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The Brazilian economy has experienced sustained growth since 2000, after several turbulent decades. The country’s engagement with the global economy has played a largely positive, if secondary, role and Brazil has assumed a leading position in world trade negotiations. At the same time, the country has struggled to generate sufficient employment and improve labor incomes. Unemployment hovers at about 8 percent, and of those who work, slightly more than half do so informally. Average earnings today are lower than in the mid-1990s.

Brazilian policy makers face complicated challenges as they try to grow the economy in ways that will generate better livelihoods and incomes. The current global economic downturn is likely to make these tasks even more difficult. The purpose of this study is to contribute to the knowledge base upon which the Brazilian government and public, as well as the international community, evaluate the policy choices the country faces in the realm of trade. It employs computable general equilibrium models of the global and Brazilian economies to simulate a range of possible trade agreements, and explores the effects of these changes on the Brazilian economy, including its sectors, workforce, and households.

Overall, this study shows that the impact of increased trade on the Brazilian economy will be very small, even from a new global agreement at the World Trade Organization or from a very ambitious free trade pact with the largest developing countries. In addition, Brazil will expose its economy to stronger effects from other global policy shocks, such as world price volatility, as it opens its markets. After a careful analysis of the benefits and costs of trade liberalization and specific trade policy choices, increased global economic engagement may still be seen as beneficial for the Brazilian economy. However, it is important in policy debates that the nature and costs of structural adjustment be taken into account and that the pattern of trade achieved serves the country’s long-term development goals.