Brazil Caught in the Crossfire of US-China Trade War. Here's What to Expect

See how rising trade barriers between the world's largest economies can impact the Brazilian economy and the predictions for foreign policies in the country after Bolsonaro

America first. That’s the slogan that, by exalting the American protagonism, helped Donald Trump to the US presidency. The motto synthesized some of the political and economic plans of the real-estate mogul, such as the containment of the migratory waves that left from Mexico towards the North American territory, as well as the trade battle with China. And so far, both policies are being categorically applied.

Trump’s trade threats started back in 2016 when he was still a presidential candidate. At the beginning of 2018, the offensive began to roll. The world’s most powerful democracy decided to apply massive tariffs on Chinese imports to the US, prompting China to retaliate and do the same to US goods. The war is reaching impressive numbers with the two nations having imposed tariffs on hundreds of billions of dollars on each other’s goods.

This giants’ battle is causing a profound impact on economies all over the world, including Brazil, whose relations with China are already frayed after the election of the nation’s new president Jair Bolsonaro.

During his presidential campaign, Bolsonaro criticized the Chinese economic posture and even made a trip to Taiwan, which is considered by China a rebel region. The attitude did not please the Asian giant; the Chinese President Xi Jinping’s administration sent a letter warning the Brazilian politician on the risks of a “possible turbulence in the strategic partnership” between the two nations.

Despite the unpredictability of Brazil’s current politic landscape, is it possible to make predictions on the relationship between Brazil and China? Are there concrete elements that indicate what the Brazilian foreign policies will be like? What are the odds of trade between the two nations being affected?

We prepared an overview of the trade war among USA and China and talked to the economist Dr. Carlos Cleto to evaluate its impact on the future of Brazil-China relations.

Brazil Caught in the Middle

During the 2016 presidential run, the Republican candidate Donald Trump didn’t seem to get tired of talking about China. In the vision of the real-estate mogul, the country has been a thorn in the US side, since it attracted a big part of the North American industry in the first decade of the century, which had a direct impact on US labor force.

For Trump, China uses “unfair” trade practices in order to attract investments. Trump even stated in an interview for the New York Times that the US helped rebuilt China. It was an advance hint of what was to come in the following months.

Based on that line of thought, Trump began, in 2018, a trade offensive against the Asian giant. This March the U.S leader decided to apply tariffs on over a USD 50 billion Chinese products, claiming Chinese intellectual property theft. To justify the measure, the USA government frequently mentions the merchandise trade deficit with China, which reached a record $375 billion.

The Asian giant promptly retaliated charging more tariffs over U.S. imports, such as cards, planes, meat, and chemicals. China even complained to the WTO about the U.S. actions, aiming to defend itself from the North American offenses. They claimed that Trump’s protectionist measures go against WTO’s principles.

Since then, tensions between the two nations have been ratcheting up, pushing China to strengthen relations with other countries, and generating uncertainty on the foreign policies of several countries. As a result, the U.S. trade threats also made China get closer to Latin American nations.

This approach is not something new, though. In the last 15 years, China occupied an “empty spot” in Latin America, left by the US. The country’s concerns with terrorism, immigration, and Asian tensions have contributed to increasing the estrangement between the North and Latin American nations, opening space to the Asian giant.

China-Latin America relations can be illustrated in striking numbers: in the last 15 years, the country has multiplied by 22 times the trade flow with Latin American nations. Today, China is Brazil’s main trading partner.

The Chinese influence in the Brazilian trade is undeniable. In 2017, China bought USD 50,2 billion from Brazil. This sumptuous relationship earned Brazil a record trade surplus of US $ 67 billion in 2017, a value 40.5% higher than in 2016. Recently, China has announced that it will suspend imports of US soybeans and buy only from Brazil, which should further strengthen trade links between the nations.

For the economist Carlos Cleto, the size of the figures makes it unlikely that Brazil’s relationship with China will go through great turmoil. Despite the uncertainties surrounding Bolsonaro’s political and economic policy, Cleto points out that a trade disruption in soybean exports, for example, would affect just one sector that helped elect the future president: agribusiness.

“In Brasília, agribusiness is a basis for sustaining Bolsonaro. The ruralist squad was a support bench, he needs this bench. It would be its major disadvantage in case of a [Brazilian] trade retaliation with China”, says.

Concerning ecommerce, the alignment between Brazil and China collects important numbers. An international survey conducted by Pitney Bowes found that 51% of Brazilians who buy from foreign websites consider Chinese products as an option. It is the largest participation among the 12 countries evaluated by the agency. The branches that most import Chinese products into Brazil are electronics (31%), fashion (29%) and information technology (27%).

In Brazil, Chinese ecommerce giants, such as AliExpress, are part of the daily lives of many people. In 2017, more than 22 million Brazilians made purchases on foreign websites, totaling USD 2.7 billion. According to Ebit – renowned company in electronic commerce -, the favorite site for the purchases was precisely the AliExpress.

Faced with such relevant figures, it is not surprising that China was in a state of alert with the election of Jair Bolsonaro. During the campaign, the president-elect has stressed that it will hinder diplomatic and trade relations he considers “ideological.” At this point, the fear is that China will join the list.

The Chinese government issued a statement in the country’s main state newspaper, China Daily, revealing concerns about the future relationship with Brazil. In the publication, China reinforces the mutual benefit created by trading between the two countries and warns that if Bolsonaro decides to break with Beijing, “the economic cost may be high for the Brazilian economy, which has just emerged from its worst recession in history”.

The more rigid positioning of the Chinese government seems to have had an effect on Bolsonaro’s statements, called by the Chinese government of “Trump Tupiniquim”. Despite the common imprecision of his proposals and his plan of government, a subject that we address in this text, Bolsonaro has hinted that his position as president will be different.

In the past days, he met with Chinese Ambassador Li Jinzhang and stated that trade with China can be expanded in its management. Besides this episode with traces of reconciliation, the future economy minister of Bolsonaro, the economist Paulo Guedes, has been advised that Brazil should remain neutral in the commercial war between the US and China. The tip was given by Columbia University professor Marcos Troyjo, Guedes’s advisor on international trade.

An unlikely risk

Given the commercial importance of China to Brazil, it is not surprising that Bolsonaro’s speech on the Chinese influence on the Brazilian economy becomes more enjoyable. After all, any indisposition with our largest trading partner could affect the Brazilian economy in full.

Despite the imprecision of the next government’s foreign policy, Carlos Cleto considers it unlikely that Brazil will take drastic measures in relation to China.

“I think he [Jair Bolsonaro] will be warned enough not to take a stand unilaterally. Even if the United States puts pressure on Brazil to enter this trade war, I see it as something very radical, it recalls until the Cold War. I do not see it logic “, emphasizes the economist.

For Cleto, the ideal would be for Brazil to look for a stable place amidst the commercial dispute between the two giants. “Getting closer to the United States does not necessarily mean moving away from China. We have to try to grow in international trade with all countries”, states.

Restricting trade agreements precisely with our biggest partner, in Cleto’s view, would be a wrong move. “If there is any retaliation, we would be the biggest losers,” he concludes. In this sense, it seems that Brazil is unlikely to take the risk of undermining its solid relationship with China. How it will actually occur will depend on the political and economic scenario of 2019.