With a Trump Trade Policy on the Horizon, Mercosur Moves forward with Europe

Out of an early-December 2016 meeting in Brasilia between Argentine Foreign Minister Susana Malcorra, and Brazilian Minister of Foreign Relations José Serra and President Michel Temer comes news that Argentina and Brazil will accelerate negotiations toward a European Union-Mercosur trade agreement. Minister Malcorra suggested in an official press release that US President-elect Donald Trump’s likely opposition to the yet unfinished Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union opens an opportunity for Mercosur to fill the commercial void the United States would leave were the incoming Trump Administration to pump the brakes with or withdraw the United States entirely from TTIP negotiations. Minister Malcorra’s bearishness on a President-elect Trump’s expected trade policy also reflects the decreasing likelihood of a US-Mercosur FTA, at least in the near term, an idea that did not appear outlandish in the months immediately prior to the November 2016 US presidential elections.

Argentina and Brazil Seek to Turn over a New Leaf on Trade with the European Union

Since May 2010, the European Union and Mercosur, of which Argentina and Brazil are two of five member states, have been negotiating a comprehensive trade agreement, covering trade in industrial and agricultural goods, in addition to investment and cross-border trade in services, government procurement, intellectual property (IP), customs and trade facilitation, and non-tariff barriers to trade (TBTs/NTBs). EU-Mercosur trade talks advanced in fits and spurts over the course of many years largely due to trade-skeptic political pressure the Argentine and Brazilian industrial and agricultural sectors exerted on Mercosur trade negotiators; however, as compared to former Argentine President Cristina Kirchner and former Brazilian President Dilma Rousseff, the current Argentine and Brazilian Presidents Mauricio Macri and Michel Temer, respectively, are ostensibly less trade skeptic and more amenable to open markets. While this market-friendly position on the part of the current Argentine and Brazilian Administrations has planted concern within those two countries’ industrial and agricultural sectors in light of the possible future removal of extant protectionist measures, this trade-friendly rhetoric out of Buenos Aires and Brasilia has given new momentum to the ongoing EU-Mercosur trade discussions.

An Inward-looking United States under President(-elect) Trump?

In contrast to current Obama Administration trade policy, US President-elect Trump continues to levy harsh criticism at free trade agreements (FTAs) into which the United States has entered, including a threat to withdraw from the North American Free Trade Agreement (NAFTA) due to job losses in the United States he alleges have resulted thereof, particularly in the manufacturing sector. He alleges in similar fashion that the Trans-Pacific Partnership (TPP), the implementing language for which the US Congress has yet to ratify, is bad for US workers, and would lead to a rise in US unemployment. Additionally, President-elect Trump’s assertion of his willingness to seek high punitive tariffs on goods imported into the United States from Mexico and China—and possibly others—suggests that a Trump Administration trade policy might only selectively observe the global, rules-based trading system, as embodied in the World Trade Organization (WTO) agreements and current US FTAs adhering thereto.

Given President-elect Trump’s opposition to US FTAs in effect and to TPP, it is not unreasonable to expect ongoing US-EU TTIP negotiations to slow considerably or even stall entirely under a Trump Administration, and for such commercial competitors as Mercosur to view a US retreat from TTIP as an opportunity to seize EU market share. The United States is a major exporter of industrial goods to the European Union, with top export categories in 2015 being (i) aircraft at USD 34.8 billion, (ii) machinery at USD 30.7 billion, (iii) pharmaceutical products at USD 26.4 billion, (iv) optic and medical instruments at USD 26.2 billion, and (v) electrical machinery at USD 20.9 billion; US agricultural exports to the European Union over the same period reached USD 12.1 billion. Mercosur is a major producer of many of these same industrial and agricultural goods, e.g., aircraft, machinery, soybeans.

An Outlook for US Trade with the European Union (and Mercosur)

Tariffs levied on most goods the United States and the European Union trade are already low, i.e., usually under 3 percent, such that increasing US-EU trade flows rests largely on tackling NTBs, e.g., burdensome customs procedures, behind-the-border regulatory restrictions relating to security or consumer protection, etc. Given this challenge, a US retreat from TTIP—and Argentina and Brazil redoubling efforts to finalize a comprehensive EU-Mercosur trade agreement—could lead the United States to eventually face a commercial disadvantage in the EU market relative to Mercosur, particularly should any future EU-Mercosur trade agreement not only lift tariffs but, also, effectively tackle NTBs.

TTIP also covers cross-border trade in services, IP and the importation of consumer goods and industrial inputs, proven drivers of job creation in the United States. In this regard, were the United States to retreat from TTIP under the Trump Administration, US trade policy would turn against the exact issue on which President-elect Trump so effectively campaigned, i.e., jobs. Meanwhile, Argentina, Brazil and the rest of Mercosur appear to be forging ahead on trade with Europe; nonetheless, several factors still hold the potential to derail EU-Mercosur trade talks, including the manner in which Brexit evolves, the resignation of Italian Prime Minister Matteo Renzi following the failure of a constitutional reform he championed, uncertainty surrounding forthcoming elections in France and Germany and/or the apparent desire of Uruguay to negotiate trade deals separately from its fellow Mercosur member states, a topic this blog has discussed in a separate post.

Also, as recently as October 2016, the Macri Administration expressed a positive disposition toward negotiating a Mercosur-United States FTA, a topic this blog discusses in a separate entry. A Mercosur-United States FTA is now unlikely, at least in the near term; President Barack Obama, who appears acquiescent toward the Agreement, will leave office on January 20, 2017, and the incoming Trump Administration is unlikely to pursue such FTA given the ongoing trade-skeptic rhetoric emanating from the Trump transition team.

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2 thoughts on “With a Trump Trade Policy on the Horizon, Mercosur Moves forward with Europe

  1. Pingback: With a Trump Trade Policy on the Horizon, Mercosur Forges Ahead with Europe — Latin Trade Blog | Latin Trade Blog

  2. Pingback: Uruguay Bucks Mercosur for Trade with China; Latin America Hedges against a Trump Trade Policy | Latin Trade Blog

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