Brazil Likely to Increase Barriers to Chinese

On March 8, 2012, the Brazilian Ambassador to China, Clodoaldo Hugueney, declared that Brazil will intensify its protectionist measures on Chinese imports, which totalled $3 billion in January 2012. Brazil’s main protectionist instrument is anti-dumping safeguards that the government implements, rather than first going to the WTO. From the 90 antidumping cases currently in place, 31 are on Chinese goods. These measures are very effective as Brazil does not recognize China as a market economy and refuses to be involved in disputes with China at the WTO. So far China has not sued Brazil at the WTO, but Brazil’s increasing protectionism will likely change this conciliatory approach.

Brazil’s selective protectionism has created incentives for China to export goods via other Asian and South American countries. In February, in order to tackle this trade triangulation, in February Brazil imposed a tax of $5.22 per kilo on blankets manufactured in China but imported from Uruguay and Paraguay, which formed (with Brazil and Argentina) the Mercosur trade block. The Uruguayan Minister of Industry and Energy Roberto Kreimerman has acknowledged the triangulation and has begun negotiating measures to tackle cheap Chinese imports. As protectionism rises at the Mercosur level, the most likely new targets of Brazil’s trade barriers are footwear imported through Indonesia and Vietnam.

China and Brazil depend too much on each other to impose broad trade barriers. Instead, Brazil will likely tackle cheap manufacturers, and China will likely retaliate in the iron ore sector. China’s recent refusal to accept iron ore delivered by Brazilian firm Vale’s ships illustrated this change in tactics. Chinese demand for iron ore is falling, which suggests that China is more likely to impose barriers on that commodity rather than grains and oil, which is in demand in the growing Chinese domestic market.

Brazil’s imports from China increased 17-fold in the 2000s and reached the level of US imports in 2011, at 15% of the total. Most of these Chinese goods have low unit prices, such as textiles and footwear. Chinese firms have been pricing out Brazilian companies, which are large employers with influential lobby groups. These lobbies have pressured the government into an aggressive trade policy despite Brazil’s bilateral trade surplus, which reached $13 billion in 2011. China almost exclusively imports commodities (soya, iron ore and oil) and is perceived in Brazil as one of a key drivers of de-industrialization.

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