Q & A on Mexico-Brazil Economic Integration

World Politics Review: How would you characterize economic relations between Brazil and Mexico??

Sean Goforth: In a word: vacuous. Each nation has liberalized its economy over the past 20 years, in recognition of the benefits of international trade, but they have largely kept their backs turned toward one another. Mexico has looked outside of Latin America, and especially to the United States, to build trade ties. Meanwhile, Brazil’s more-gradual liberalization, initiated under the presidency of Fernando Henrique Cardoso (1995-2002), prioritized trade relationships within South America. More recently, President Lula da Silva has fostered closer ties with China, and, to a lesser degree, nations in other parts of the developing world.

Brazil and Mexico inked a free-trade agreement in 2002, but it hasn’t amounted to much. Last year, bilateral trade neared $6 billion, which is small given the size of the Brazilian and Mexican economies.

WPR: What has kept them apart in the past, and what is pulling them together now??

Goforth: Until a decade ago, their aversion to cozy bilateral economic ties was sensible. Brazil and Mexico each have a history of financial and currency crises, most recently Mexico in 1994-1995, and Brazil in 1997-1998. Such crises often hurt trade partners.

A certain political dynamic has also prevented closer economic ties. Although market liberalization suggests a belief that trade is a win-win prospect, policymakers in both Brazil and Mexico seem to have slipped into a zero-sum mindset when it comes to bilateral trade, fearing that the other nation might disproportionately benefit, thereby tipping the scales of regional primacy.

For Mexico, two uncomfortable truths impel change. First, it is overly reliant on trade with the U.S. — 80 percent of Mexican exports go to its northern neighbor. Second, Brazil is Latin America’s most dominant nation.

These trends were apparent by 2005 or 2006, if not before, but the global recession has made them nearly impossible to ignore. Brazil’s economy contracted by 0.2 percent in 2009 and has sprightly rebounded this year; Mexico’s economy contracted by over 7 percent last year, primarily because of weak consumer demand in the U.S., and the recovery has been sluggish. For Brazil there is now little downside risk to closer economic ties.

WPR: How likely is a major economic realignment as a result of these talks?

Goforth: The recently announced trade deal between Brazil and Mexico is slated to come into force in 2012. Certain Mexican manufacturers could avail themselves of easier access to Brazil’s growing consumer class. For Brazil, the pact offers a diplomatic opportunity. Namely, negotiating the finer points of the deal and building rapport with Mexican officials could prove a nice gambit for the incoming administration of President-elect Dilma Rousseff.

However, closer economic ties are unlikely to reconfigure either country’s trade mix, and political constraints, especially opposition by trade groups in Mexico, are likely to ensure the final agreement falls short of its potential. Each country stands to gain from closer economic ties, but the impact of this deal will be slight.