Latin America experiencing spread of protectionist policies

The article by the Financial Times discusses how Latin America is grappling with a surge in protectionism, particularly regarding steel imports, due to escalating trade tensions between major economies like the US, Europe, and China.

Latin America finds itself entangled in a global phenomenon of protectionism spurred by escalating trade tensions with China over steel, as observed in the US and Europe. Both American presidents, Donald Trump and Joe Biden, have levied extensive tariffs on Chinese steel, drastically reducing its entry into the US market. Meanwhile, Europe has implemented tariffs on a wide array of Chinese steel grades. These high-profile disputes between China and its major trading partners have triggered a concerning ripple effect worldwide, notably in Latin America.

In response to a surge in cheap steel flooding their markets and threatening local steel industries, Mexico, Chile, and Brazil introduced new tariffs on steel imports in April. While Colombian authorities have expressed intent to follow suit, no official announcements have been made yet. Although Brazil and Mexico refrained from explicitly targeting China, Chile openly criticized the pricing strategies of Chinese steel producers.

The roots of this issue lie in the trade barriers enforced by the US and EU, effectively redirecting China's surplus steel to other global markets, including Latin America, which boasts robust steel production capabilities. Mexico's tariffs encompass a range of goods beyond steel from countries lacking existing free trade agreements, while Chile and Brazil have initially limited their measures to steel alone.

Chile and Mexico have opted for tariffs as their primary protectionist tool against the influx of Chinese steel, whereas Brazil has adopted a tariff-quota system. According to Brazil's Ministry for Industry and Commerce, this system imposes a 25% tariff on imports exceeding 30% of the average volume imported from 2020 to 2022, with the average steel import duty standing at 10.8%.

Referred to as the "steel war" by regional media, Latin America's adoption of protectionist measures carries significant political implications. Previously hesitant to engage in trade disputes akin to those between the US and China due to heavy reliance on Chinese trade and investment, Latin American countries now find themselves compelled to act against the backdrop of economic pressures.

Despite Brazil's historical alignment with China within the BRICS bloc and President Luiz Inácio Lula da Silva's past support for China and Russia during the Russia-Ukraine conflict, Brazil's recent turn towards protectionism vis-à-vis China raises questions about potential ramifications.

The introduction of steel tariffs in Latin America underscores a critical lesson: once initiated, protectionism can be challenging to control and mitigate. While initial tariffs may be justified as a response to predatory pricing or to shield domestic industries, the broader consequences often lead to inefficiencies, increased costs, reduced competitiveness, and diminished productivity for all parties involved.

As global trade tensions intensify and protectionist measures proliferate, the risks of economic disarray and geopolitical reverberations loom large. While the short-term rationale for tariffs may seem compelling, the long-term impacts on international relations and economic stability necessitate careful consideration to avoid descending into broader trade wars with far-reaching implications.