Latam by issue » Summer 2012

IN NUMBERS: A new best friend

FlagsBrazil once had eyes only for the United States. Not any more, finds George Mitton.

Brazil’s principle exports have not changed much in recent decades. The country still exports coffee, soybeans and iron ore. Lately, it has added footwear and manufactured goods, such as aeroplanes, to this list.

What has changed, dramatically, is where it exports to. The United States was for years Brazil’s most important trade partner, accounting for almost 30% of exports in the late 1980s, according to the CIA World Factbook. But by 2010, this figure had declined to less than 10%.

A new challenger has become the prime recipient of Brazil’s output: China.

This shift has happened remarkably quickly. Just 13 years ago, China was not even in the top five export partners for Brazil. It was a less significant partner than Germany, the Netherlands and Japan. But by 2010, China was consuming 15% of Brazil’s exports.

The Chinese motive is simple: raw materials.

“Brazil is one of the world’s largest commodity producers, particularly in iron ore, which China needs in order to support its strong growth rate,” says Alan Ayres, product manager for global emerging markets at Schroders.

China needs iron ore to feed its prodigious appetite for steel, which is essential for the skyscrapers, factories and power stations that it is building in large numbers across the country.

The trade is not one-way, though. China’s growing importance as a consumer of Brazilian goods has been matched by its growth as a supplier.­

This, too, is a significant change. Back in 1999, China did not feature in the top five import partners of Brazil. Yet it is now the second-biggest importer into Brazil after the US, accounting for 14% of imports compared with 15% from the US.

However, there is some friction between the two powers. Brazil wants China to import not just raw materials, but value-added manufactured goods into the Chinese market and is lobbying for it to open up its market to these kinds of Brazilian goods.

Brazil is also concerned about the large quantities of low-cost Chinese-made goods that are imported into Brazil, as these are putting pressure on Brazil’s own industries. Brazil’s vice president, Michel Temer, and Chinese vice premier, Wang Qishan, met in February to discuss trade issues. As a result, Qishan said China was committed to progressively increase imports of Brazil-manufactured goods and endorsed some kind of voluntary moderation of exports.

The two countries also said they would pursue plans to settle direct trade in their own currencies instead of the US dollar, a development that would underline how the US has become a less significant player in this trading landscape.

What about the rest of Latin America? Mexico is the second-biggest economy after Brazil, but its exports are almost completely dominated by the US, which receives four-fifths of them. Mexico does, however, obtain 11% of its imports from China, though this is well below the 49% it recives from the US.

Argentina, the third-largest economy, sends most of its exports to Brazil, but China is its second-largest export partner, accounting for 9% of its exports as of 2010. This figure has grown in recent years, but not as fast as the corresponding figure for Brazil.

Colombia and Venezuela both send around 40% of their exports to the US. China is not a large export partner for Colombia though Venezuela sends about 5% of its exports to China.

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