Argentina, Brazil, Paraguay and Uruguay of Mercosur Increases Tariffs on Industrial Products

The Mercosur countries are right to be concerned about increasing competition for industrial products from China and other Asian exporters. The strong Brazilian currency, the real, is partly caused by the low interest rates / weak dollar policies of the U.S. Federal Reserve. With the Chinese Yuan pegged to the dollar and allowed to only increase slowly by the Chinese central bank, currency values play a role in favor of imports. Brazil and Argentina should have concentrated in recent years on becoming competitive in international markets for industrial products and negotiating a new Doha agreement that would have increased world markets. Brazil is also one of the BRIC countries (Brazil, Russia, India and China) that have held regular consultations and should have demanded that China end its export dependent economic policies.

Brazil and Argentina appear for now to have taken the route of creating a protected regional market for industrial products while still trying to operate in an open export markets for raw materials, agricultural commodities and food products. That may work as long as their commodity exports remain strong, but raw material and agricultural product demand will be cyclical in the future just as it has in the past. Industries gain efficiencies in home markets by being internationally competitive and those gains are felt by workers and the economy as a whole. Protected economies are not efficient ones and workers and governments suffer.

While Mercosur is looking inward, other countries in Central and South America are looking outward for more trade. Chile and Peru are members of the Trans-Pacific Partnership and working with the U.S. and six other countries, and possibly also Japan, on a new free trade agreement. Those two have also joined with Colombia and Mexico (and Panama as an observer) to form a new trade bloc, the Alliance of the Pacific, to improve their relationship with the markets of the Asian "tigers." Having a working relationship with others countries seeking economic growth through trade is a path to greater domestic economic growth.

Everyday governments make policy choices that create or retard opportunities for industries and workers to have increased incomes. The Mercosur countries have a trade policy problem with China, but market isolation has been tried over and over and has not produced efficiencies that improve incomes and the standard of living for workers. Trade creates the innovation and specialization of labor that leads to an increased standard of living.