Brazil’s manufacturing trade deficit hits record $38.2 bn

The Brazilian manufacturing industry ended the first half of the year with a trade deficit of $38.2 billion, the deepest since official records began in 2000. From January through June 2025, the deficit was $37 billion, now the second-largest in the series. The industry’s performance in the first half of this year contrasts with the country’s overall trade balance. Driven by commodity exports, Brazil’s overall trade surplus reached $49 billion from January through July and is expected to exceed the surplus projected at the start of the year in 2026.

The manufacturing industry did see a rebound in aircraft exports in the first half of the year, with shipments recovering to pre-pandemic levels after seven years. This pushed the segment’s trade deficit to nearly one-tenth of the level recorded from January through June 2025. Other industrial segments, however, posted their steepest first-half deficits since 2000, mainly due to record import levels. These included pharmaceuticals, electronics, vehicles, trailers and bodies, rubber and plastic products, and textiles, apparel and footwear, according to data from the Institute for Industrial Development Studies (IEDI).

For Rafael Cagnin, chief economist at IEDI, the record trade deficits reflect Brazil’s technological gap in several industries, driving higher imports ranging from medicines to electronics and electric vehicles.

IEDI data show that at least one segment posted a record trade deficit in each of the four groups into which manufacturing is classified by technological intensity, from high technology to medium-low, as well as medium-high and medium technology. In the less technology-intensive groups, Cagnin said, the issue is the competitiveness of Brazilian production, which faces imports manufactured on a large scale and at lower costs, as in rubber and plastics and textiles, apparel, and footwear. The impact of oil prices following the outbreak of the conflict in the Middle East also made a difference in some industries.

The manufacturing industry’s trade deficit from January through June resulted from $94.7 billion in exports, up 7.1% from the same period in 2025. Imports grew at a slightly slower rate of 5.9% over the same period, but from a larger base, resulting in $132.9 billion in foreign purchases.

Despite the widening trade deficit in manufacturing, Cagnin highlighted some positive developments. In the high-tech group, exports surpassed the pre-pandemic level of 2019 for the first time. The group posted $4.4 billion in shipments in the first half, up from $3.3 billion a year earlier and slightly above the $4.3 billion recorded in 2019, in each case for January through June.

The recovery was driven largely by aircraft exports, which reached $2.8 billion in the first half of the year, up 52.9% from the same months of 2025. That performance drove a 33.1% increase in exports by the high-tech group. The increase in exports was accompanied by a 52.5% drop in aircraft imports. The combination still resulted in a trade deficit of $600 million, but that was far below the $5.4 billion deficit recorded in the first half of 2025.

“There is clearly momentum at Embraer that is helping offset a very competitive market, with airlines facing several challenges, including oil prices and their impact on fuel costs. But the company’s portfolio and problems faced by other international aircraft manufacturers have allowed Embraer to advance. That is good news. We are better integrated into the global supply chain in aircraft.”

Even so, Cagnin noted, the high-tech group’s trade deficit remains elevated. “Compared with the pre-pandemic period, the deficit is almost 80% larger.” This is related to increased imports in the other two segments that make up the high-tech group: electronics, whose imports reached a record $15.1 billion from January through June, up 14% from 2025 and 45% from 2019. Pharmaceutical imports reached $9.1 billion, also a record, up 13.9% from 2025 and more than double the $4 billion recorded in 2019, in each case for the first half. Combined, the three high-tech segments posted a trade deficit of $23.2 billion in the first half, slightly below the $25.1 billion recorded in 2025 but well above the $13 billion deficit in 2019.

“Pharmaceuticals and electronics are two very telling areas of the trade balance when it comes to the pace of innovation in these industries around the world versus what we have in Brazil, given the difference in production structures. As robust and dynamic as Brazil’s pharmaceutical industry is, it is still far from keeping pace with the innovation taking place elsewhere in the world,” Cagnin said.

The medium-high-tech group also reflects Brazil’s technological gap, he said. According to IEDI data, the group posted a $45.4 billion trade deficit in the first half, wider than the $40.4 billion deficit in the same period of 2025 and more than twice the $22.4 billion recorded in the same period of 2019. Cagnin highlighted the vehicles, trailers, and bodies segment, which posted a $10 billion trade deficit from January through June, the largest since official records began. The deficit was $4.8 billion in the same period of 2025 and $2.6 billion in 2019.

“These are EVs coming from China. There is significant short-term variation due to imports being brought forward ahead of Brazil’s schedule for raising tariffs, but the increase in imports over time also reflects a technological transformation in the product. It is the same issue seen with medicines and electronics, which is increasingly being reflected in the country’s foreign trade relations,” Cagnin said.

Vehicle imports, he said, are putting pressure on Brazil’s transition toward electrification as part of the decarbonization of transportation, even though the country is a major biofuel producer.

“Electrification will certainly be part of the energy transition, but it is not the only technological path. I believe that for some time we will have more than one solution for this decarbonization process.”

He said Brazil needs to facilitate “matches between supply and demand and create the infrastructure needed to strengthen the biofuel technology pathway.” “This could also be used as an export advantage, which will require competitiveness. The influx of EVs, especially from China, is strengthening a specific technological pathway that is not the one Brazil has committed to and has historically pursued.”

Another negative factor for the manufacturing trade balance, Cagnin said, is the medium-technology group, which posted a surplus but one that was relatively small compared with its performance in previous periods. The group ended the first half with a $1.6 billion surplus, up from $577 million in 2025 but below the $2.9 billion surplus in 2019, in each case for January through June.

Within the group, rubber and plastic products posted a record $2.7 billion trade deficit in the first half of 2026, wider than the $2.1 billion deficit a year earlier and more than twice the $1.3 billion deficit in 2019. Imports by the segment also reached a record $4.1 billion in the first half of this year. Cagnin said the segment faced strong upward pressure on import prices, driven by higher oil prices amid the war in the Middle East and the pass-through of those increases along downstream commodity-product supply chains.

The only manufacturing group to post a significant trade surplus, medium-low technology ended the first half with a $28.8 billion surplus. A record for the series, that was more than double the $13.6 billion surplus in the same period of 2019.

Within the group, Cagnin highlighted the reduction in the trade deficit for petroleum products, also influenced by the effects of the war. “The deficit in this segment has fallen 40% from the pre-pandemic period, largely due to higher exports, which were two and a half times the level recorded in the first half of 2019. The segment also showed strong momentum in 2026, with exports nearly 30% higher than in the same period of 2025.”

Even within this group, which posted an overall surplus, textiles, apparel, and footwear recorded a $2.5 billion deficit from January through June, the largest for the period, compared with a $1.9 billion deficit in 2025 and $1.1 billion in 2019. The deficit in this segment, Cagnin said, stems from structural problems with labor productivity that favor imports. Foreign purchases totaled $3.9 billion in the first half of 2026, a record for the period. “It is also related to the so-called ‘blusinhas tax’ and sales through digital platforms,” he said, in reference to the elimination of the tax on international purchases of up to $50.

Source: Valor International

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