When I was studying at Bocconi University in Milan, I speak of the ’80s, one of the most charismatic professors was Fabrizio Onida, teacher of international economics. And the most important concept, here simplified, of his subject was: the trade based on the international division of labor, if well regulated, produces wealth for all the countries involved.
On youtube I found a short interview of 2008 on the theme of protectionism, which falls perfectly in this moment of crisis in world trade relations:
But if the Italian language is not familiar to you, here is a brief excerpt of an intervention by Milton Friedman in a debate on protectionism, dating back to the 80s:
Onida and Friedman do not have the same academic or political positions, but both defend the idea of free trade.
10 years after Onida’s interview, the theme of the “government of globalization” is always at the center of the international discussion, today exacerbated by the decision of the US government to impose duties on the importation of goods produced in China.
On 6 July 2018, duties of 25% on the import value of 818 Chinese products entered into force, for a total value of approximately 34 billion dollars. China, in response, has announced duties of 25% on the import of 545 US products, corresponding to as many as 34 billion dollars.
Chinese products hit by new tariffs range from aluminum to electronics, to cars, from medical equipment to aerospace components; among US products, there are – among others – agricultural and car products.
The Trump government is threatening to impose 10% tariffs on another $ 200 billion of Chinese imported products, and we are already talking about tariffs on all Chinese imports, which are equivalent to about $ 450 billion a year.
Yesterday, 16 July 2018, China sent a formal complaint to the WTO / WTO (World Trade Organization) and immediately the US denounced China, the EU, Canada, Mexico and Turkey for the duties imposed by these countries in retaliation to the tariffs imposed from the USA on the import of steel and aluminum.
That the WTO, the international body that regulates international trade, has finally been involved is a positive factor, but that does not absolutely guarantee a negotiated solution to the “war” that is beginning. The US has long been questioning the role of the WTO and, in any case, the timing of the legal legitimacy of imposition of duties and the associated retaliations are so long that they can not prevent the incalculable damages of this trade war.
As everyone knows, Brazil is a country historically not much open to international trade. Its participation in world trade is equivalent to about 1%, as its GDP represents about 3% of world GDP.
According to a recent study by the International Chamber of Commerce (ICC), Brazil is last placed among the G20 countries in terms of opening its market. On a scale of 1 to 6 the Brazilian economy scored 2.3, very far from the leader Germany (4.3) and lower than Argentina (2.5) and India (2.6).
One question arises in an obvious way: in the current context, is the “closure” of the Brazilian economy an advantage or a disadvantage? In theory, at least one economy is exposed to the fluctuations of international trade, the less significant is the impact of the raising (or lowering) of tariffs. Moreover, USA and China are the main trading partners of Brazil but together represent only 30% of Brazil’s total trade with the world.
Although a possible trade war between the US and China will have a very negative impact on global growth and therefore on commodity prices (the main source of Brazilian exports), there are opportunities that open up in certain sectors.
A study carried out by the CNI (National Confederation of Industry) in recent weeks shows how Brazil can significantly improve its exports in some segments in which both the US and China will have to find new suppliers internationally. This is in particular soy, pork and fish products to China, but also components for cars and chemicals to the US, for example.
According to this study, Brazil - thanks to the US-China trade crisis - could increase its exports by about 7.5 billion dollars in 2018.
In a moment of such high uncertainty, however, it is difficult to make reliable predictions about the consequences of a trade war, especially for such a “peripheral” country like Brazil. The consequences of a sharp fall in commodity prices may not be offset by a simultaneous opening of new markets, with disastrous consequences for the Brazilian agri-food sector.