For the world’s 12th largest economy, the surplus represents a moment of growth. However, Ryan Berg, an expert on Latin American trade with the Center for Strategic and International Studies, told Newsweek the moment could be short-lived.
Brazil spent “lavishly” during the pandemic as it looked to avoid a major economic downturn like that experienced by its Latin American peers, Berg said. Right now, the country faces major inflation of nearly 11 percent, and Berg says investors are getting nervous.
Investors pulled roughly $2.2 billion out of the nation’s domestic hedge funds in October amid a rise in interest rates, Bloomberg reported. Berg said companies see that the country cannot continue its current level of spending and worry that leading 2022 presidential candidate and former president Luiz Inacio Lula da Silva will favor even more state economic intervention.
As the country heads toward economic uncertainty, the country’s largest trade partner, China, and its second-largest trade partner, the United States, could stand poised to expand their economic ties and influence within South America’s largest economy.
While China remains Brazil’s largest trade partner, exports from Brazil to China jumped by 28 percent in 2021 as opposed to the 45 percent jump in exports to the United States over that same period. Berg said this dynamic could move even more toward America’s favor as Brazil looks to reinvigorate economic growth by investing in more valuable trade assets.
“The U.S. really has a lot of that value-added trade with Brazil, a lot more manufacturing-oriented trade,” Berg said. “We call it value-added because it tends to have ripple effects in terms of the amount of jobs that it produces or the level of income that tends to lead to.”
While a large portion of trade between Brazil and China centers around raw commodities, like soybeans and iron, Berg said the U.S. has focused its attention on a few industries, including the telecommunication and tech sectors. This focus has resulted in the U.S. pulling ahead in the race with China in advanced areas of Brazil’s economy, like its 5G rollout.
After Brazil declared that it would introduce two separate 5G frequency bands—one for the government and one for everyone else—it stated Chinese telecom leader Huawei would not be involved in the government project, which Berg said resulted in western European and American countries coming ahead in securing contracts for the 5G rollout. If America keeps up this practice, it could further cement its importance within the Brazilian economy.
“(The U.S.) has done pretty well, quite honestly, in keeping China out of some of those industries,” Berg told Newsweek. “In terms of value-added, the type of skilled jobs that as a leader of a developing country (like Brazil) you want to create, the U.S., I think, has a much more impactful role.”
