The Fragile Future of MERCOSUR as a Result of the Argentinian-Brazilian Rivalry

The rivalry between Argentina and Brazil dates back to the 1800s, when Argentina and Brazil established disputes over territorial boundaries. The two giant economies have gone through multiple integration periods; yet, it seems like the two countries fail to find a middle ground on political, social, and economic issues. For example, in 1960, the Economic Commission for Latin America and the Caribbean (ECLAC) proposed creating the Latin American Free Trade Agreement (LAFTA). However, the brewing rivalry between Argentina and Brazil destabilized this integration attempt. Fast forward to the 1990s, after countless attempts of economically integrating the region, Brazil and Argentina create the Southern Common Market (MERCOSUR), which comprises Argentina, Brazil, Paraguay, Uruguay, and Venezuela. In practice, MERCOSUR never came to fruition because Brazil only aimed to establish an economic hegemony in the region, and Argentina maintained many of  its nationalist economic policies. These actions undermined economic integration and fueled rivalry and tensions. Argentina and Brazil have threatened MERCOSUR’s peace at several points. 

In 1999, the Federative Republic of Brazil devalued its currency without giving Argentina advance notice, thereby deterring some of the critical trade processes between the two countries. The unilateral decision by Brazil had a significant impact on MERCOSUR since Brazil was, at the time, the most considerable economic power of South America. Brazil, however, has not been the only unilateral player in the region. In 2003, President Kirchner in Argentina developed a series of protectionist policies, which obstructed Brazilian refrigerators and cars’ inflows to Argentina. The ban on Brazilian steel manufactured products in Argentina struck Brazil’s economy by halting the processing of steel products and ultimately increasing unemployment and contracting the economy. Moreover, in 2016, Argentina imposed the same ban on Brazilian products; during this occasion, Brazil was going through a recession with its gross domestic product (GDP) shrinking by an estimated 3.6%— the second consecutive year of a fall greater than 3.5%.

As of today, the relationship between the two countries is unlikely to recover. Firstly, Argentina elected a new president, Alberto Fernandez, a Peronist and ideological rival of Brazilian President Jair Bolsonaro. The political tensions between the two dignitaries are reflected through the nation-states’ new economic and trade policies. While Brazil is trying to promote a series of Neoliberal ideas such as trade liberalization and attracting foreign investment domestically, Argentina, under Fernandez, is seeking to have a more cautious and gradual approach to keep trading within and outside the region. President Fernandez promised to establish a more protectionist strategy that focuses on promoting domestic manufacturing over exporting goods. Additionally, the Argentinian President intends to renegotiate parts of MERCOSUR’s trade deal with the EU, including an increase in tariffs, the imposition of new trade barriers to protect the Argentinian economy, and the delayed ratification of the EU-MERCOSUR Trade Agreements. Fernandez’s new position on trade is not beneficial for Bolsonaro’s economic plan, as the Brazilian leader began negotiations between MERCOSUR and other financial entities like the EU, the United Kingdom, and the United States. However, with Argentina’s return to a protectionist economic model, the trade negotiations have changed drastically. Although it is unlikely that the two nations will dissolve MERCOSUR, the organization may suffer a downgrade from a customs union to a free trade area (i.e., without a standard external tariff).

Another pivotal aspect of Argentina’s new economic policy is the rise of the People’s Republic of China (China). With Fernandez in charge, Argentina has signalled its desire to deepen economic ties with China, making it more challenging to achieve the U.S. government’s goal of deterring China’s influence in Latin America. In turn, this will make it more likely for the U.S. to put more pressure on Bolsonaro to take an anti-Beijing stance and ban Chinese products from the region. This position will result in a severe economic hit to Brazil’s current production model, which depends heavily on China. Suppose Argentina adopts China as its leading trading partner, then this could mean animosity from the United States, the collapse of several agreements between Europe and MERCOSUR, and an increased Chinese presence in South America.

Lastly, the disputes between Brazil and Argentina regarding the crisis in Venezuela are translating into an economic battle. If Fernandez and Bolsonaro continue to have opposite stances on Venezuela, then MERCOSUR will suffer from more disruption in its operations. Despite being a MERCOSUR member, Venezuela has not had a significant amount of power when it comes to decision-making since, in previous years, Brazil and Argentina have had a similar political stance. However, given that Argentina and Uruguay do not recognize the government of Juan Guaidó, which gives legitimacy to Nicolás Maduro Moros, Brazil and Paraguay may be on the minority side during MERCOSUR voting processes. If MERCOSUR tips the balance towards Venezuela, it may lose millions of dollars in trade deals, given the country’s unpopular position in the eyes of the world. Unless Brazil and Argentina establish a dialogue to find a middle ground and overcome their socio-economic and political rivalry, the future of MERCOSUR, and therefore regional trade, cooperation, and integration is in serious jeopardy.

The best course of action is for the current leaders of both nations, to establish a plan of cooperation based on the mutual understanding that regional trade needs to be a consensual system of policies that would maximize each nations productivity. These sets of policies must be drafted under the supervision of a cohort of economists experienced on trade relations from each country to ensure bilarity. Most importantly, other MERCOSUR members should be invited to the negotiation process to delineate the future of regional power and trade cooperation in South America. Additionally, MERCOSUR needs to establish a system of checks and balances that observes abrupt changes in trade policies of all country members. By creating a system of cooperation where the two rivals do not try to impose superiority over one another, we can ensure that we carry beneficial negotiations that will ultimately benefit trade and overall South American cooperation. The history of rivalry between these two giants may spell doom for this region of Latin America. Whether South America will thrive or perish, is, in part, in the hands of the leaders of Argentina and Brazil. They ought to move past this rivalry that has dominated the countries’ relationship for decades and think of the future of cooperation in South America.