A Trade War of Words between Brazil and the U.S.

October 17, 2012

by Lucy Jordan

Protectionism made news again in Brazil recently, when Finance Minister Guido Mantega announced that Brazilian firms could avoid a 30 percent tax increase on the auto industry by improving fuel efficiency, using Brazilian-made parts and investing in Brazilian research and development. Foreign automakers without a manufacturing plant in Brazil will be subject to the tax hike, Veja noted.

The program is designed to encourage innovation in technology and fuel efficiency, Mantega argued. Any negative effect on foreign imported cars, he said, was merely collateral damage.

It’s no surprise he is feeling a little defensive.

Last month, Brazil and the United States had something of a war of words over trade issues.

First of all Mantega, in an interview with the Financial Times, called the United States’ latest round of quantitative easing (QE) “protectionist.” QE, which has been deployed liberally by the U.S. and other industrialized nations in response to the economic crisis, floods the market with dollars—which Brazil has complained drives up the value of the real, making Brazilian exports less competitive.

“Any country that manipulates its currency is practicing protectionism,” Mantega told the FT. “We don’t do that.”

The U.S. responded in kind, with a leaked letter criticizing Brazil’s announcement of plans to increase import tariffs on some 100 items, including potatoes, tires and x-ray equipment, with more tariff hikes expected to be announced this month.

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Tags: Brazil, tariffs, trade