This article explores the strategic partnership in trade and investment between China and Brazil. It explores the current challenges faced by Brazil’s agricultural and manufacturing sectors, both of which are severely impacted by relations with China. This article goes further to assess Brazil’s emerging position in the ongoing economic and technological race between China and the United States, shedding light on future developments in Brazil’s foreign policy and strategy.
BY Lara Maria Guedes Gonçalves Costa
The economic ties between the Federal Republic of Brazil and the People’s Republic of China are long-dated. Since Itamar Franco’s government in Brazil (1992-1994), there has been a “strategic partnership” between China and Brazil [1]. However, it was under President Lula’s two mandates in 2003 and 2010 that resulted in significant growth in the flow of trade and investment between the two partners [2]. When the global financial crisis severely impacted the West in the late 2000s, China became Brazil’s biggest export market, and remains so until today [3]. Despite a period of explicit ideological divergences between the Bolsonaro and Xi Jinping, the Sino-Brazilian trade remained strong [4]. For instance, in 2021, there was a historic peak of US$135 billion in trade between the two, China being responsible for 65 percent of Brazil’s trade surplus in that same year, becoming the largest trade income ever registered with a single partner [5].
Nevertheless, analysts have argued that Brazil lacks a consistent strategy toward China, thus failing to successfully implement its national interests of diversification and increased share of high-value-added products in Brazil’s exports [6]. Amidst technological advances and new geopolitical power structures, the South American country has been forced to diminish its overreliance on commodities and explore alternative opportunities for technological investments with its partners, including China’s adversary, the United States [7]. Therefore, it is important to shed a light on what a Brazil-China strategic partnership will look like in the upcoming years under Lula and Xi Jinping’s new terms in office.
New perspectives and realities
China’s approach towards Brazil is part of its larger strategy toward Latin America [8]. In 2008 and 2016, China’s Ministry of Foreign Affairs released two white papers with diplomatic strategies concerning Latin America, which included not only economic cooperation but also partnership in public policies [9]. In this regard, President Lula’s reelection represents a win for Xi Jinping regarding the BRICS (Brazil, Russia, India, China & South Africa) partnership and Global South cooperation, which in previous years, the leaders based on principles of solidarity and non-intervention [10]. However, in economic terms, the countries have new priorities and realities, which will require a revised strategic plan from both sides.
The Chinese government has expressed its intention to increase the number of suppliers in commodities. It is unlikely that China will achieve self-sufficiency in food production, especially regarding soybeans and meats imported from Brazil. However, in the long-term Beijing will not solely rely on its Brazilian partner to guarantee food security [11]. Moreover, Rosito and Carvalho (2022) drive attention to the fact that China is itself a global agricultural power, ranking among the world’s top agricultural exporters, thus not fully dependent on Brazil [12]. Therefore, in partnerships with China, there is a need for ‘greater domestic coordination from its economic partner countries in at least two aspects: to react to the potential or concrete impacts of Chinese commercial initiatives and to ensure the best outcome from cooperation with Beijing [13].’
This necessary strategy has been a challenge for Brazil domestically as its relationship with China is often perceived as controversial. Whereas agricultural exports benefit from Chinese markets, the Brazilian manufacturing sector competes with low-price Chinese products, creating an imbalance in trade with China [14]. Additionally, Trinkunas (2020) explains that Brazil has failed to conduct an efficient industrial policy, resulting in the de-industrialisation of its economy and the loss of well-paying positions in the formal sector [15]. Conversely, China has emerged as a great supplier of manufactured goods, exporting to Brazil electrical and mechanical machinery, which include telecommunication equipment, and organic chemicals and fertilisers important to agriculture [16].
Brazil is at the centre of the US and China’s interests
The United States approved, in 2022, the so-called Chips and Science Act, known as “Chips Law”, to stimulate the industry, lessen reliance on Asian nations, and keep the country ahead of China in the technological race [17]. As part of this foreign policy, the Biden administration has shown interest in investing in the semiconductor chain in Brazil since Lula’s reelection. Indeed, South America’s largest country would highly benefit from such an investment since it currently produces only 10 percent of the national demand for chips and semiconductors [18]. During the global shortage of semiconductors, many countries have become interested in diminishing their reliance on imports by fostering domestic production, including Brazil [19]. Notably, semiconductors are essential for the manufacturing sector, which is why analysts call for the Brazilian government to better develop and protect.
Nonetheless, accepting US investments represents a challenging position for Brazil in regards to Beijing. Since last year, Washington has established extensive export controls, prohibiting companies from selling chips, chip-production equipment and software containing American technology to China [20]. The countries that receive US funds for semiconductors are not allowed, for ten years, to expand their business with Chinese companies in the semiconductor sector, such as China’s Huawei [21]. Therefore, for a country like Brazil that has strong economic ties with the Chinese government, addressing investments from both Biden and Xi Jinping will require balance in diplomatic strategies. Indeed, such an American investment in Brazil would cause dissatisfaction from China, since Brazil has refused to engage in the Belt and Road Initiative (BRI), a Chinese initiative of great relevance to its international trade and diplomacy [22].
The reality is that Lula will find himself at the centre of a commercial and diplomatic “war” between Washington and Beijing in the upcoming years. Known for its neutral diplomacy, the Brazilian president is expected to maintain this posture but also to attend to the economic expectations of both the agricultural and manufacturing sectors domestically [23]. After his visit to the US in February 2023, where the semiconductor investment was addressed, Lula went further to meet with Xi Jinping in March. The agenda for the meeting included the diversification of export products from Brazil, industrialisation, technology, and climate crisis [24]. Most notable has been the deal struck between Brazil and China to trade using their own currencies, ditching the US Dollar as an intermediary [25]. It is also important to note that this diplomatic effort is important to rebuild Brazil’s foreign policy towards China, which was weakened under Bolsonaro’s administration and strong alignment with Trump’s policies and ideologies.
Conclusion
The strategic partnership between Brazil and China is still asymmetric regarding trade. Brazil currently faces challenges in its agricultural and manufacturing sectors, to which China may represent an ally or a threat. Under Lula’s new government, Brazil will attempt to tackle these issues by strategically negotiating not only with Beijing but also with Washington, thus becoming a key actor in the battlefield between the global powers.
References
[1] José Augusto Guilhon Albuquerque, “Brazil, China, US: A Triangular Relation?,” Revista Brasileira de Política Internacional 57 (2014): 108, https://doi.org/10.1590/0034-7329201400207.
[2] Ibid.
[3] Maurício Santoro, Brazil–China Relations in the 21st Century (Singapore: Springer Singapore, 2022), 30, https://doi.org/10.1007/978-981-19-0353-3.
[4] Gustavo A. Cardozo, “Brazil in Xi Jinping’s Foreign Policy and the Future of Brazil-China Relations,” Institute for Security and Development Policy, December 22, 2022, https://www.isdp.eu/brazil-in-xi-jinpings-foreign-policy/.
[5] Tatiana Rosito and Vinicius Mariano de Carvalho, “Brazil–China Trade Relations: In Search of a Strategy” (Lau China Institute, 2022),
https://www.kcl.ac.uk/lci/assets/ksspplcipolicypaper0122-brazil-china-trade.pdf.
[6] Ibid.
[7] Luis Barrucho, “Como Deve Mudar Relação Do Brasil Com a China No Novo Governo Lula,” BBC News Brasil, January 7, 2013, https://www.bbc.com/portuguese/brasil-64183029.
[8] Maurício Santoro, Brazil–China Relations in the 21st Century (Singapore: Springer Singapore, 2022), 24, https://doi.org/10.1007/978-981-19-0353-3.
[9] Ibid., 26.
[10] Gustavo A. Cardozo, “Brazil in Xi Jinping’s Foreign Policy and the Future of Brazil-China Relations,” Institute for Security and Development Policy, December 22, 2022, https://www.isdp.eu/brazil-in-xi-jinpings-foreign-policy/.
[11] Tatiana Rosito and Vinicius Mariano de Carvalho, “Brazil–China Trade Relations: In Search of a Strategy” (Lau China Institute, 2022),
https://www.kcl.ac.uk/lci/assets/ksspplcipolicypaper0122-brazil-china-trade.pdf.
[12] Ibid.
[13] Ibid., 10.
[14] Harold Trinkunas, “Testing the Limits of China and Brazil’s Partnership,” Brookings, July 20, 2020,
https://www.brookings.edu/articles/testing-the-limits-of-china-and-brazils-partnership/.
[15] Ibid.
[16] Tatiana Rosito and Vinicius Mariano de Carvalho, “Brazil–China Trade Relations: In Search of a Strategy” (Lau China Institute, 2022),
https://www.kcl.ac.uk/lci/assets/ksspplcipolicypaper0122-brazil-china-trade.pdf.
[17] The White House, “FACT SHEET: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China,” The White House, August 9, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/.
[18] Felipe Pontes, “Minister França Encourages Domestic Semiconductor Production,” Agência Brasil, April 28, 2022,
[19] Elis Barreto, “Governo Tem MP Pronta Para Trazer Fábricas de Semicondutores Ao Brasil, Diz Guedes,” CNN Brasil, September 22, 2022,
[20] Suranjana Tewari and Jonathan Josephs, “US-China Chip War: How the Technology Dispute Is Playing Out,” BBC News, December 16, 2022, sec. Business, https://www.bbc.com/news/business-63995570.
[21] Demetri Sevastopulo, “Chipmakers Receiving US Federal Funds Barred from Expanding in China for 10 Years,” Financial Times, February 28, 2023, https://www.ft.com/content/9f4f9684-088c-45eb-b6bf-962061bfea7b.
[22] David Sacks, “Countries in China’s Belt and Road Initiative: Who’s in and Who’s Out,” Council on Foreign Relations, March 24, 2021,
https://www.cfr.org/blog/countries-chinas-belt-and-road-initiative-whos-and-whos-out.
[23] Angelos Delivorias, “Brazil’s Economy: Challenges for the New President” (European Parliamentary Research Service, October 2022), https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/738196/EPRS_BRI(2022)738196_EN.pdf.
[24] Kellen Barreto, “Lula Vai à China Com 240 Empresários, Ministros E Parlamentares; Cerca de 20 Acordos Devem Ser Assinados, Diz Itamaraty,” G1, March 17, 2023, https://g1.globo.com/politica/noticia/2023/03/17/lula-vai-a-china-com-240-empresarios-ministros-e-parlamentares-cerca-de-20-acordos-devem-ser-assinados-diz-itamaraty.ghtml.
[25] “China, Brazil to trade in local currencies,” The State Council Information Office The People’s Republic of China, Accessed 05 April 2023, http://english.scio.gov.cn/internationalexchanges/2023-03/31/content_85203377.htm#:~:text=The%20deal%20will%20enable%20China,global%20use%20of%20the%20RMB.
