China threatens Brazil’s captive market in South America

The survey released on August 1 by the Foreign Trade Association of Brazil (AEB) reveals that despite the resumption of positive results achieved from 2021 with the easing of the pandemic of covid-19, Brazil cannot consider South America a captive market for its exports.

That is mainly due to the growing presence of China, which has begun to take away Brazil’s place as the leading supplier in some countries, most notably Argentina and Chile.

“China is occupying all the space. South America is the third market for it,” said AEB’s executive president, José Augusto de Castro.

AEB’s research shows that the accumulated results in 2019, represented by export revenues of US$27.8 billion, were affected in 2020 by the pandemic, falling to US$22.6 billion.

With the easing of the health crisis, the following year, export revenues had a quick recovery, evolving to US$ 33.9 billion. This recovery continues in 2022, with an export revenue projection for Brazil in the South American region of US$ 41 billion.

COMMODITIES

Contrary to Brazilian exports to the world market, led by commodities (agricultural and mineral products), Brazil’s sales to South America are represented by manufactured products with higher added value. As for imports, commodities or products with little processing predominate.

“Our market for manufactured goods is South America. Europe and the United States buy manufactured goods [from Brazil], but very little. Asia doesn’t buy anything,” said Castro.

According to him, South American countries export commodities and buy manufactured goods from Brazil. Brazil is no exception to the rule, exporting commodities and buying manufactured goods in the foreign market.

The AEB’s CEO evaluates that Brazilian exports are growing because commodities are still at high prices in the international market.

“This generates more foreign currency for these South American countries and more purchasing power for imports. With this, the import revenue for these countries has increased for the world. That is opening up the possibility of importing more products from third countries.

“And as Brazil is the closest country, it has lower logistics costs, the possibility of transport by road, and the availability of containers. With these facilities, they buy from Brazil, which is closer than Europe and the United States.”

Except for Paraguay, due to electricity imports, and Bolivia, due to natural gas imports, the data shows that Brazil has a trade surplus with all other South American countries. Castro also emphasized that the negotiation power of Europeans, Asians, and even US-Americans makes the prices of their products higher than those practiced by Brazil for the South American region.

ARGENTINA

José Augusto de Castro said it is still too early to tell if the exchange rate measure recently adopted by Argentina will hinder imports made from Brazil. He said that if eventually, South American countries stop buying from Europe and the United States, they may come to buy from Brazil, which will not imply any drop in the country’s balance.

He believes it will be possible to start having a clearer sign of what will happen within two months. He pointed out that it is due to the great weight of road transport between Brazil and Argentina.

The main products exported by Brazil to South America are automobiles (11%) and auto parts (9.6%) to Argentina; fertilizers (5%), agricultural machines (4.6%), and automobiles (3.7%) to Paraguay; automobiles (8.2%), pick-ups (6%), beef (4.9%) and pork (4.5%) to Uruguay; oil (28%) for Chile; iron bars (10%) for Bolivia; oil (23%) for Peru; cars (16%) for Colombia; cars (9.1%), rolled products (6.9%), and polymers (5.1%) for Ecuador; and sugar (18%), vegetable fats and oils (17%), and edible products (11%) for Venezuela.

On the other hand, the main products purchased by Brazil from the region are pick-up trucks (20%), cars (12%), wheat (12%), electric energy (8.9%), from Argentina; electric energy (32%), and soybeans (11%), from Paraguay; pick-up trucks (11%), cereals (10%), plastic articles (9.6%) and electric energy (9%), from Uruguay; copper (44%) and whole fish (13%), from Chile; natural gas (88%), from Bolivia; copper (35%) and other minerals (19%), from Peru; coal (31%), coke (18%) and polymers (16%), from Colombia; lead (31%), from Ecuador; alcohols and phenols (45%) and fertilizers (31%), from Venezuela.

With information from Agência Brasil