Brazil's new militancy on international economic issues offers a welcome prospect of cutting through the conundrum of the U.S.-China relationship, but carries some risk of a trend to de-globalization through a wave of capital controls.
Now that Dilma Rousseff is the President, Guido Mantega, the reappointed Finance Minister, has gone farther than he did in September under the Lula administration, when he raised the spectre of currency war. He is criticizing both the United States and China for their undervalued currencies and is warning that the currency war is likely to blossom out into an international trade war.
Much of Brazil's wealth comes from the sales of natural-resource commodities to China, but it is a hopeful sign that the Brazilians are not merely behaving like deferential suppliers to the rising manufacturing power; they are trying to defend themselves against upward pressures on their currency, the real. Mr. Mantega's preferred forum for dealing with the exchange-rate manipulators is the World Trade Organization, though it lacks effective powers to deal with exchange-rate disputes. The graver threat is a buildup of a range of capital controls and an erosion of the free movement of international investment. Such remedies are themselves connected to the disorder they are meant to alleviate; after all, China could not maintain its undervalued currency without its existing capital controls.
Meanwhile, as more countries resort to new controls as well as currency intervention, the International Monetary Fund is saying that more work needs to be done on guidelines for capital controls.
The codependency of the U.S. and China, as importer-borrower and lender-exporter, respectively, is a large source of international economic imbalance. It is just as well that other large countries are major factors, too, and are making their presence felt. Mr. Mantega's trenchancy speaks well for Brazil.