latin America, it’s impossible to say what industry could suddenly face an uphill battle as protectionist tariffs or exemptions are suddenly levied, either surprisingly boosting industries that need to pick up the slack or detonating industries that rely on access to US and other markets.
Brazil can do well within it’s own internal industries, such as it’s growing e-commerce industry.
Nevertheless the vast commodity exports and export industry that make up a large portion of all Latin American economies will face severe disruptions and threats
Which brings us to the second and infinitely more frightening portion of why this is a real concern beyond the immediate steel industries and short-term losses. The Trump administration has flouted international alliances and accords like Nato, NAFTA, Paris Climate Accords, and the Trans-Pacific Partnership (TPP).
In some cases, notably the Paris Climate Accords and NATO; the arguments have either been largely symbolic or have otherwise stated the obvious. Noble as the Paris Climate Accords may be, they require no actual commitment in terms of accountability. No nation on earth will compromise its own industries in terms of Co2 emissions to meet clean air standards that don’t require any treaty bound requirements that other nations are forced to adhere to. President Trump can play the heel in not signing what amounts to a glorified letter of intent but it doesn’t pass for much other than political theater. China won’t suddenly saddle its industrial production with restrictive standards because of a treaty that no one else has to hold its own industries to account.
NATO won’t suddenly dissolve because Trump has stated the obvious. By declaring NATO as “unfair”, Trump has officially called out NATO members for not pulling their economic fair share and to a real degree he is correct. NATO was designed with the Soviet Union and Cold War in mind and with the threat of the Iron Curtain sweeping across Europe gone, even a resurgent Russia doesn’t explain why in an “all for one one for all” treaty organization no treaty member outside of Britain and France have contributed nothing more than token forces to US conflicts that have had direct repercussion n security in member nations. Wherever you stand on the conflict of the last 17 years, it’s hard to deny that the entirety of NATO member states have been threatened while US, British and French troops have defended German, Italian and Southern European interests among others.
In any case, the overriding point is that the argument is legitimate, if clumsily stated. It also won’t amount to much, much like the equally heavy-handed Paris Climate Accords. NATO won’t dissolve, nor will any nation on earth will change it’s industrial standards to meet a largely symbolic climate accord.
In stark contrast, the well-being of NAFTA and the health of the world trading system is a very real and serious threat to every nation that exports.
The case for Brazilian steel and every other industrial sector in the world gets very serious here. The Trump administration is making the case that US steel production is a matter of national security. If Brazil can risk losing 13%of it’s steel exports to the US because Trump has invoked national security protocols to pass sweeping 25% protectionist tariffs than Brazil would not only be well within its rights to declare reciprocal tariffs protecting Brazilian industry, it would be foolish not to do so.
Which then begs the question, where does it end?
The Wold Trade Organization exists to serve as a neutral arbiter in world trade disputes. There’s a largely unspoken truth at the World Trade Organization, nobody invokes national security and nobody questions national security, even though WTO rules allow countries to take extraordinary steps if they feel their national security is at risk.
What happens when China rules that access to its industries are matter of national security and invokes the same protectionist talk that potential tariffs could provoke? The Trump administration has wisely already discussed exemptions for Canada and Mexico regarding steel and other industries n order to not scuttle NAFTA negotiations. As much sense as that makes, it weakens the argument for tariffs as national security and opens the door to weaken the WTO as an institution. After all, if the US can invoke defense for trade initiative and subsequently open exceptions fir its vital trading partners how will the TWO maintain its legitimacy i anh trade dispute when nations are invoking their own national interests?
These aren’t questions with easy answers. They are, at best, observations that we are potentially sailing into uncharted waters with serious ramifications for everyone involved.
The Trump administration has shown a disdain for the global world order and has demonstrated a willingness to upend it. The wording and execution of these tariffs could have far longer reaching consequences than Brazilian steel, they could have serious consequences for all international trade.
Uncharted waters indeed!