Brazil and China: Emerging Rivalry Among Emerging Markets?

When I asked Ambassador Fernando Mello Barreto, Brazil’s Consul General, whether he was concerned about the trajectory of his country’s trade relationship with China during his visit to the Fletcher School last week, he did not seem perturbed. “My understanding is there is not much concern about this in Brazil. We welcome trade with all countries”, he told the forum without much hesitation.

There is no doubt that trade with China has allowed Brazil to maintain a healthy bilateral trade surplus, partly insulated it from the global economic recession, and driven exports. Yet there are growing indications that Mr. Barreto and his fellow countrymen should be and are sweating about the relationship. In a recent article for World Politics Review, Sean Goforth, who also blogs on Latin America for Foreign Policy Association, cites some pretty troubling Sino-Brazilian trade trends. I’d encourage you to read the whole thing, but let me cite a few of Mr. Goforth’s observations below:

  • Brazil risks being pigeonholed as another commodity supplier. The proportion of raw materials within Brazilian exports has grown from 29% in 2002 to 41% in 2009.
  • Brazil’s manufacturing sector is suffering from Chinese competition. While Brazil used to run a deficit in manufacturing goods of several hundred million dollars a year, that gap grew to 23.5 billion dollars in 2010. Brazil’s imports of Chinese manufacturing goods reportedly lost 70,000 jobs in 2010, and a slower GDP growth is forecast in 2011 partly due to Chinese manufactured goods replacing Brazilian domestic goods. In sum, more than 80% of Brazilian manufactured exports are being adversely affected.
  • Consider the tale of two Brazilian goods: shoes and soy. While Brazil used to dominate the shoe-making market, the number of shoes exported has halved from 2004 to 2009. And since China has been buying Brazilian soy grain instead of soy oil, producers are unable to charge a refinement premium, which has led to Brazilian soybean production expanding but soy oil production stagnating.
  • China’s undervaluing of the yuan, when occurring alongside the sharp appreciation of Brazil’s real, puts Brazilian goods at a massive disadvantage in terms of price.

There are signs that Brazil is waking up to reality. In December 2010, it raised tariffs against Chinese toys from 20 percent to 35 percent (the highest level the World Trade Organization permits). Brazil has also been firmer on the yuan recently, although it has finessed its comments as well so as not to stoke the dragon’s furor.

Last year, a friendly basketball match between China and Brazil ended up with kicks and punches being thrown and several wounded. One wonders whether Mr. Barreto’s cordial remarks mask deeper worries about an analogous trade brawl in the years to come.

Picture: Instablogs

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