Brazil breaks record for exports, most dependent on China and trio of commodities

Celebrated by the government, the succession of records in the trade balance diverts attention from Brazil's difficulty in diversifying trade with the rest of the world. To reach the historic mark of US$339.7 billion exported in 2023, Brazil relied, as few times before, on China and its inexhaustible appetite for commodities.

After the interruption of the trend in the previous two years, explained by the strict zero covid policy, determined by Beijing even when the rest of the world was relaxing pandemic restrictions, China's dependence on Brazilian exports rose again in 2023. The country, according to shows the final balance of last year, it was the destination of 30.7% of the total Brazilian products shipped.

When you add to the account the Southeast Asian markets that are in China's zone of influence – such as Malaysia, Thailand, Vietnam and Indonesia -, in addition to Singapore, a port hub in Asia, the combined percentage of direct exports and economies whose growth is linked to the Asian giant rises to 37.9%.

For foreign trade experts, even with the Chinese economy's tendency to slow down, this commercial dependence is not a cause for concern for now.

Brazil, they assess, should continue to be a pillar of China's food security, at the same time that the expansion of the Chinese middle class opens up opportunities to enrich the agenda with its largest trading partner.

Market forecasts for this year point to exports remaining at a level close to the 2023 record, with also optimistic projections – of growth in international sales – for the next three years.

There will be problems, however, if the commodity cycle, currently favorable to Brazil, turns around, as other products do not have the same competitiveness and scale to enter international markets. “In the medium and long term, it is difficult to depend so much on commodity exports to a single country, it would be better to export products with higher added value”, comments João Ferraz, economist at Coface.

In the last two decades, the path taken by Brazil was in the opposite direction to the diversification and qualification of its exports, both in products and destinations. While the extractive industry and agriculture expanded production to serve, above all, China, the processing industry lost space to competition from China itself in neighboring markets, as well as having to face successive crises in Argentina, an important overseas market for machines and consumer goods, including automobiles, produced in Brazil.

As a result, soy, iron ore and oil, the three products most sold by Brazil abroad, together now account for 37.2% of Brazilian exports – until 18 years ago, they did not exceed 10%. On the other hand, products from the manufacturing industry, a vast and diverse range that ranges from food to aircraft, fell to 52.2% last year. In the statistical series from the Secretariat of Foreign Trade (Secex), started in 1997, the latest data on the industry's share in Brazilian exports is only no worse than that recorded in 2021 (51.3%), when production was affected by the lack of components in factories.

“We have to hope that the tax reform will reduce Brazil’s cost as quickly as possible and, thus, open up the prospect of an increase in exports of manufactured products”, says the president of the Brazilian Foreign Trade Association (AEB), José Augusto de Castro .

With the creation of VAT, the value-added tax, the reform will eliminate tax residues that undermine the competitiveness of Brazilian products abroad.