With the expiration of the U.S. tariff on ethanol imports at the end of 2011, this year marks a potential watershed in U.S.–Brazil trade ties. For three decades, Washington protected corn-based ethanol producers from Brazil’s more environmentally-friendly and economically-efficient sugar-based ethanol. Now, without the 54-cent-per-gallon tariff on imported ethanol or the corresponding 45-cent-per-gallon tax credit, the U.S. market is open for business for ethanol imports.
The demise of these protectionist measures removes a bone of contention with the Brazilian government, saves U.S. taxpayers about $6 billion a year and expands access to cleaner energy for U.S. consumers. Though the move will have positive foreign policy repercussions, it stemmed from domestic political dynamics: as the industry matured, subsidies became a harder sell, particularly at a time of high corn prices.
Ironically, Brazilian ethanol production fell in 2011, requiring imports from the United States to meet local demand. This unusual situation, largely due to poor weather and delays in crop replanting after the 2008 financial crisis, will minimize the immediate impact of the end of the U.S. ethanol tariff. Still, industry analysts expect new investment to revive exports.