More than the direct commercial impact, the channel of contagion of imported products on imported products established by US President Donald Trump over Brazil must be financial – that is, through the highest interest rates.
The assessment is from the Otaviano Canuto economist, who was vice president at the World Bank and executive director at the IMF, and today is a researcher Policy Center for the New South and Brookings Institution.
“On the bank, and a higher inflation pressure,” Canuto told the program Infoomoney Interview. “It means that the dilemma faced by the Fed [Federal Reserve, banco central americano] Among the level of economic activity, employment and inflation worsened on the margin, reducing the likelihood of additional fall in the basic interest rate. ”
Canuto states that “tariffs are definitely not good for the American economy, let alone for the global economy.” It also says that Brazil could do little in response, as its ability to retaliate is limited. “My hope is that Brazil is not an important focus.”
Read the main excerpts of the interview below:
IM – A theme that is dominating the global economic agenda is the rate of tariffs for imported products established by President Trump in the United States. So far, Brazil has been hit especially by steel and aluminum charges. In your view, what else comes ahead with reflection for us?
Continues after advertising
Cannon – Come more. a definitive break of the trading framework set up in the post World War II and particularly with the WTO [Organização Mundial do Comércio].
This framework had as basic component the so -called most favored nation clause, according to which anything a country decides to do individually with its tariffs cannot be applied bilaterally on a specific country. If you want to punish someone and set a fare, this fare has to be the same for everyone else. It is the multilateral principle, unlike bilateral.
“Trump literally threw it into space by emphasizing bilateral rates. Tariff reciprocity will look at each country and try to punish according to tariffs on the other side. Brazil is a country with tall rates, this is undeniable. When the time of this Trump agenda comes and addresses Brazil, this is what tends to happen.”
With one detail: We are not a priority, because one of Trump’s mistaken desires is to reduce the United States current account deficit, and he thinks he will be able to attack bilaterally balances with countries. But this is doomed to failure, because the American current account deficit depends on macroeconomic variables rather than bilateral trade balances.
Continues after advertising
In the case of Brazil, the sectors where American tariffs will rise will not be those in which we are competitive. The problem is whether in those sectors where Brazil is competitive in the United States our slightly higher rates can be applied to what we export.
Another factor is Trump’s references to Brazil as a Brics country, whom he alluded to how to replace the dollar in international transactions, which is rigorous not correct. Brazil will not propose the creation of BRICS currency, this is a fantasy. They are dizzy in Brazil that sometimes talk about it. But even a limited replacement for bilateral transactions with China may end up becoming an excuse for Trump to give a faraway tariff in Brazil.
IM – How could Brazil react?
Continues after advertising
Canuto – I must say that there is not much that we can do beyond some not too comprehensive retaliation. Brazil has a small deficit today with the United States, and my hope is that precisely because of this balance favorable to them Brazil is not an important focus. Our rectalization limit is limited.
What worries me most about American tariffs is that on the sidelines, a slowdown in GDP growth in the US and greater inflation pressure is already deceleration. I’m not talking about a drop in GDP or recession, but a slowdown, because other dynamic factors of the American economy will still keep pulling up. But the tendency is to grow down.
It means that the dilemma faced by the Fed [Federal Reserve, banco central americano] Among the level of economic activity, employment and inflation worsened in the margin, reducing the likelihood of additional fall in the basic interest rate. On the sidelines, rates are definitely not good for the American economy and much less for the global economy.
Continues after advertising
“This is the channel that will most influence the Brazilian economy: the financial canal, of the highest interest rates in the US, more than the direct commercial impact.”
IM – Do you then see effects on American inflation on the bank, but not a price shock?
On the margin, but may be significant. As we have seen after the pandemic or shocks derived from the invasion of Ukraine, which many economists considered temporary was not easily reversed. This can contaminate expectations and then become real inflation.
The immediate effect of tariffs is generally the price shock, with some likelihood that the inflation rate is more permanently raising, requiring higher interest rates.
Continues after advertising
IM – In an article published a few years ago, you said that international economic integration had been fundamental as a lever of global prosperity since the 1990s. Considering the current scenario, with the effects of the new US and world tariff policy, can we speak of a brake on global economic growth?
Canuto – Yes, with a detail. There was a period of hyperglobalization, which was good not only in terms of global growth, but mainly growth at the bottom of the global income pyramid.
Almost one billion people came out of extreme poverty because of the growth provided during this period. This does not mean it was for everyone. Sub -Saharan Africa was a bit on the sidelines, but even discounting China, the number was large.
Even us, even though not benefiting directly from globalization, we also sail this wave through the price of commodities and the dynamics of the agricultural and mineral market. World income was better distributed, there was a drop in poverty, dissemination of technology. All the success cases we attended in emerging and developing countries were based on trade and globalized technology through this trade.
Was it all perfect in this regard? No. The share of the bottom of the income pyramid in several advanced countries, such as the US, has not benefited. Strictly speaking, the gains of globalization were mainly concentrated at the top of the pyramid in the United States.
“In addition, it should be taken into account that technological changes occurred without a corresponding adjustment on the side of the low-income population training, which explains how the interior Americans were economically stagnant. This is what fed the populist flags, such as Trump, Brexit succeeded in England feeding on it, and so on.”
Well or bad, with this exception of the lowest part of the income pyramid in some advanced countries, globalization was beneficial overall. The eventual partial reversal we are watching, the fragmentation of global trade, among other factors, is not good news. This will make it difficult to reproduce that growth and development experience for the countries that are coming now. It is definitely not good news.
