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Brazil trade with the U.S. sees worst result in 11 years

The trade between the two countries fell 25% in the first nine months of 2020, on course for a billion-dollar deficit

The most notable change in Brazilian foreign policy since the election of President Jair Bolsonaro in 2018 has been the country’s full alignment with the U.S. However, this shift in allegiances has yet to result in any concrete gains for Brazil — in fact, bilateral trade with the U.S. has just seen its worst result in 11 years.

Between January and September of this year, accumulated trade between the two countries hit USD 33.4 billion, a 25% drop from the same period in 2019. 

Regardless, the U.S. remains Brazil’s second-largest trading partner, accounting for 9.7% of Brazilian exports and 12.3% of revenue. Only China detains a larger slice, buying up over one-third of Brazil’s exports.

According to data from the American Chamber of Commerce in Brazil (AmCham Brasil), 2020 is shaping up to end with a Brazil-U.S. trade deficit of between USD 2.4 billion and USD 2.8 billion — the worst result in five or six years. The findings are presented in AmCham Brasil’s latest Brazil-U.S. Trade Monitor, published this week.

Pandemic to blame?

The AmCham Brasil report singles out three leading factors to explain the sharp downturn in bilateral trade. “The combination of the severe effects of the economic crisis caused by the [COVID-19] pandemic, the fall in global oil prices, and trade restrictions in specific sectors – such as the steel industry, account for a large part of the contraction in bilateral trade,” explained AmCham Brasil’s executive vice president, Abrão Neto.

Neto went on to say that the delayed effect of the pandemic on imports was due to the customs clearance of orders made and shipped before the crisis continuing to be carried out in the early stages of the pandemic. Furthermore, a large part of Brazil’s trade with the U.S. is made up of intra-company exchanges, which may have taken some time to reflect the drop in demand.

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“It was a severe blow for bilateral trade, but our assessment is that the worst is behind us,” said Neto. AmCham Brasil is confident in the recovery of international goods and services trade, and of the demand this will bring to Brazilian and U.S. exporters.

Amid the unforeseen COVID-19 crisis, another factor set to reclaim importance is the trade war between the U.S. and China.

“This will continue for some time and the entire world is factoring it into the equation as a variable,” said Neto. However, it is stressed that tensions between the two countries are unlikely to be specifically crucial in Brazil-U.S. relations, but it will have an effect on global trade as a whole.

In September of last year, the International Monetary Fund (FMI) predicted growth of just 0.8 percent for the global economy in 2020, as a result of the China-U.S. trade war. This, of course, was before the COVID-19 pandemic came to decimate all forecasts for this year.

Brazil’s export portfolio to the U.S. — with 87.2% comprising products with higher added value — goes some way to explaining the fall in trade seen in 2020. For instance, the trend is drastically different in Brazil-China trade, which saw an uptick due to agricultural commodities.

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The one commodity that did have an influence on Brazil’s trade balance with the U.S. was oil, prices of which have yet to return to pre-pandemic levels after collapsing in March. In total, oil and fuel makes up for 8.9 percent of all Brazilian exports to the U.S.

This Monday, Brazil and the United States representatives will sign a package of trade facilitation measures that includes topics to reduce bureaucracy, good regulatory practices, and an anti-corruption protocol.

Still far from the trade agreement with the Americans that Brazil’s Economy Minister Paulo Guedes has announced at the beginning of Jair Bolsonaro‘s government, the agreement is being seen as an important first step to something bigger.

This article was originally published on The Brazilian Report, a website that explains Brazilian politics and economics to foreign audiences.