China outranks Brazil as top exporter to neighboring countries

China gained ground in supplying products to Brazil’s neighboring countries compared to before the pandemic. Considering the five largest economies in South America after Brazil – Argentina, Colombia, Peru, Chile, and Ecuador – China has grown its share in all of these markets between 2019 and 2022, becoming the top exporter in many of them.

Last year, Chinese products accounted for at least 20% of imports in all five countries, with three of them exceeding 25% – Peru, Chile, and Ecuador. Brazil has increased its market share in three destinations in the same group of countries since 2019. Brazil’s participation rate is less than 10% in the same five countries, except for Argentina, which provided 19.6% of imported products last year.

From 2019 to 2022, Brazilian products lost ground in Argentina, where, besides losing market share, China also took over Brazil’s historical position as the top exporter during the pandemic. There was also a decline in market share in Ecuador, where another Asian country, South Korea, closely follows Brazil.

The United States, also an important exporter to the region – accounting for at least 20% of imports in four of the five markets -advanced its economic participation in three countries in the same period. Americans lost market share in Colombia, where they still lead, but were only ahead of China by 0.1 percentage point of participation last year. In the Argentine market, the share of imports from the United States is practically the same as in 2019.

China exported a total of US$ 81.4 billion to the five countries in 2022, followed by Americans with US$ 71.2 billion. Brazil sold a total of US$ 36.3 billion in products to the same group of countries.

These numbers were compiled by Valor based on official data from the five South American countries. According to the Foreign Trade Secretariat (Secex/Mdic), Brazil sold a total of US$ 34.1 billion to the previously mentioned five countries in 2022. The difference in data occurs due to a gap between shipments and landings and specific methodological criteria. Brazil, for example, uses Free on Board (FOB) value, while some neighboring countries, such as Chile, Colombia, and Argentina, use Cost, Insurance, and Freight (CIF). The difference is that values such as freight and insurance are not included in FOB values but are part of CIF values.

Please find below a chart displaying the evolution of Brazil’s containerized exports to Argentina, Colombia, Peru, Chile, and Ecuador between Jan 2019 and Feb 2023, according to the DataLiner data service.

Brazilian container exports | Jan 2019 – Feb 2023 | TEU

Source: DataLiner (click here to request a demo)

José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), says that the data reflects the loss of Brazilian competitiveness in exporting manufactured products to South American countries. Even with a greater logistic advantage due to geographic proximity, Brazil has not been able to gain much more space in South American imports than the Chinese. “The data shows that distance is not a hindering factor for China to become the top exporter to the region,” he says.

“The data shows a trend opposite to that of nearshoring and friendshoring,” says Rafaela Vitória, chief economist at Banco Inter, referring to strategies in which closer or more reliable trading partners are sought. For her, Brazil could advance in regional trade by rethinking strategic partnerships, similar to what the United States has done regarding Mexico and Canada.

For Castro, the trade situation with the neighboring countries will only change if there is a reduction in production costs for the Brazilian industry. Otherwise, the supply of the sector will remain dependent on the domestic market. “Brazil needs to look more carefully at its neighborhood, which is still the major Brazilian market for manufactured goods, without which we would be exporting only commodities.” According to him, Brazil’s presence in neighboring markets would be worse if it were not for commodities, whose price increase favored exports in recent times.

South American markets are major buyers of manufactured goods such as automobiles, auto parts, and components, as well as tractors, agricultural equipment, and iron and steel products, but they have also been absorbing a larger share of Brazilian commodities in recent years.

According to data from Secex, crude oil was the top item in Brazil’s export agenda to the same five South American countries in 2021 and last year. In 2022, Brazil sold these neighbors $3.76 billion worth of crude oil and bituminous minerals, about $500 million more than it sold in passenger cars. In 2019, the situation was different. Vehicles were at the top of the list, valued at $2.91 billion. Oil was in second place, but with a wide margin compared to cars, with total sales of $1.2 billion.

Livio Ribeiro, economist, partner at BRCG consulting, and researcher at the Brazilian Institute of Economics at Fundação Getulio Vargas (FGV Ibre), highlights that the leadership of oil in Brazilian shipments to the five countries last year also reflects Brazil’s rise in the global production and export rankings of the commodity.

“Today, we are among the top ten global producers and exporters of oil, a position we did not have ten years ago. This can make a difference not only in the trade balance but also from a fiscal point of view because it can generate greater revenue for the country,” says Ribeiro. He notes, however, that Brazil does not influence oil prices, which exposes the country to the ups and downs of commodity prices, affecting the viability of the expected increase in production. “Oil is a gift from heaven, but this is not risk-free and increases the volatility of expected revenue.”

Beyond the oil issue, Ribeiro says there is a reduction in Brazil’s share of industrial goods imports by South American countries. The best example, he says, is Argentina, a market in which, even with favorable conditions created by Mercosur, Brazil has lost “prominence” to China as a top exporter, displacing Brazil in supplying medium- and high-complexity goods worldwide. And this is also happening, he says, in traditional Brazilian markets for this type of product.

“The Brazilian industry of medium and high complexity has nowhere to settle in the world,” Ribeiro evaluates. “In general, the Brazilian industry is not competitive enough to deal with big players, not innovative enough to bring change to the market, and has high costs.”

For Rafaela, from Banco Inter, high taxation on production and labor is one of the challenges for greater competitiveness in the manufacturing industry. Therefore, she says, tax reform, with the adoption of a Value-Added Tax (VAT), along the lines of what the federal government defends, is a priority for the country.

Source: Valor Econômico

To read the original news report, please check: https://valor.globo.com/brasil/noticia/2023/04/18/china-avanca-mais-na-venda-a-vizinhanca-brasileira-1.ghtml

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