Is a Brazil-China trade deal possible?

. Nov 14, 2019
brazil china trade deal Photo: PR

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Good morning! We’re discussing if a trade deal between Brazil and China is possible. Jair Bolsonaro’s new approval ratings. And the lingering challenges of the Brazilian Republic—which celebrates its 130th anniversary. (This newsletter is for platinum subscribers only. Become one now!)

Important. There will be no issue of the Daily Briefing tomorrow, November 15, a national holiday in Brazil. We’ll be back on Monday with our Weekly Report. But our website will continue to be updated with new stories.

Is a trade deal between Brazil and China possible?

President Jair Bolsonaro met with his

Chinese counterpart, Xi Jinping, as part of the ongoing <a href="">11th BRICS Summit in Brasília</a>. The two countries signed nine accords and memoranda of understanding—and Economy Minister Paulo Guedes said Brazil and China have initiated talks over a possible trade deal, without getting into specifics about its scope or timetable. </p> <p><strong>Why it matters.</strong> China is Brazil&#8217;s undisputed leading trading partner—absorbing almost one-third of all Brazilian exports. Mr. Guedes&#8217; team says Brazil is not worried about losing its trade surplus with the Asian giant, and that the focus is to establish free-flow trade.</p> <p><strong>What&#8217;s in for Brazil?</strong> The Economy Minister has not yet set a goal for the trade deal. Abstractly, though, the government talks about wanting to expand trade in volume and increase the value of exporting products.</p> <div class="flourish-embed" data-src="visualisation/923762"></div><script src=""></script> <div class="flourish-embed" data-src="visualisation/923795"></div><script src=""></script> <p><strong>Obstacle.</strong> Brazil cannot sign bilateral trade deals, according to rules of the Mercosur, the South American trade bloc with Argentina, Paraguay, and Uruguay. The Mercosur-EU trade deal, which took 20 years before being signed, showed that group negotiations are not easy. In recent weeks, the Brazilian government has floated the idea of leaving the bloc altogether.</p> <p><strong>To be discussed.</strong> Before signing a potential trade deal, Brazil and China must get on the same page on several matters, as explained by Mauricio Santoro, an international relations professor at the State University of Rio. “While soybean taxes between both countries are small, processed soybean products such as soy oil are heavily taxed. Concerning meat, there are several issues with non-tariff barriers, such as sanitary issues, that need to be included in the negotiations,” he told <strong>The Brazilian Report</strong>.</p> <p><strong>Trade war.</strong> Government sources say the idea of a trade deal came from China, signaling that Brazil could be seen as an important piece to help Beijing strengthen its positions in the ongoing trade war with the U.S.</p> <script src="" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Jair Bolsonaro&#8217;s new popularity numbers</h2> <p>A new poll released yesterday shows that Jair Bolsonaro remains one of the least popular leaders in Brazilian democratic history. However, his numbers slightly improved, with 35 percent rating his administration as either good or great (up from 33 percent). Meanwhile, detractors remained stable at 39 percent.</p> <div class="flourish-embed" data-src="visualisation/927426"></div><script src=""></script> <p><strong>Why it matters.</strong> Once again, opinion polls show a consolidated polarization among the electorate: one-third of the country despises the president, roughly one-third supports him, and the remaining voters remain on the fence.</p> <p><strong>Economic reforms.</strong> The president is much less appreciated than his administration&#8217;s agenda. For 57 percent of Brazilians, the economic reforms recently proposed are steps &#8220;in the right direction.&#8221; But the success of those bills in Congress will depend on the government&#8217;s negotiation skills. President Bolsonaro has yet to form his own coalition—and has just broken off with his own party, announcing he will leave the Social Liberal Party and create a new political group.</p> <p><strong>&#8220;Bad heritage&#8221;.</strong> Brazilians believe that previous Workers&#8217; Party&#8217;s administrations are to blame for Brazil&#8217;s paltry growth rates. What is notable, however, is that 30 percent blame the Lula administration for the crisis, while Dilma Rousseff—who oversaw the recession—is seen as the one to be blamed by only 17 percent of voters.</p> <hr class="wp-block-separator"/> <h2>130 years on, the Brazilian Republic faces an old ghost: inequality</h2> <p>Tomorrow, November 15, the Brazilian Republic celebrates its 130th anniversary. Brazil was a whole different country back then. Its population was of 14 million people (against today&#8217;s 210 million), the state of Acre still belonged to Bolivia, the capital was still Rio de Janeiro, the population was predominantly male—and half of Brazilians were under 17 years old.</p> <p>Brazil has certainly made strides, but one problem still haunts the country: inequality.</p> <p><strong>Why it matters.</strong> Inequality is one of the main deterrents of development for a country.</p> <p><strong>Race.</strong> In what was the last Western country to abolish slavery, the color of one&#8217;s skin still matters to predict one&#8217;s future. White people live longer, have better-paying jobs, and are less affected by economic fluctuations then non-white populations.&nbsp;Yesterday, the Brazilian Institute of Geography and Statistics published a study on race and inequality in Brazil. Here are some of its key findings:</p> <ul><li>The illiteracy rate among non-whites is 9.1 percent, against 3.9 percent among whites;</li><li>64 percent of Brazil&#8217;s unemployed population are non-whites;</li><li>Even between people with the same level of education, wages are 74 percent higher among white Brazilians (an average income of BRL 17 per hour, against BRL 10 per hour among non-whites);</li></ul> <p>There is a silver lining, however: the race gap, while still immense, is slowly getting narrower. One piece of data, in particular, illustrates the trend:</p> <ul><li>For the first time in Brazilian history, non-whites now make up the majority of Brazil&#8217;s college population. In 1992, whites used to study 52 percent more longer than non-whites. Now, the difference is down to 25 percent.</li></ul> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>BRICS mess.</strong> While heads of states of BRICS countries met yesterday, members of the opposition to Venezuelan dictatorial leader Nicolás Maduro invaded the country&#8217;s embassy in Brasília. The mess lasted for 14 hours—and became the backdrop for more polarization in Brazilian politics.</p> <p><strong>Private data.</strong> Supreme Court Chief Justice Dias Toffoli ordered that the Central Bank provide him with all financial intelligence reports (bank accounts flagged due to &#8220;unusual activity&#8221;) produced by Brazil&#8217;s money laundering agency over the past three years. The ruling affects 600,000 Brazilians—including members of President Jair Bolsonaro&#8217;s inner circle. In July, Justice Toffoli suspended all investigations using such reports without a court&#8217;s decision.</p> <p><strong>Markets.</strong> Brazilian markets had a rocky day yesterday. The São Paulo stock market closed down 0.71 percent, and the USD-BRL exchange rate reached its second-highest nominal value since the adoption of the Brazilian Real, at BRL 4.187 (up 0.28 percent). The results were fueled by growing political tensions in neighboring countries Chile and Bolivia, as well as by U.S. President Donald Trump&#8217;s threats to escalate his trade war with China.</p> <p><strong>Bolivia.</strong> Jeanine Áñez, the current Bolivian interim president, has decided to change the entire top brass of the country&#8217;s Armed Forces—the decisive element in the ousting of former leader Evo Morales on Sunday. Violent protests continue to take the streets of Bolivia, with the Army taking to the streets to &#8220;avoid blood and grief,&#8221; promising to use &#8220;proportional force&#8221; against demonstrators.</p> <p><strong>Retail 1.</strong> Shares of Brazil&#8217;s biggest retail group Via Varejo (<a href="">VVAR3</a>) had a rollercoaster day after reports of potential fraud in the company&#8217;s earnings were published. In a note to investors, the group confirmed its compliance division is investigating an anonymous tip that its corporate earnings had been doctored—but stated no wrongdoing has been found over the past month. After crashing more than 9 percent, shares closed down 1.83 percent.</p> <p><strong>Retail 2.</strong> Despite a persistently high unemployment rate, Brazilian retailers project customers will spend over BRL 60 billion in the upcoming holiday season. A nationwide survey shows that 77 percent of Brazilians will buy Christmas gifts—at an average of four gifts per person.&nbsp;</p> <p><strong>Guns.</strong> Forjas Taurus, Brazil&#8217;s leading gun manufacturer, posted its Q3 earnings. President Jair Bolsonaro&#8217;s decrees to loosen up gun ownership rules have helped boost sales, up by 21 percent (32,700 units). However, that didn&#8217;t prevent Taurus from posting losses of BRL 26.4 million over the same span. The company told investors the negative result can be explained by a bump in financial expenses due to the Brazilian Real&#8217;s 8-percent devaluation this year, as well as increasing operational costs and shorter profits from its U.S. division.

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