Brazil’s Real(ly) Big Problem

After decades of chronic political unrest within a number Latin American countries, that featured complex transnational relations within the region, multilateral trade agreements that linked a few major economies began to emerge. These informal agreements were targeted at increasing stability within the region, and eventually developed into an official trade agreement. In order to promote economic cooperation, Brazil, Argentina, Uruguay, and Paraguay established the Common Market of the South (El Mercado Común del Sur). Formed in 1991, the union of these four countries (referred to as the Mercosur pact) almost immediately came to be dominated by Brazil. Over the past two decades, the Mercosur countries have sought to alter a legacy of distrust and a determination to work towards “an incremental growth to achieve common market.” In order to do so, the member nations have managed to reduce or eliminate nearly all trade tariffs for fellow Mercosur partners. By 1994, Mercosur countries imposed standardized tariffs on imports from non-member countries in order to further ratioanlize trade among member nations. By decreasing or eliminating the relative import taxes on Mercosur countries, members were able to benefit from both increased exports as well as achieve cheaper imports from within their economic union.

Since Mercosur members’ economies rely so heavily upon one another, fluctuations in one nation’s economy and further political transformation undeniably affect the other Mercosur countries. Specifically, when Brazil and Argentina both were experiencing economic recessions, the remaining member nations as a result experienced economic setbacks; such deep dependency on one another for economic prosperity ultimately disrupted trade and caused apprehension and friction among members.

This analysis was prepared by COHA Research Associate Rebecca Gorn.
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