Trade War Between Brazil and Argentina?

Rivalry... not only on the pitch

The current situation is not what the former presidents Raúl Alfonsín (Argentina) and José Sarney (Brazil) had in mind, when they signed the PICE (Programa de Integração e Cooperação Econômica Argentina-Brasil), commonly heralded as the precursor of the South American free-trade market Mercosur. At the time, the program even proposed a common currency, the Gaucho...

The situation has become rough. Argentina is not known for freedom of trade - it frequently figures in the list of countries with the most trade barriers and of the least free capital flows. However, this has usually been limited to evil empires such as the USA and China. But things have become more serious with Argentinas most important trade partner, Brazil.

Argentina exports 2bn USD of foodstuffs to Brazil, but Brazil also exports 500m of foodstuffs the other way around. So when Argentina started raising barriers in foodstuffs, Brazil retaliated. Things then escalated to the point when, last week, Brazil stopped emiting automatic licenses for automobiles from "neighboring countries", affecting Argentina strongly. Since then, each import process requires a separate license. Hundreds of cars are stuck at the border, awaiting licenses to be emitted.

The trade barriers today between both countries already affect, food, shoes and clothing, some machinery, some chemicals and more to come.

Alessandro Teixeira, Development Minister in Brazil and the Industry Secretary in Argentina, Eduardo Bianchi, have scheduled a meeting to discuss on how to proceed... and possibly try to figure out how all of this really started - the situation is pretty botched up and is affecting a high demand of imported goods in Brazil (due to a cheap USD and strong Real) adversely. If the situation escalates, which it surely may, large industry sections may continue to be affected.

A Small Dictatorship in a Democracy

The first time I saw the above flag, I thought of Cuba - but, no: This is the flag of the state of Maranhão (located in the Northeast Region), one of the poorest states in Brazil and with an HDI on par with sub-Saharan Africa. If this were not enough, the state has been under uninterrupted rulership of the Sarney clan for 44 years. José Sarney is a classical old-school "coronel" (in the "traditional" style of politics, the local coronel in alliance with other large farmers, controlled the votes of mostly rural inhabitants. The local political chiefs in turn exchanged votes with state politicians in return for political favors) - in other words, a political situation rife for corruption.

Sarney has been active in the Maranhão state politics since the 1950s as member of the parliament, senator and governor - after leaving office, to become running mate for president of the late Tancredo Neves in 1984, he made sure the state remained under family control and pushed his daughter, Roseana, into government.

He assumed the presidency after the Tancredo Neves passed away on the eve before assuming office in 1985 (surely a great topic for conspiracy theorists). Ms Sarney has just been reelected governor, which does not mean much hope for the Maranhão state and it's people - but at least she states it will be her last time in office.

When the highly polemical (but very enjoyable) biography, "Honorable Bandits" (available in Portuguese) was presented in Maranhão last year, a student group allied to Sarney stormed the building where the book was presented, and attacked the authors. Fortunately nobody was seriously injured. For a more neutral external view, please refer to The Economist article "Where Dinosaurs Still Roam".