Strategic Implications of Brazil's Global Rise

Last November, Americas Society and Council of the Americas and the Center for Hemispheric Defense Studies sponsored a special conference on the strategic implications of Brazil’s global rise to prominence. The following comments, which came after Dr. Richard D. Downie, director of the Center for Hemispheric Defense Studies, welcomed the participants, were made on a non-attribution basis by at least one participant in the conference, but do not necessarily reflect the views of other participants.

Panel One: The Rise of Brazil

Brazil clearly has emerged as an important player on the global stage. It has undergone a peaceful transition to democracy. There is broad consensus on macroeconomic goals, which has enabled the country to build both financial and political capital beyond its borders. That international posture is reflected in its role in the G20 and in being awarded the 2014 World Cup and the 2016 Olympics.

Brazil is among the world leaders in renewable energy, petroleum, and its diversified economy has opened the door to leadership. The challenge for Brazil is how to use this leadership. With the majority of its external trade in regions outside the United States and the European Union, its ability for influence is significant, especially in places like Africa, where Brazil has a growing foothold.

Some significant challenges remain on the horizon for Brazil. One quarter of its population still live in poverty. Brazil has adopted poverty reduction programs and the efforts are bearing fruit, but if gaps widen between the have and have-nots, the macroeconomic consensus that has been key to controlling inflation may be threatened.

Brazil’s economy has experienced great growth and foreign investment yet is ranked as one of the worst business environments. The current internal regulatory environment slows innovation and stifles the flexibility of potential competitors. Brazil needs to make significant progress in the facilitation of business.

While Brazil’s economy is diversified, it has relied on agricultural and commodity exports for significant export growth. There are limits to this export growth model.

Brazil’s emergence on the global stage presents challenges for the United States. Brazil’s overtures to Iran indicated Brazil’s ability to influence global discussions. Its desire for a permanent seat on the U.N. Security Council is central to its foreign policy. The recent U.S. announcement of support for India’s bid for a Council seat, if not matched with a similar policy statement on Brazil, will not aid U.S. diplomacy in the region. Brazil will require a “deft hand” from U.S. policy makers.

The diplomatic dialogue of the United States with Brazil is not as mature as that with China or India. If one compares U.S.-Brazil relations with U.S.-India relations, one notes that the U.S. interaction with India has been more robust. Big differences with India (example, Pakistan) have not ruined the relationship. The United States must make sure that differences with Brazil are also overcome.

In order for the United States to improve relations with Brazil, there needs to be greater commercial engagement. Both countries need to jointly deal with issues in “the neighborhood”, such as Venezuela, Cuba, Bolivia, and Ecuador. The U.S. relationship with Brazil should be based on specific issues. The countries should create an agenda as equals and as partners, with common interests in mind. Brazil should be consulted during policymaking, and not after. The United States should be sensitive to Brazil’s vulnerabilities.

The diplomatic arena is not a zero-sum game. Brazil’s rise is good for the United States. The United States and Brazil must collaborate more on economic reform and development. The two countries must also focus on working together on the world stage for common interests.

The United States policy with Latin America is heavily influenced by domestic politics. If the new Congress in the United States disengages from the rest of the world, this could have an effect on Brazil.

Brazil’s relationship with China is very important. Many Brazilians are worried about that relationship. Brazil’s exports are over-reliant on soy. The imports are primarily manufactured goods. The exchange rate is not helpful to Brazil’s balance of trade. Brazil’s economy is generally too dependent on China.

The Dilma Rousseff administration.

Dilma is an economist and understands the issues. She may be less protagonistic internationally than Lula. She knows that the U.S. relationship is important. Dilma will be less ideological than Lula. The United States should invite Dilma up to Washington, D.C. as soon as possible, to start a dialogue.

The U.S. relationship with Brazil is actually strong, despite perceptions to the contrary, and will get stronger. The two countries share many common interests, such as trade, innovation, social progress, education, and democracy. A Security Council seat for Brazil is inevitable. Brazil is currently given preferential trade status as a developing country, but Brazil should move beyond this and establish a more equal trade relationship in order to foster mutual respect. The United Stats and Brazil are natural partners. The two countries have their differences, but these can and should be managed.

Panel Two: International Perspectives and the Implications of Brazil’s Rise

Brazil is rising in a changing geopolitical environment, in which the U.S. is losing its hegemony. Brazil, China, India, South Africa, Iran, and others are developing into regional leaders, filling the vacuum of power. Brazil will be a key regional leader and will act as an interlocutor for other regional leaders around the world. Brazil will play a more prominent geopolitical role. Brazil is building more robust relationships with China and partners in the Middle East, rather than challenging the United States directly.

Global institutions do not reflect the changes in the global political economy. Institutions like the UN Security Council, the International Monetary Fund, and the World Bank were founded after or towards the end of WWII, and do not reflect the realities of developing nations’ influence in the global environment.

Brazil’s recent economic growth has benefited from at least four factors. First, the growth of the agribusiness in Brazil that started in the 1990s has coincided with China’s growth in income and demand for higher quality food. Brazil has become one of the largest exporters of protein-rich food and China’s economic expansion has allowed the Chinese population to spend more of their budget on such food. As China continues to develop, its demand pattern may shift, and there may be less demand for Brazil’s agricultural products. Second, Brazil has had a large domestic labor supply, for simple industrial jobs. However, most of these workers have limited education, and are ill-equipped to support the next phase in Brazil’s industrial development. Third, Brazil’s middle class has expanded dramatically. Real minimum wage doubled in the eight years under President Lula. The first housing mortgage system was established within the past decade. Fourth, Brazil has benefited from the very low interest rates on government bonds in the more developed countries. Many investors have invested their capital in the emerging and secure markets of countries like Brazil, were the returns have been higher.

Brazilians face one of the highest tax rates in all of South America. There is a need for pension reform as the elderly population is not high, but consumes 12% of GDP. These are “challenges of abundance” where Brazil must enact adept policies to keep the economy stable. Eventually the capital inflow could disappear as rich countries begin to offer higher investment rate returns. Brazil has to decide whether it wants to leave its oil resources untapped or whether it should extract all of it. In the latter case, there will not be a domestic market to soak up the supply and the international market price could fall.

The U.S.-Brazilian relations are very mature and recent Presidential interactions between the two countries have been great. The two countries have neglected each other because there are no urgent contradictions or issues between their parallel policies. Brazil has had some concerns with U.S. troops in Colombia and there has been a ‘paranoid’ attitude of Brazil with respect to the Amazon as well as the new offshore oil deposits on the seabed. The media tend to ignore the openness of Brazil to U.S. culture and ideas. Brazil is not unlike Canada in this regard.

Brazil has grown “like a vegetable”. Its economic expansion has been natural and does not come at the expense of other nations, so its “rise” is not viewed as particularly threatening by its neighbors. Brazil has been fortunate and seized the opportunity. Brazil will continue to adhere to the Nuclear Non-Proliferation Treaty, but this may limit Brazil’s growth and opportunities. Brazil will continue to have aspirations for a permanent Security Council seat. Compared with Russia, India, and China, Brazil does not have to deal with urban migration issues, as this demographic transition has already occurred. Brazil also takes pride in its recent elections, which were legal, free from corruption, and offered equal suffrage. Brazil needs better scientific and technological research and development. This is one area where Brazil is behind the rest of the BRIC countries.

Brazil has closed the vulnerability of oil dependency. The challenges faced by Brazil are domestic issues, not foreign. Brazil needs to enact domestic policy changes.

Brazil has more domestic and regional peace than any other BRIC country. Brazil is the only BRIC country that is truly western. President Obama is very popular in Brazil, and he would be well advised to take a trip to that country. Obama should offer support for a Brazilian seat on the U.N. Security Council, as he promised India.

Brazilians do not currently see the Americans as impeding their economic success and growth, but there is growing disdain among Brazilians over increasing Chinese investments. Chinese state-subsidized industries are buying up property and natural resources in Brazil.

Chinese subsidized industries have crowded out some Brazilian industries. There may be future economic conflict between Brazil and China. Agribusiness is one of the most technologically advanced industries in Brazil. Brazil has a large agricultural surplus, and will continue to export until international prices drop too low to cover input costs. Brazilians continue to be concerned about grain subsidies in the United States and express concern over the blocked access to U.S. markets.

Brazil is purchasing 37 new fighter jets, but this is a small number relative to the size of the country. The Brazilian military is not aggressively expanding and they do not feel threatened by Hugo Chavez in Venezuela. The real security threats for Brazil are in other arenas, such as narco-violence.

American and Brazilian decision makers are still largely influenced by old paradigms that do not take into consideration recent changes and have framed the bilateral agenda. Brazil’s rise in the global scene defines new strategic variables that do not seem to have been fully understood. Therefore mutual adjustments and reassessments of opportunities are urgent. Brazil and the United States cannot continue to see each other and do business in the way they have been doing of the last 50 years.