Should the U.S. really restrict trade? Consider Brazil
Commentary: Brazil’s historic recession is evidence that increasing barriers to trade does more harm than good
By Lucas Schifino
As a citizen of Brazil, “freedom” is the first word that comes to my mind when I think about the U.S. To foreigners, the U.S. is a country where, if you respect some basic rules that enforce moral values and ensure that one person’s freedom doesn’t interfere with the freedom of others, you enjoy freedom of choice.
Free to choose what to develop, what kind of work to specialize in, what kind of job to pursue in order to be happy. What kind of business to open, and what to buy, produce and sell.
In addition to the beauty inherent in the idea of being free to choose, freedom of choice carries some basic economic intelligence. People are different. Every person is unique, with his or her own skills and preferences. The environment in which they prefer to live and work can vary significantly as well, even within close proximity. If people are free to produce whatever they want, including all kinds of specialized labor; to sell their products in an organized and safe market; and to buy whatever they want with the money they earn, most people will choose to do what they can do best, taking into account their environment, skills and preferences.
This is why the idea of freedom is related to wealth. Free countries are wealthier than those that restrict people’s choices. The U.S., the country that embraces this idea as no other country in the world has, is among the wealthiest on Earth.
With this in mind, many of us outside America have to wonder: Why did U.S. citizens choose a president whose main business ideas are related to restricting economic freedom?
Despite the delicate issue of immigration, why does Donald Trump want so badly to prevent people from buying goods from China, for example? The Trump administration has struggled to come up with a coherent trade policy, but seems to be settling on trade restrictions of steel imports from China.
When it comes to free trade, Brazilians have some hard-earned advice to offer Americans.
Our former president, Dilma Rousseff, was also very enthusiastic about restricting commercial relations. During her 6 years in office, the government created a complex net of restrictions on imports. The most famous required companies in the oil business, including the state giant Petrobras, to buy a certain amount of their inputs from other Brazilian companies — even though it would mean paying higher prices.
Meanwhile, as the entire rest of the world’s production was becoming more integrated, with dozens of new global players emerging and developing the skills needed to produce inputs, consumer goods and services with more efficiency, Brazil closed its eyes. It remained committed to the Mercosul, a nearly failed economic block comprised of Brazil, Argentina, Paraguay and Uruguay (Venezuela is also a member but has been suspended since 2016). These countries have neither the scale to buy Brazil’s production output nor the technological capability to sell products that are better than Brazil’s.
Despite Mercosul floundering, Brazil did not enter into any economic agreements with new partners. Retreating in the opposite direction from the one Brazil had correctly chosen in the beginning of the 1990’s, Dilma Rousseff closed off Brazil’s economy.
For the past 3 years, Brazilians have suffered the results of these and other bad policies. Brazil is stuck in the worst recession in the nation’s history, and beyond all cyclical factors, the most concerning metric is the decline in our aggregate productivity. This is seriously affected by the “buy Brazilian” policy that restricts companies choices, which limits their efficiency.
Donald Trump is no doubt a smart man, and perhaps his other policies would be good for American citizens. However, Brazil offers the lesson that restricting people’s freedom to buy low-value Chinese goods is not the right approach. Today, the goods that Americans buy from the Chinese have low aggregate value. Producing these low-value goods at home will not make Americans richer overall.
If some groups of workers have lost their jobs or have stagnant incomes because they only have the skills to produce these low-value goods, the correct policy solution is not to close the economy and recreate artificial production based solely on trade restrictions.
A better way would be to implement policies that improve the workers’ skills so that they can produce high-value goods and services instead. This is the way Brazil should be going as well. In the meantime, the U.S. would be wise to learn from our mistakes.
Lucas Schifino is an economist in Brazil, where he works as a consultant to the Federation of Commerce and Services for the State of Rio Grande do Sul. He holds a Masters Degree in Economics from the Federal University of Rio Grande do Sul.
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