Pandemic makes Brazil even more reliant on China

. Aug 03, 2020
trade Pandemic makes Brazil even more reliant on China Image: MAR Photography/Shutterstock

The global economic slowdown caused by the coronavirus crisis is changing the profile of Brazilian exports. And it continues to increase Brazil’s dependence on its undisputed top trading partner, China. Data from the Special Foreign Trade Secretariat shows a 7-percent drop in overall exports during the first half of 2020, which falls in line with the expected economic contraction for the economy this year. According to the latest Focus Report — a Central Bank-led weekly survey with market analysts — the median forecast for the Brazilian economy is a 5.66-percent contraction by the end of 2020.

</p> <p>Exports to China over the first six months of the year amounted to USD 34 billion —&nbsp;twice what was sold over the same period in 2015. On the flip side, however, sales to the U.S. and Mercosur countries dropped 32 and 29 percent, respectively.</p> <p>China has topped the list of Brazil&#8217;s trading partners since 2009 and gobbled up 33.7 percent of Brazilian exports in the first half of 2020.&nbsp;</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3370686" data-url=""><script src=""></script></div> <p>The impact of the coronavirus on imports was smaller, however, at just 5.21 percent. But these numbers show a more equal split among Brazil&#8217;s three main partners: China, the European Union, and the U.S.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3370709" data-url=""><script src=""></script></div> <h2>Commodities continue to carry Brazilian exports</h2> <p>The Covid-19 pandemic has hit some sectors harder than others. With regard to Brazil&#8217;s foreign trade, industry has clearly slipped out of favor. The numbers of countries or regions where Brazil usually sells manufactured goods has also decreased, in general terms. However, the impact on total exported volume has been softened by the continued strength of Brazilian commodities.</p> <p>José Augusto de Castro, chairman of Brazil Foreign Trade Association (AEB), believes the pandemic emphasized the chronic problems of competing in manufactured goods markets and the resilience of commodities. “In commodities, Brazil has productivity. Whatever the price or exchange rate, Brazil will be competitive. With favorable demand and exchange rates, as we have now, Brazil sells at ease, with no worries,” analyses Mr. Castro.</p> <p>For instance, the five primary goods exported to China are commodities. For these five products, exports have increased by 13.4 percent.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3370667" data-url=""><script src=""></script></div> <p>In the opposite direction, Brazil&#8217;s far-more diversified export portfolio to the U.S. was affected significantly. Aircraft, for instance, saw sales fall 75 percent. Shipments to the U.S. in general fell 32 percent in the first half of 2020.</p> <p>“Trade with the U.S. is a mix. It used to be much more based on manufactured goods, but this is decreasing mainly because of oil. Brazil had a trade surplus with the U.S. Today, however, it has a strong deficit. The U.S. market demands prices Brazil is unable to offer,” says Mr. Castro.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3370631" data-url=""><script src=""></script></div> <p>A similar process occurred in Mercosur. This trade relationship with regional South American partners is essential to Brazil, as it allows the country a chance at selling value-added goods — which doesn’t happen in its trade relations with China, for instance. And on a local level, the auto industry plays a huge role in Brazil-Mercosur relations.</p> <p>But since last year, Brazil has been losing profits in sales to Argentina, Uruguay, and Paraguay. This began with the <a href="">crisis in Argentina</a> and was made worse by the Covid-19 pandemic. This year, <a href="">China surpassed Brazil as Argentina&#8217;s top trading partner</a> as well.</p> <p>“Brazil has a chronic problem. Cost is an issue that mainly affects manufactured goods. There was already a dependency on China, which has increased. The market for manufactured products in Brazil, South America, and Argentina is in crisis. Brazil has nowhere to export manufactured goods,” Mr. Castro tells <strong>The Brazilian Report</strong>.</p> <iframe src="" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>Brazil in the trade war</h2> <p>Increasingly dependent on China, the Brazilian government has been adopting an unabashed pro-U.S. stance since Jair Bolsonaro took office. Among his supporters and close allies, anti-China sentiment is rife. The latest example of this came with the country&#8217;s <a href="">support for a proposal by the U.S. at the World Trade Organization</a> that was essentially a broadside at Beijing.</p> <p>And in a live online broadcast on July 30, the president deliberately avoided mentioning the word “China” when discussing vaccines. “We took part in Oxford’s consortium, and it seems that [the vaccine] will work, and 100 million units will arrive for us. It is not from that other country, no. Okay, guys?”</p> <iframe src="" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <p>This anti-China stance — following the cues of U.S. President Donald Trump — has led to several warnings from the Chinese embassy to Brazilian authorities. In March, one of the president’s sons, Congressman Eduardo Bolsonaro, tweeted that “China is to blame” for the Covid-19 pandemic. The official representative of China in Brazil replied, demanding a retraction. “His words are extremely irresponsible and sound familiar. They are an imitation of his dear friends. Upon returning from Miami [where the Bolsonaro delegation met with Mr. Trump], he, unfortunately, contracted a mental virus, which is infecting the friendship among our peoples.”</p> <p>There is also what seems to be an unwillingness from Brazilian authorities to accept the involvement of Chinese company <a href="">Huawei in Brazil&#8217;s future 5G operations</a>. However, pushing the firm out will be easier said than done, as Huawei currently operates in Brazil and supplies <a href="">80 percent of all operational radio antennas in the country</a>.&nbsp;</p> <p>“The U.S. invites Brazil to take a stand against China, the primary market today. The world tries to be equidistant; Brazil takes sides. You need to start evaluating the business aspects, not of today but the future. The pandemic showed that Brazil depends on commodities; they have no option,” says Mr. Castro.

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José Roberto Castro

José Roberto covers politics and economics and is finishing a Master's Degree in Media and Globalization. Previously, he worked at Nexo Jornal and O Estado de S. Paulo.

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