The objective of the paper is to evaluate, based on the experience of the 1980s, the threats posed by macroeconomic conditions to the trade liberalization process in Brazil under way since March 1990. The authors begin by reviewing Brazil’s macroeconomic and trade performance during the 1980s. The main aspects of the current trade liberalization programme are then analysed, with emphasis on the policy dilemma inherent in sustaining such a programme in a highly unstable inflationary environment. A simple macroeconomic model is constructed and used to assess these policy questions. A few economic policy recommendations close the paper. It was found that the erosion of Brazil’s traditionally large government surplus—due to rising government consumption in the second half of the 1980s, inflationary pressures and limited foreign financing—interfered with government investment programmes. These developments and a restrictive import regime led to a loss of competitiveness. Exchange rate policies are expected to play an important part in solving this dilemma—as indeed happened in 1991-92. Highest priority should be given to stabilization, but care should be taken to avoid long periods of exchange rate appreciation.