Brazil-China: Caution is Necessary

The Chinese embargo on Brazilian meat began on September 3, 2021, and it is uncertain whether it will last until the end of the current government, following unfriendly statements from circles connected to the current president. To make matters worse, even if China faces shortages and resumes buying Brazilian meat, it is unclear whether the livestock sector will be able to meet the demand, as the pandemic led to a decrease in slaughters and fewer animals were confined. It was not only the livestock sector that halted its activities either partially or entirely. All sectors experienced reductions, including cargo transportation and logistics. The prediction is that normalization will only come with the end of the pandemic. On the other hand, there was a significant growth in e-commerce since people could hardly go out on the streets as usual. This substantial increase in electronic sales ended up favoring China, which is currently the world’s largest exporter. As a result, many goods accumulated in port warehouses, leading to a shortage of empty containers, further disrupting the economy. In other words, due to the lack of available containers, many exporters or importers cannot move their production as they did before the pandemic, resulting in cargo buildup and global shortages. As a consequence, the cost of maritime freight has also skyrocketed, to the point where the cost of bringing a 40-foot container from China to Brazil now reaches $10,500, whereas before the pandemic, this process did not require more than $1,500. South America, as it is outside the most important shipping routes, accounts for just over 1% of globally moved containers, and the route to this part of the world has made freight more expensive. As a result, importers and exporters lose competitiveness, leading to losses in the cargo transportation and logistics sector, responsible for moving these products from ports to the interior of the country and vice versa. To get an idea of the losses that may result from the Brazilian government’s unfriendly diplomacy with the Asian country, it is enough to remember that, according to data from the Ministry of Economy, more than 99% of Brazil’s imports from China are products of the manufacturing industry. In other words, Brazil predominantly sells low-value-added commodities and imports manufactured products. Nevertheless, since 2009, China has been Brazil’s main trading partner, and trade relations between the two countries have become increasingly intense. It is true that in the first two years of the Bolsonaro government, commercial dynamics were not affected by diplomatic tensions. Brazilian sales have focused on three products: soybeans, oil, and iron ore, which account for almost 80% of Brazilian exports. In contrast, more than 99% of Brazil’s imports from China are products of the manufacturing industry, which is a reflection of mistakes accumulated by successive Brazilian governments that did not know how to favor the industrial sector, allowing it to deteriorate. What still keeps the economy afloat is that Brazil is the world’s leading soybean producer, followed by the United States and Argentina, which together account for about 80% of global production. Among the largest consumers in the international market are China and the European Union, representing about 71% of global imports. However, China is by far the world’s largest consumer and importer of soybeans, accounting for 61% of global imports. The hope is that the post-pandemic economic recovery will continue to increase global demand for primary products in the coming years, especially in China and the United States, which grew by 6% in 2021, according to some analysts. This will benefit producers like Brazil through the appreciation of commodity prices that have a strong impact on the trade balance.

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Liana Lourenço Martinelli, lawyer, postgraduate in Business Management and International Trade, is Manager of Institutional Relations at the Fiorde Group, composed of Fiorde International Logistics, FTA Transport and General Warehouses, and Barter International Trade. Email: fiorde@fiorde.com.br. Website: fiorde.com.br

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