BUENOS AIRES, (Reuters) – Brazil, Argentina and Mexico will join the anti-protectionist chorus at this week’s G20 summit, but Latin America’s commitment to free trade is being tested as governments fight recession and job cuts.
In a region with a long history of populism, leaders may feel greater pressure to shield their economies as trade flows plunge by double-digit figures and unemployment and poverty rates creep higher after years of export-fuelled growth.
“This is the moment of truth for integration mechanisms. The crisis is creating a stress test,” Brazilian Foreign Minister Celso Amorim said after Argentina infuriated Sao Paulo’s industrial elite by announcing extra import controls.
The two neighbors, South America’s top economies, are often at odds over trade, but the crisis has raised trade hackles elsewhere too.
Ecuador has taken some of the world’s most drastic trade protection measures by dramatically increasing tariffs on imports, while Paraguay plans to hike tariffs on sensitive products as part of a “Buy National” campaign.
Mexico, irked by Washington’s move to block its trucks from U.S. highways, has raised duties on a long list of American imports from strawberries to Christmas trees.
Mounting pressure from voters and industrialists could convince leaders to shelve their free-trade ideals, sparking tit-for-tat retaliation and threatening nations’ ability to bounce back when the global economy starts to recover.
“The question isn’t whether they’ll be more protectionism, that’s almost inevitable. The question is will it start to get out of hand? Will countries start to retaliate against each other?” said Peter Hakim, president of the Inter-American Dialogue think-tank in Washington.
Argentine President Cristina Fernandez, who faces June mid-term elections amid a worsening economic outlook, tested patience in Brazil by imposing extra import restrictions earlier this year as she battles to avert factory job losses.
She held up her country’s “monstrous” $4.3 billion trade deficit with its neighbour as evidence that Argentina cannot compete fairly, and her more moderate leftist counterpart — Luiz Inacio Lula da Silva — has played down the spat.
That might be because Lula is keen to promote regional integration or that Argentina accounted for just 9 percent of Brazil’s total export market last year.
Exports are also less important for Brazil’s wider economic health. They were 14 percent of Brazil’s gross domestic product last year, compared with more than 20 percent in Argentina.
When Ecuador’s leftist President Rafael Correa hiked tariffs and cut quotas on more than 600 imports, well-dressed women lined up to buy foreign-made clothes and face creams, fearing soaring prices.
Door-to-door cosmetic vendors said a ban on imported perfume put 300,000 jobs at risk, but they were not the only ones upset by the measures that affect everything from Colombian bubble gum to Bolivian pottery.
Exporters and governments in neighboring nations, also facing slowdowns, have criticized the move and Peru is drawing up a contingency plan if the curbs stay in place.
Correa says the curbs are essential if Ecuador is to lower its imports by $1.5 billion this year to reduce a gaping trade deficit in its dollarized economy.
“It’s tremendously unfair that the money our migrants send home and our oil earnings are being wasted on sacks of imported dolls, plastic cars and luxury goods,” he said.
Seeking to avert complaints to the World Trade Organization (WTO), Ecuador has appealed for a temporary waiver from trade accords by citing balance of payments problems.
DEFICIT
Even Lula, who WTO chief Pascal Lamy said should get a prize for defending free trade during the crisis, slapped extra license requirements on imports as Brazil clocked its first trade deficit in eight years in January.
Complaints from Uruguay and Paraguay helped convince Brazil to scrap the measure two days later, but some analysts say even free-trade advocates like Lula may face fresh pressure to protect industry before the crisis bottoms out.
“So far Brazil hasn’t made any overt protectionist moves but as time goes by, the unemployment rate has been ticking higher … There’s a certain pain threshold,” said Nick Chamie, head of emerging markets research at RBC Capital Markets.
Those governments that resist protectionist measures, or at least avoid more drastic trade restrictions, may make it easier for their economies to bounce back when global investors do start to look again at emerging markets.
“The more a country indulges in protectionism, the less appeal that country has a destination for investment,” said Daniel Ikenson of the Center for Trade Policy Studies at the Cato Institute in Washington.
“Countries that remain open will be more likely to be part of the global economic recovery,” he said.
