In early April, Brazilian President Lula da Silva traveled to Shanghai and Beijing to meet with Chinese President Xi Jinping to deepen the relationship between the two BRICS (Brazil, Russia, India, China, and South Africa) countries. While there, they signed 15 bilateral agreements on trade, agriculture, information sharing, and technology. These agreements will deepen the trade relationship between Brazil and China, the country’s largest trading partner, and push both nations further away from United States trade alliances by decreasing reliance on U.S. financial institutions, trade regulations and sanctions, and U.S. agricultural goods.
U.S. Financial Institutions
A long-held dream of Lula is to create a unified currency amongst Brazil and other South American countries, similar to the Euro. This new legal tender would serve as the currency of trade in the region, instead of the global reserve currency, the U.S. Dollar.
China has also been pushing for decreased reliance on the USD as a reserve currency and has been pushing for their Chinese Yuan (RMB) instead. In March, they achieved this, with the majority of cross-border transactions being completed in RMB for the first time.
Both of these policies aim to decrease reliance on the USD as a currency of trade and increase the standing of domestic currencies in comparison to the dollar. Any China-Brazil trade deals signed will likely be transacted in the RMB or the Brazilian Real to decrease reliance on U.S.-led financial institutions. It is also possible that these transactions will go through the Chinese CIPS clearing system instead of Western-controlled SWIFT, decreasing the need for the dollar even further.
Trade regulations and Sanctions
China is Brazil’s largest trading partner and offers Brazil opportunities that would be hard for the U.S. to replace. Maintaining a positive relationship and being able to maintain a sufficient level of trade is very important to Brazil’s overall economy.
According to the Brazilian Report, “Brazil and China agreed to form a working group to facilitate bilateral trade. The group will study ways to “avoid unnecessary barriers to trade”. These ‘barriers’ could refer to U.S. or international sanctions and tariffs that could limit the trade relationship between Brazil and China. This working group will likely aim to develop new trade routes that can avoid U.S. ports and other controlled areas. These will mainly be to avoid tariffs that can increase the cost of trade and will not blatantly break sanctions, which could invoke a U.S. response.
U.S. Agricultural Goods
Despite having the largest population, China does not have a large amount of arable land, with deserts, mountains, and steppes taking up much of the country’s interior. This lack of arable land means that China must import large amounts of food to feed its population.
Historically, the U.S.’s largest exporting sector to China has been agricultural goods such as corn and soybeans. Chinese corporations have also bought large swaths of American farmland and agricultural companies with Chinese government-backed loans.
However, since the U.S.-Chinese trade war began, China has been looking for alternative sources to feed its population. Brazil has reaped the most from this, exporting over $40 billion of agricultural products in 2022 to China.
Brazilian beef exports to China are also expected to increase after a voluntary pause due to an outbreak of atypical mad cow disease in some processing facilities. China agreed to resume beef imports in late March and is looking forward to importing more.
Overall, through each of these agreements, Brazil and China are challenging U.S. financial institutions, agricultural exports, and U.S. trade regulations and sanctions. They are achieving this by transacting in RMB and Brazilian Real for trade agreements, substituting Brazilian agricultural goods and developing alternative trade practices. Led by the founding principles of BRICS, Brazil, and China are creating competition for the U.S.-led World Order.
