Sino-Brazilian Trade, Patterns, Policy and Protectionism

brazil chinaTrade between Brazil and China has expanded rapidly over the last decade, bilateral trade rose from US $ 6.5 billion in 2003 to US $ 83.5 billion in 2010, making China Brazil’s biggest trade partner (taking over from the US). Brazil exports soy, oil and minerals in exchange for Chinese consumables and machinery, this pattern of trade – commodities in exchange for manufactured goods has led to accusations that China is turning Brazil into a colony and its flood of produce is stifling domestic manufacturing, a story that will sound familar to many other nations.

This Chinese demand was certainly a boon for Brazilian agri-businesses who have abundant supplies of soy and sugar and meat. Similarly its mining sector (primarily iron ore) has been feeding the factories of China, but also highlighting the poor state of Brazilian infrastructure as the country’s ports struggled to cope with demand.  Now the slowdown in China and depressed demand for natural resources is likely to hit the Brazilian commodity sector hard, further exacerbating the country’s economic woes. For Chinese companies Brazil is a huge consumer market guzzling up cars, toys and clothes and all the other goods that China produces in such abundance.

However Brazil is also exporting manufactured goods China, most recently a $1.3 billion deal to sell 22 Embraer Jets to Tianjin Airlines, an open question is whether Brazil can do more deals like this and move away from the existing commodity exporting model. Some of the answers will come from building the right things for the right price, others will come with the reduction in tariffs that still has a long way to go. The “thick borders” which do so much to restrict trade in the developing world still exist despite a number of bi-lateral trade deals between the two countries.

The Brazilian government’s most blatant protectionist measure was a 55% tariff rate on imported cars, squarely aimed at Chinese manufacturers – whose machines are starting to make a big impact on the Brazilian market. This may explain Chery’s (Chinese car manufacturer) decision to build cars in Brazil, as way of avoiding import duties and creating vehicles specifically for the Latin American market.

Protectionism Brazilian Style

The Brazilian Foreign Trade Chamber CAMEX also increased tariffs by 25% on a wide range of manufactured items, supposedly aimed at stimulating domestic production. The 25% increase is lower than the 33% limit set by the WTO, but nevertheless highlights the country’s anxiety towards Chinese imports. These trade barriers also raise the wider question of whether emerging economies can reduce the tariffs that curtain the global South in comparison to the “North” or West, which have spent the last 60 years lowering trade barriers and building institutions to enact that policy.

South East Asia has also taken significant strides to reduce trade barriers, whereas South Asia and Africa are regional laggards in this regard with most of their trade outside their regions they have failed to develop full trading relations with their close neighbours, partly because of the physical and political barriers, partly a lack of need for each other goods and also the lack of political will required to reduce trade tariffs.

The Chinese of course are also accused of protectionist measures, most obvious and commented upon is the Renminbi, by keeping its value low Beijing can boost exports. Of course this does make imports more expensive, so it is not entirely beneficial for China.

China now represents the destination of 16% of Brazil exports and 15% of its imports, making it the South American country’s biggest trade partner. For China Brazil is a much less important trade partner relatively speaking, but still the most important in Latin America. For now Sino-Brazilian trade is likely to grow at a much reduced pace, if at all, as both economies go through lower growth and significant tariffs remain in place.

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