Brazil will need to seek greater balance in its trade agenda if it wants to return to being a solid economy.
The October 30 election victory of Luiz Inácio Lula da Silva for a third term as the president of Brazil is expected to revise the relations between Brasília and Beijing.
Brazil is going through a serious economic, political, social and environmental crisis. Fighting poverty, resuming economic growth with income redistribution, reindustrialising the country and reversing environmental abuses are urgent tasks, which will demand unprecedented national and international finesse from the new government.
The economic partnership between Brazil and China, which has advanced greatly in the past two decades, may be one of the keys to reversing the crisis that Brazil faces. But some challenges will need to be faced with diplomacy and strategic planning.
Despite the ‘insults‘ directed by the government of former Brazilian president Jair Bolsonaro toward China, especially during the Covid-19 pandemic, and the inevitable distancing of diplomatic relations between the two countries, bilateral trade has increased.
In 2021, bilateral trade between the two countries reached US$135.4 billion, with Brazil recording a trade surplus of $40 billion with China, which was only surpassed by Taiwan, Australia and South Korea. China has been Brazil’s largest trading partner since 2009, accounting for almost double the volume that Brazil imported from its second-largest partner in 2021, the US ($70.5 billion), with which it recorded a deficit of $8.3 billion.
A profitable but unbalanced relationship
Brazil’s export mix, however, is vulnerable in the long term: It is not very diversified and is based on products of low aggregate value.
The four main products it exports (iron ore, soy, crude oil and animal protein) accounted for 87.7 per cent of total exports to China in 2021. Meanwhile, the exports of Chinese products to Brazil are highly diversified, with a predominance of manufactured products, and with a high technological index. For example, the main import item from China to Brazil (telecommunications equipment) accounted for only 5.9 per cent of imports.
The Brazilian commodities sector, which is an important component of the economy, represented 68.3 per cent of exports by Brazil in the first half of 2022 and has contributed for years to the increase in international reserves.
On the other hand, the commodities sector has a high concentration of wealth, pays few taxes, generates relatively few and low-skill jobs, is subject to cyclical price changes and, in many cases, causes environmental damage, which needs to be better controlled by the state.
In this sense, the initiative announced by COFCO International – the largest buyer of Brazilian food in China – to monitor and prohibit the purchase of soybeans planted in areas of illegal deforestation in Brazil beginning from 2023 was important.
But it will also require the Brazilian state – which has become notorious in recent years for encouraging deforestation and the invasion of Indigenous reserves – to guarantee the effectiveness of the initiative.
China needs Brazil’s natural resources for its development, and Brazil needs the Chinese market for its commodities. But in the medium and long terms, Brazil will need