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Brazil Plans to Cut Import Tariffs

Posted on the 07 June 2019 by Angelicolaw @AngelicoLaw
Brazil Plans to Cut Import Tariffs

Brazil's Economic Minister Paulo Guedes announced earlier this month that Brazil will reduce its import tariffs by 10 percent over the next four years. With the move, the Bolsonaro administration initiates a new economic agenda that represents a significant departure from Brazil's historically protectionist policies.

In the past, administrations have implemented economic strategies designed to stimulate the growth of domestic industries by eliminating foreign competition. The old policies resulted in Brazil receiving one of the world's lowest scores on the Heritage Foundation's Trade Freedom Index - a 68.5. That score is closer to the trade freedom score of Cuba (64.5) than it is to the United States (86.7).

Brazil's famously high import taxes transform foreign products into luxury goods. The Apple iPhone, for example, already one of the priciest smartphones on the market, is a whopping 50 percent more costly in Brazil than it is in the United States.

Yet such protectionist policies have yet to yield a strong economy. Brazil recently experienced its worst recession in nearly a century. That was followed by an exodus of the country's wealthiest individuals, signaling little faith in the future.

Gabriel Petrus, director of the Brazilian chapter of the International Chamber of Commerce (ICC), explains that, "Because Brazil is such a closed economy, it ends up having very low productivity compared to more developed countries. If you are more competitive you become more productive - and for that you need to be more open and more integrated into global value chains."

As the United States does a 180 with President Trump imposing tariffs on Chinese goods in an attempt to stimulate local industry, Brazil seeks to mirror what has traditionally driven the American economy: tax cuts, privatization and deregulation. "The opening of the economy has to be exponential or Brazilian industry will suffer," said Minister Guedes.

Brazil's tariff cuts aim at strengthening its relationship with foreign industry, attracting foreign investment and stimulating foreign trade. That along with an ambitious program to trim the country's bloated pension system will hopefully help set the foundation for a more prosperous economic future.

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