One year ago, the victory of Jair Bolsonaro in the presidential election opened a big question in relation to the political and economic future of Brazil. Because of its incendiary rhetoric, ultra-conservative agenda and authoritarian tendencies, the attitudes and statements of the future president generated controversies in practically all areas of debate. In relation to foreign policy, during the electoral campaign Bolsonaro’s statements included the threat of withdrawing Brazil from the UN, the abandonment of the Paris Agreement, and the transfer of the Brazilian embassy in Israel from Tel Aviv to Jerusalem.
The case of the relationship with China was no exception. The history of actions and confrontational statements of the president-elect about the Asian giant were an element of uncertainty and concern about the future of the bilateral relationship. Among the attitudes that caused the greatest concern in the Sino-Brazilian realm was Bolsonaro’s tour of Asia during the election campaign, where he visited Japan, South Korea and Taiwan, excluding China from the list. At that time, the Chinese authorities expressed deep concern, saying that these attitudes could cause turbulence in the strategic partnership between China and Brazil. In the economic field, Bolsonaro made various statements hostile to the presence of Chinese investors in the country. After the first electoral round, Bolsonaro explicitly criticized the growing presence of the Asian giant in the Brazilian energy sector, stating that “China is not buying in Brazil, it is buying Brazil. Are we going to leave Brazil in the hands of the Chinese?“.
Paradoxically, one year later, it is clear that Bolsonaro’s policy towards China has avoided confrontation and has been characterized by a pragmatic approach. While it is known that the president has no sympathy for China (according to his vision, the Asian country represents a communist threat in the region), due to the importance that China has for Brazil in economic terms, Bolsonaro has been forced to accept the situation and adopt a policy of non-confrontation, and even rapprochement.
On the one hand, the business sector, mainly linked to agribusiness, has made an intense lobbying effort to avoid problems with China. A large part of the Brazilian business sector depends on the Chinese market to survive. China today is the first commercial partner of Brazil, accounting for approximately 20% of Brazilian exports. It should be noted that unlike other countries in Latin America, Brazil maintains an extraordinary trade surplus with China, between USD 15 and USD 25 billion annually. At the same time, Brazil is the main destination for Chinese investment in the continent, accounting for more than USD 20 billion in mergers and acquisitions over the recent years.
In a nutshell, China is a fundamental variable for the most important sectors of the Brazilian economy, from agriculture, mining and oil to infrastructure and financial services. The economic and political costs of adopting a confrontational stance could prove fatal for the Brazilian economy and the political future of Bolsonaro.
At the same time, the recent performance of the Brazilian economy has been sluggish, a fact that gives no margin to maneuver for any administration to adopt confrontational positions in the external front and alienate top economic partners. Much of the analysts hoped that after the 2018 presidential election the political situation would tend to normalize and therefore Brazil’s economy would begin to show signs of improvement. The truth is that approximately 12 months have passed since Bolsonaro became president and the economy has not shown signs of recovery. Brazil’s recent GDP performance has been as follows: 2015 (-3.5%); 2016 (-3.3%), 2017 (1%), 2018 (1%). 2019 is expected to end with more than one year of mediocre performance, with a growth rate of approximately 1%. The management of the economy is in the hands of Minister Paulo Guedes, who has centralized power and decision-making in this area. Formed by the “Chicago school”, Minister Guedes proposes an ultra-liberal agenda consisting of privatizations, commercial opening, and reduction of the State’s participation in the economy.
Bolsonaro´s visit to China in October
In the first months since his arrival to presidency, the main counterweight to any anti-China rhetoric within the Bolsonaro government is Vice President Hamilton Mourão, who has been characterized by a more developmentalist vision within the government, highlighting the importance of China to Brazil. Mourão traveled to China in the first half of the year in an attempt to mend ties between the two countries.
However, the main turning point in the relation between both countries was Bolsonaro´s visit to Beijing during October of this year. The visit fundamentally served the purpose of achieving a pragmatic consensus between both presidents. No particularly important announcement was made at the time, besides perhaps the expansion of Brazilian processed meat exports and the signing of a tourist and business visa waiver for Chinese citizens. However, the main political sign was Bolsonaro´s declarations, which left no doubt that he wanted to leave behind the confrontational language and accept the fact that China is a fundamental partner for Brazil. “Brazil needs China, and China needs Brazil” said Bolsonaro, and he later added that improving the bilateral relation was a top priority for his government. The message was delivered.
A month later president Xi Jinping traveled to Brazil to attend the BRICS summit. Once again, the occasion proved to be an important watershed to foster relations among both countries. A top business delegation from China attended the Summit, with several important investment announcements made, showing that China was also intending to enhance the bilateral relation with Latin America´s major economy. One year ago, it would have been almost impossible to foresee that relations between both countries would reach such a high point.
Brazil-China relations amid the US-China trade war
In economic terms, the commercial war against China by US President Donald Trump has until now benefited Brazil. China, which accounted for 20% of Brazilian exports prior to the start of the hostilities, increased its share to 26.8% in 2018. At the same time, during the first ten months of 2019, 76% of Brazilian soybean exports went to China. Having stopped buying agricultural products from the US, China bought more basic commodities from Brazil, mainly soybeans and meats. As China formalized its plans to take action against U.S. agricultural products, soybean premiums at Brazilian ports soared.
Brazil is already the world’s biggest soybean exporter with approximately 60 million metric tons. China is the world’s largest soybean consumer and remains heavily reliant on imports to satisfy domestic demand. In the current international scenario and ongoing trade war with the U.S, China´s reliance on Brazilian soybean imports is more important than ever. China’s tariffs may serve to accelerate Brazilian demand, as it could fill the gap left by the US.
However, in the last weeks, China agreed to restart buying US soybean. This generated concerns among the Brazilian government. If, as part of a trade deal, China agrees to buy a fixed amount of US agricultural products, this will clearly turn detrimental to Brazilian exports. Even more worrying is the fact that this kind of agreement could signal the beginning of a politically-charged trade order in the global economy. Like it or not, Brazil and the US are competitors in the Chinese market, as both are large agricultural exporters.
A second issue that influences the relation between China and Brazil amid the escalating tensions between China and the US is related to the technology field. Several US government officials have increased pressure on Brazil to reject Huawei investments in local 5G and IT infrastructure. This is particularly important because Chinese technology companies Huawei, ZTE, Dahua and Hikvision, all of them under some form of US embargo on accusations of putting national safety at risk, already occupy an important market share not only in Brazil but throughout Latin America.
In this context, there is growing consensus inside the Brazilian government that the country should adopt a posture of neutrality regarding the China-US trade dispute. This has already been signaled by public declarations of Bolsonaro. Despite his ideological affinity with the US, Bolsonaro has no other option than adopt a pragmatic posture regarding this issue.
However, in recent months, some frictions appeared between Brazil and the US. The US government didn´t support Brazil’s entry into the OECD, which apparently was part of a deal between Bolsonaro and Trump. Also due to domestic political problems, Bolsonaro had to withdraw the candidacy of his son Eduardo to be the Brazilian Ambassador to the US. Finally, last week Trump announced tariffs on Brazilian aluminium, stating that Brazil was intentionally devaluating its currency at the expense of US farmers. Nevertheless, some analyst and government officials interpreted the measure precisely as a retaliation for the “reconciliation” between Brazil and China.
In a highly complex geopolitical context and within a global economy transiting uncertain trends, for emerging countries the commitment to pragmatism seems the only way out. In the case of Bolsonaro, more by default than by virtue, and basically because he lacks maneuvering margins, his ultra-conservative ideology and rhetoric, at least in the case of China, will have to wait…
Picture credits: Alan Santos/PR