Brazil’s Comparative Advantage over the US

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Brazil’s Comparative Advantage over the US

The United States and Brazil have symbiotic trade relations. In fact, the United States is the single largest trading partner of Brazil. Both countries encompass a vast geographical terrain hence can leverage economies of scale in regards to various aspects of trade. Brazil is situated in the tropics and as such, it is more fertile relative to the US. As such, it has comparative advantage over the United States in the agricultural sector (Hornbeck 14). Conversely, the US is more efficient in Information Technology services owing to their efficient infrastructure. Economies of scale entail taking advantage of the reduction in cost that accompanies producing goods in large quantities. Comparative advantage in trade implies relatively cheaper costs in producing goods by an entity or state owing to efficiency in its production process. As both the US and Brazil can exploit the benefits of economies of scale their trade relations hinges on comparative advantage.

Though Brazil has comparative advantage over the US, there are technical impediments that impede optimization of these trade relations. A country would rather import a product that will be relatively more costly to produce and focus on its core competencies. Nonetheless, both the US and Brazil do not utilize they respective comparative advantages fully. Brazil comparative advantages is grounded having two vital factors of production, fertile land due to its geographical location and cheap labor drawn from its high population (Hornbeck 12). On the other hand, the US has better capital investments. The main hindrance arises from the tariffs that US places on imported sugar, orange juice products concomitantly subsidizing some of its exports. This transfers the comparative advantage to its local industries. Brazil also hinders the trade by imposing tariffs on service trades coupled with disagreements in multiple fronts such as the issue of intellectual property. Resolving these differences will be mutually beneficial.

Work Cited

Hornbeck, J. F. “Brazilian Trade Policy and the United States.” 2006. Print.