The meaning of the trade policy of the Jair Bolsonaro administration: A historical perspective

Pedro Paulo Zahluth Bastos
Associate Professor
Institute of Economics, University of Campinas
Brazil

The trade policy of the Jair Bolsonaro administration cannot be understood without grasping its global economic policy project. Such a project can be comprehended as a swing in the pendulum between nationalism and neoliberalism that has characterized Brazilian politics since the 1980s. However, the Bolsonaro administration radicalized the liberal turn to abandoning some safeguards that other neoliberal administrations were reluctant to relinquish.

In general terms, neoliberal administrations, such as Fernando Henrique Cardoso in the 1990s, praise trade liberalization on a multilateral basis and the attraction of foreign direct investment (FDI). The argument is that more trade openness increases the competitive pressure that forces efficiency gains from local firms, enabling Brazilian exports to capture the market opportunities opened as counterparts in the liberalization agreements. FDI, in turn, must be attracted to bring in new technologies and international marketing channels by guaranteeing a friendly business environment consolidated by international treaties and, therefore, less subject to the succession of governing coalitions in Brazil.

On the other hand, nationalist administrations, such as Luís Inácio Lula da Silva in the 2000s, were more cautious in opening up trade to defend market and policy space for the growth of local industrial capacity. They also resist pressure for privatization because they understand that state-owned companies can perform strategic tasks, such as Petrobras in oil exploration in the pre-salt layer and in developing technological capabilities for oil exploration in deep waters.

Until the Bolsonaro administration, neoliberals and nationalists agreed on at least four things: 1) on the importance of preserving a diversified industrial system, 2) on demanding market opening for Brazilian agricultural exports in return for the industrial opening demanded by developed countries, 3) in limiting the internationalization of lands, 4) in preserving the preferential trade agreements in South America, and in particular Mercosur (the Customs Union with Argentina, Paraguay, and Uruguay), where most of the Brazilian industrial exports are directed.

The Bolsonaro administration abandoned the four consensuses: 1) it eliminated policies to support the manufacturing industry and negotiated a strong trade opening with the European Union with significant sectoral impact; 2) it was content with the much less than the proportionate opening of the EU agricultural market; 3) it supported the creation of financing mechanisms that remove limits on foreign ownership in agriculture; 4) pressures Argentina, led today by a nationalist administration, to allow for the “flexibilization” of Mercosur, that is, to authorize the negotiation of free trade treaties in isolation by member countries of the trade bloc, which would mean the end of the Customs Union. If “flexibilization” is not negotiated, it threatens to leave the bloc.

Such radicalism goes against the trends of industrial activism evident, for example, in the former Build Back Better in the US, and today in the CHIPS and Science Act or the Inflation Reduction Act, in the European Commission’s strategy for the twin transitions (green and digital), as well as in the Made in China program.

The neoliberal turn of the Bolsonaro administration is regretted by those who believe that industrial diversification is an essential condition for economic development and that the state must support the development of cutting-edge industry. However, the plan cannot yet be fully implemented because several European Union member countries resist ratifying the Mercosur-European Union Agreement, or Brazil’s entry into the OECD, due to the Bolsonaro administration’s performance on the ecological question.

Furthermore, nationalist angst can be temporary. Opinion polls regarding the October 2022 presidential election indicate that the most likely scenario is the failure of Jair Bolsonaro’s re-election attempt and the election of former President Lula da Silva. If that happens, we can expect a new swing in the pendulum between neoliberalism and nationalism that should at least recover the four historical consensuses abandoned in the last four years.

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