Brazil’s Dutch Disease and the Auto Trade War with Mexico: Stylised Facts

In recent years the Brazilian economy, and its industry in particular, has been experiencing difficulties caused by the country’s export boom. What has been happening in Brazil has many, if not all, of the attributes of the ‘Dutch disease’, an economic ailment caused by an export boom of primary goods that overvalues the currency, erodes the capacity of the rest of the economy to compete abroad while increasing the presence of imported goods in the domestic market. In the case of Brazil, the overvaluation caused by the export boom was reinforced by high interest rates and capital inflows. Brazil’s industrial production and exports have been the most affected.
To fight the malady, the Brazilian authorities proceeded to try an assortment of monetary, fiscal, and discriminatory policy decisions, including picking a motor vehicles trade dispute with Mexico. The purpose of this chapter is to describe the factors underlying this dispute and the policy choices that followed.

Publisher: Centre for Economic Policy Research

Format: PDF

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