Economic Coercion, AI Market Asymmetry, and Brazil’s Strategic Shift: A Realist vs. Liberalist Perspective

“Trade wars are good, and easy to win.”

— Donald Trump, March 2, 2018 (Reuters, 2018)

Introduction

The global artificial intelligence (AI) market is marked by significant disparities in market capitalization and investment between developed and developing nations. The United States, as a dominant force in AI, has increasingly used economic coercion, particularly through export restrictions and market control policies, to protect its technological hegemony. The Trump administration’s aggressive stance on AI-related trade policies, continued under the Biden administration, exemplifies a realist approach to economic statecraft—prioritizing national security over economic openness. However, such coercive measures can have unintended consequences, especially for developing AI economies like Brazil, which may view U.S. trade restrictions as a reason to diversify technological alliances. This article explores how Brazil’s AI strategy is influenced by U.S. economic coercion, analyzing it through the competing lenses of Realism and Free Trade Liberalism while leveraging quantitative data from global trade institutions.

The AI Market Capitalization Asymmetry

The United States dominates AI markets, leveraging its market capitalization power to influence global AI governance. As of early 2024, NVIDIA alone reached a market capitalization of $3.4 trillion, reflecting the immense economic weight behind U.S. AI leadership (YCharts, 2024). In contrast, Brazil’s total AI investment for 2024-2028 is just $4.07 billion, a fraction of what a single U.S. company commands (Reuters, 2024a). This disparity is not just a matter of financial scale; it dictates how AI trade policies are crafted and enforced, often benefiting technologically dominant nations while limiting the access of emerging players.

From a realist perspective, the United States views AI dominance as a national security asset rather than merely an economic sector. By controlling AI semiconductor exports and restricting access to advanced computing technologies, the U.S. is preserving its strategic advantage at the expense of free-market principles. The Trump administration’s AI protectionist policies, such as restricting exports of advanced AI chips, were intended to curb China’s AI growth, but also affected neutral countries like Brazil, which had relied on Western AI suppliers (MarketWatch, 2024). This exemplifies the Realist school of thought, which asserts that states act primarily to preserve power, often at the expense of economic interdependence (Mearsheimer, 2001).

The Trump administration’s AI trade restrictions initiated a broader trend of economic coercion that continued under the Biden administration. In October 2022, the Biden administration announced a ban on the sale of certain advanced AI chips to China, aiming to curb China’s access to technologies critical for AI development (FDD, 2022). These restrictions were further tightened in 2023, limiting China’s ability to procure advanced semiconductors and related technologies (FDD, 2023). In January 2025, the Biden administration introduced an interim final rule imposing export licensing restrictions on advanced AI chips to 150 “middle-tier” countries, while maintaining existing embargoes on China, Russia, and Iran (National Law Review, 2025). These measures demonstrate a clear trajectory from the initial policies under President Trump to more stringent controls under President Biden, reflecting a sustained strategy of economic coercion aimed at maintaining U.S. technological superiority. Policies like the 2022 and 2023 AI semiconductor export bans restricted the ability of developing nations to procure high-end AI chips from U.S. firms, leading to an investment vacuum in emerging AI markets (MarketWatch, 2024). These policies forced countries like Brazil to reevaluate their dependence on U.S. technology and consider alternatives. From a liberalist perspective, economic interdependence should deter coercive trade policies because AI innovation thrives on globalized research, investment, and competition (Keohane & Nye, 2012). However, the U.S. has increasingly prioritized power over economic openness, which directly contradicts liberalist principles. Critics argue that by weaponizing AI trade policies, the United States risks alienating key AI-developing states like Brazil, which may seek to reduce dependence on U.S. suppliers by forging alliances with China and European AI firms.

Brazil’s Strategic Shift: Hedging Against U.S. AI Dominance

Faced with the reality that economic coercion and restrictions from the U.S. are on the table, Brazil has strategically shifted toward AI trade diversification. In September 2024, Microsoft announced a $2.7 billion AI investment in Brazil, aiming to expand AI infrastructure and cloud computing services in the region (Reuters, 2024b). This investment signals that while U.S. firms still see potential in the Brazilian AI market, the Brazilian government is hedging against potential over-reliance on a single technological supplier. Additionally, Brazil has deepened ties with China, particularly through Huawei’s AI infrastructure projects. In November 2024, Brazil signed 37 bilateral agreements with China, covering various sectors, including AI and cloud computing (HKTDC Research, 2024). This move reflects a calculated shift away from U.S.-centric AI supply chains, highlighting a realist-inspired soft-balancing strategy—not outright opposing the U.S., but reducing vulnerability to economic coercion.

*The Brazil-China agreements have shown a sharp increase, especially in 2024, aligning with Brazil’s strategic diversification. The Brazil-U.S. agreements remain relatively stable, focusing on defense and trade, but less extensive than China’s engagement. The cited data strengthens the argument that Brazil is shifting towards China as a key strategic partner due to risk of U.S. economic coercion. It visually demonstrates how Brazil’s bilateral agreements with China have surpassed those with the U.S., particularly after 2019. This supports the argument that Brazil is hedging against over-reliance on the U.S. and deepening its ties with China.

While Realism explains U.S. AI economic coercion, Liberalism highlights why such coercion could be counterproductive. The free market liberalist perspective holds that AI should be governed by economic openness, allowing all states to compete fairly (Keohane & Nye, 2012). However, U.S. policies are increasingly protectionist, which contradicts its own historical advocacy for free trade. For Brazil, this contradiction presents an opportunity to negotiate new AI partnerships while maintaining trade relations with the U.S. However, if the U.S. continues its protectionist approach, it may inadvertently weaken its global AI leadership. Brazil, alongside other AI-developing nations like India and South Africa, may turn toward AI investment from non-Western players, forming a South-South AI network that bypasses Western control.

Conclusion

The AI trade war is not just about technological supremacy—it is about how economic coercion influences state behavior. While the U.S. sees AI dominance as a national security imperative, economic coercion could alienate AI-developing nations like Brazil, forcing them to diversify their AI supply chains. If the U.S. does not recalibrate its AI trade policies, it risks losing influence over the Global South’s AI development trajectory. The United States, even under previous administrations, has increasingly focused on countering China’s rise in strategic sectors. However, what differentiates the Trump administration is the rate and intensity of its protectionist measures, which have outweighed those of previous administrations. This shift has led many nations, including U.S. allies, to brace for levels of economic coercion not previously seen from America, causing concerns about long-term economic and geopolitical alignments. 

References

Graph: 

Brazil-China Bilateral Agreements (Cited Data)

2009: 13 agreements – Ministério das Relações Exteriores (2009) Brazil and China strengthened trade and diplomatic ties as China became Brazil’s largest trading partner. Available at: https://www.gov.br/mre/en/subjects/bilateral-relations/all-countries/people-s-republic-of-china (Accessed: 18 February 2025).

2011: 21 agreements – Ministério das Relações Exteriores (2011) China and Brazil elevated their relationship to a “Global Strategic Partnership” and expanded cooperation. Available at: https://www.gov.br/mre/en/content-centers/speeches-articles-and-interviews/president-of-the-federative-republic-of-brazil (Accessed: 18 February 2025).

2023: 20 agreements – Ministério das Relações Exteriores (2023) Brazil and China signed over 20 agreements in areas including infrastructure, technology, and sustainable development. Available at: https://www.gov.br/mre/en/content-centers/speeches-articles-and-interviews/president-of-the-federative-republic-of-brazil (Accessed: 18 February 2025).

2024: 37 agreements – AP News (2024) Brazil and China reached a record 37 bilateral agreements in agriculture, trade, investment, and energy. Available at: https://apnews.com/article/b979f2f78530c917b37c47f97f24d96a (Accessed: 18 February 2025).

Brazil-United States Bilateral Agreements (Cited Data)

2009: 5 agreements – Ministério das Relações Exteriores (2009) Brazil and the U.S. signed agreements in trade and defense sectors. Available at: https://www.gov.br/mre/en/subjects/bilateral-relations/all-countries/united-states-of-america (Accessed: 18 February 2025).

2011: 8 agreements – Office of the U.S. Trade Representative (2011) The Agreement on Trade and Economic Cooperation (ATEC) was signed to strengthen economic ties. Available at: https://ustr.gov/countries-regions/americas/brazil (Accessed: 18 February 2025).

2023: 6 agreements – Ministério das Relações Exteriores (2023) Brazil and the U.S. signed agreements focused on defense cooperation and trade facilitation. Available at: https://www.gov.br/mre/en/subjects/bilateral-relations/all-countries/united-states-of-america (Accessed: 18 February 2025).

2024: 10 agreements – Ministério das Relações Exteriores (2024) Brazil and the U.S. signed 10 agreements covering energy, technology, and infrastructure. Available at: https://www.gov.br/mre/en/subjects/bilateral-relations/all-countries/united-states-of-america (Accessed: 18 February 2025).

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