The United States engages with Brazil on trade and investment issues through a series of initiatives. U.S. subsidiaries operating in Brazil almost doubled their share of Brazilian exports to the United States between 1982 and 1994 to about one-fifth of the total (Table 15). Almost all exports from U.S. subsidiaries are made on an internal company basis (94% in 1994). This indicates that many transnational companies from the United States to Brazil have integrated their activities between factories in Brazil and the United States. However, so far, foreign direct investment in Brazil has not fueled trade between the United States and Brazil and has not given a significant boost to the FTAA. Brazil is the world`s 9th largest economy and the United States is Brazil`s second largest trading partner. In 2018, reciprocal trade in goods and services amounted to $103.9 billion ($70.7 billion in goods and $33.2 billion in services). Last year, the United States recorded a total trade surplus of $20.6 billion in goods and services, including a trade surplus of $8.3 billion in goods alone. Brazil`s main imports from the United States are aircraft, machinery, petroleum products, electronics, and optical and medical instruments.
The United States is Brazil`s second largest export market. The main products are crude oil, aircraft, iron and steel, as well as machinery. According to the U.S. Bureau of Economic Analysis, the U.S. had invested US$68.34 billion in Brazil by 2017. In this paper, we ignore recent adverse events, in particular the defeat of the fast track authority in the United States and the threat of financial crisis in Brazil. Instead, we focus on longer-term trade and investment opportunities between Brazil and the United States, provided that the FTAA is ratified in 2005. We base our forecasts on the NAFTA experience of the past decade.
We are looking at three aspects: the possible expansion of the flow of goods; the possible change in the composition of Brazilian exports; and the possible growth of U.S. foreign direct investment in Brazil. Our approach is to study both the evolution of NAFTA over a period of about a decade and the comparative density of trade and investment relations between the United States and Mexico, as well as the United States and Brazil in 1997. We conclude with a brief overview of the trade barriers that are the most controversial. 3. This figure is calculated as a two-lane trade between the United States and Mexico in 1997 ($157 billion) divided by 3.37 (for the difference in distance between Kansas-Mexico, 2,000 kilometers, v. Kansas-Sao Paulo, 10,500 kilometers); divided by 1.65 (for the common border between the United States and Mexico) 1.94 times (see Table 16 for Brazil`s largest GDP) and 1.03 (for Brazil`s top GDP per capita, see in turn Table 16). The multiplication of the chain gives a factor of 2.78 for the division of real two-way trade between the United States and Mexico in 1997 to calculate the hypothetical trade if Mexico accepted all of Brazil`s attributes (but retained its accession to NAFTA). These calculations are based on the coefficients in the last column of Frankel`s Table 4.2, p.62-63, a.o.a. The result is hypothetical bipartisan trade between the U.S.
and Brazil of $56 billion if Mexico were replanted geographically and economically in Brazil, but remained in NAFTA. The U.S. trade surplus with Brazil amounted to $US 12.0 billion in 2019, up 46.6 percent ($US 3.8 billion) from 2018. In a recent IIE study, Jeffrey Frankel used a gravity model to identify several important factors that contribute to larger bilateral trade flows: in addition to GNP and GNP per capita, other important determinants are geographical proximity, a common border, a common language and a common trading bloc2. on the one hand, and the United States and Brazil on the other, bilateral trade between the United States and Mexico would be 3.37 times larger than bilateral trade between the United States and Brazil. . . .