Trade Wars?
By Paulo Kubis
Among economists around the world it is frequently discussed that a trade war may be in sight. The truth is that the United States (US) dollar has lost value for a while, mainly due to pressures generated by American policy to re-boost the US economy. In essence, the Federal Reserve (Fed), which is the central banking system of the United States, is being pressured to use financial and political mechanisms to reduce the negative effects of the 2008 Financial Crisis.
One way the Fed has managed to succeed in this quest is the famous “Quantitative Easing”. This strategy consists in periodic injections of money into the country’s financial markets, attempting to increase economic activity. This flood of US dollars, according to the laws of supply and demand, is the reason why the US currency has suffered a deep decrease in value. But how does it impact us here in Brazil?
A cheap dollar makes imports cheaper and exports more expensive, therefore leaving some sectors of our economy very upset. National producers and exporters all over Brazil have suffered with the tough competition from cheaper products from abroad. In economic mathematics, this means less demand for Brazilian products — fewer sales, less production, fewer industry jobs, and so on.
For the productive sectors of the Brazilian economy, the cheap dollar comes as a punch in the face. According to many economists, the US dollar and other currencies like the Chinese yuan are exaggeratedly devalued, giving these countries an unfair competition in international trade. From all this comes the argument surrounding a possible trade war in the near future.
Brazilian Finance Minister Guido Mantega is one of the main proponents for a higher dollar, and he has striven for the protection of the Brazilian real. Nonetheless, a financial war is not really in the agenda for any of the major world players. However, the subject has created worries.
All said, what is seen is an American monetary policy chasing the economic improvement they need. For policy makers, if the toll of a strong economy in the US is a cheaper dollar, then that is how it will be. In the meantime, enjoy your vacation in Las Vegas or New York — it’s cheap anyway!
Paulo Kubis is a certified Investments Agent, majored in Business Administration and minored in Economics at the University of Science and Arts of Oklahoma (USA), and specialized in Capital Markets at FAE Business School. Questions or comments: pkubis8@hotmail.com
