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Though China is the largest trading partner, it is hurting Brazil manufacturing industry.Brazil Takes a Second Look at China Ties
Sean Goforth | 15 Feb 2011
Brazil has profited handsomely over the past decade from its economic relationship with China. Exports to the People's Republic have shot up nearly 20-fold since 2000, and last year alone, Brazil enjoyed a bilateral trade surplus of $5.2 billion, largely thanks to China's seemingly insatiable appetite for iron ore and soybeans.
In 2009, China supplanted the United States to become Brazil's biggest trade partner, an arrangement that allowed Brazil to skirt the global recession by insulating it from the precipitous drop in exports that most other Latin American countries suffered.
The relationship is not likely to change in the near term due to unflagging Chinese demand; the construction of major Brazilian and South American infrastructure projects aimed at servicing Asia; and the slow pace of economic recovery in the U.S. and Europe.
Yet today Brazil is reappraising its trade ties with China, as many in Brazil worry that China is trying to pigeonhole Brazil as just another commodity supplier. A closer look at the figures behind Brazil's swelling exports to China reveals that the country is exporting fewer manufactured goods, causing concern about lost jobs. Approximately 29 percent of Brazil's exports were raw materials in 2002, but by 2009, that had grown to 41 percent.
Meanwhile, Brazilian imports of Chinese manufactured goods are surging. Brazil typically imports more Chinese manufactured goods than it exports to China, but whereas Brazil used to run a deficit in manufactured goods of several hundred million dollars a year, that gap grew to $23.5 billion in 2010.
This imbalance could sap Brazil's economy, hindering growth and leading to de-industrialization. Brazilian imports of manufactured goods from China reportedly cost 70,000 jobs last year alone, and slower GDP growth is forecast for next year partly due to Chinese manufactured goods replacing domestic goods in the Brazilian market. Says a spokesman for FIESP, Sao Paulo's Industrial Federation, "The relationship with China is important, but from an industrial perspective, it is extremely negative."
Even iconic Brazilian industries are feeling the pinch. Shoemaking in Brazil has a heritage dating back more than a century to waves of European immigration, and it draws on the country's strength at raising stout cattle. As recently as 2002, Brazil dominated production of dress shoes for the global market. However, the number of shoes it exported decreased by nearly half from 2004-2009. And regarding that most emblematic of garments, the bikini, BBC Radio 4 recently aired a story highlighting the woes of Brazilian bikini manufacturers in the face of Chinese competition.
All told, more than 80 percent of Brazilian manufactured exports are being adversely affected by competition from China, according to one recent study.
Certain producers of commodity byproducts are also being impacted. China, for instance, overwhelmingly buys Brazilian soy grain, not soy oil, denying producers the chance to charge a premium for the refinement. So while Brazilian soybean production continues to expand, its soy oil and meal production has largely stagnated.
Underlying these shifts are divergent monetary priorities. Global attention has recently focused on the Chinese government's efforts to undervalue its currency, the yuan, in order to keep its exports cheap on world markets. Conversely, Brazil's currency, the real, has appreciated an estimated 40 percent since 2008. As a result, Brazilian goods are at a competitive disadvantage in terms of price in China and other countries.
In December, Brazil reacted by increasing tariffs against Chinese toys, from 20 percent to 35 percent, the highest level permitted by the WTO. Other piecemeal tariffs may soon follow in an effort to protect specific Brazilian industries from shedding more jobs. The Brazilian government has taken an increasingly firmer stance against the value of the yuan in recent months, and the issue will likely be broached when President Dilma Rousseff visits Beijing in April.
Having pitched her candidacy as a continuation of the tenure of her popular predecessor, former President Luiz Inacio Lula da Silva, Rousseff now seems to be letting pragmatism take precedence over continuity. A key part of that pragmatism appears to be building closer ties with the U.S. On Feb. 7, U.S. Treasury Secretary Timothy Geithner visited Brazil to talk about closer U.S.-Brazilian economic ties. After meeting with Rousseff, Geithner stated that Brazil and the U.S. shared a common cause: to "work together on the global stage to build a more balanced and more stable, stronger multilateral economic system." While Geithner refrained from specific mention of China, advisers to the Brazilian government and major media outlets read the trip as an attempt to build a new alliance against the weak yuan. More generally, Brazilian trade policy may be an early indication that the Rousseff administration intends to triangulate its foreign policy with China and the United States.
Brazil and China's economic models proved very complementary at the onset of the so-called BRIC era. Now, as both seek to reposition themselves for a push further up the economic development ladder, that complementarity is less likely to be taken for granted.
Sean Goforth teaches international political economy at Coastal Carolina University and blogs on Latin America for the Foreign Policy Association.
China drying Up
In the long run this will have a telling impact on the internal politics and economy of Brazil. This is similar to the story of all countries which trade with China basically in commodities.
The rainbow is vanishing as the sun gets stronger.
