The Nov. 22 Financial Times, “Big trade opportunity for Mexico and Brazil,” reports that Mexico and Brazil have announced the start of negotiations that could lead to a Free Trade Agreement (FTA) between the two countries. Why do American manufacturers care? Because Mexico and Brazil are the second and 8th largest markets for U.S. exports globally. The deal would seriously affect U.S. competitiveness and exports to these two large and rapidly growing markets.
Consider Brazil. Brazilian data show that it bought $22 billion of American manufactured goods and $3 billion from Mexico in 2008. But in the three years since 2005, while U.S. manufactured goods have been losing market share in Brazil, Mexico’s manufactured goods exports to Brazil nearly quadrupled –- and that was without any trade preferences.
Both American and Mexican producers now have to pay significant import duties to sell to Brazil. But once an FTA between Brazil and Mexico goes into effect, Mexican machinery and transportation equipment will enter Brazil duty-free, while comparable U.S. exports will face import duties of over 11 percent. That means Mexican-made manufactured goods will have a significant price preference – large enough to divert American exports.
Also, while American manufacturers currently have duty-free access to the Mexican market while Brazilian manufacturers don’t, a Brazil-Mexico FTA would change that and make Brazilian products more competitive in Mexico – our second-largest market in the world.
The world is evolving, and countries are all making deals with each other. It is not just Mexico that seeks preferential access to the Brazilian market –- the huge European Union wants an agreement with Brazil as well. Yet here we sit, losing ground every month with the mythology that trade agreements are bad for us.
The only good news here is that Brazil and Mexico have only just started on the road to an FTA. There is still time for the Administration and the Congress to recognize that to sell overseas and double exports, we have to have competitive access to growing markets around the world – and that can only be done through trade agreements.
Those who oppose trade agreements probably don’t realize that in fact they are actually advocating a trade strategy of having American manufacturers be the only ones in the world facing tariffs and other trade barriers. Hopefully when they think about this, they will increasingly see this is not really the path they want to be on.
Frank Vargo is the National Association of Manufacturers’ vice president for international economic affairs.