I put the leading markets to show that it is not Peoria to blame for the downturn. Message 25393381
downturn is likely primarily a result of the country’s deteriorating trade relationship with Argentina.
Although the decline in industrial production is a result of the global economic downturn, much of the slump in exports is attributable to the collapse in Brazil’s trade relationship with Argentina — a development that offers Brazil the opportunity to diversify and reorient its trade relationships toward more reliable long-term partners.
From September 2008 to the end of December 2008, the trading relationship between Brazil and Argentina crumbled. Brazilian exports to Argentina fell 43 percent, with the slump hitting the industrial sectors hardest.
ELMAT: Industrial sector is 1/3 of Brazil's economy
This fall in demand has caused Brazil’s industry to pull back sharply on its production levels and re-evaluate its options. The reality is that Argentina has proved to be an unreliable trading partner, with its economic incoherence accelerating rapidly over the past decade.
Given that Argentina is Brazil’s second-largest export market, the decline in the reliability of this relationship will force Brazil to find additional markets for its exports, and quickly. But these things are more easily said than done, and Brazil will face a number of challenges as it pushes forward.
Brazil: A Geopolitical Opportunity Amid the Downturn
February 3, 2009 | 2047 GMT
Industrial production in Brazil has declined 19.8 percent since September 2008, according to data released by the government Feb. 2. The dour economic news spells difficult times ahead for Brazilian industry. But given that the downturn is likely primarily a result of the country’s deteriorating trade relationship with Argentina, this might be an opportunity for Brazil to diversify its economic partners.
Analysis
Brazilian industrial production declined 19.8 percent from September to December 2008, according to data released recently by the Brazilian Institute of Geography and Statistics, The Associated Press reported Feb. 3. The news comes in the wake of data showing that Brazil saw a trade deficit of $518 million in January for the first time since 2001, down from a trade surplus of $2.3 billion in December.
Though the numbers look ominous for the South American giant, there is a silver lining. Although the decline in industrial production is a result of the global economic downturn, much of the slump in exports is attributable to the collapse in Brazil’s trade relationship with Argentina — a development that offers Brazil the opportunity to diversify and reorient its trade relationships toward more reliable long-term partners.
From September 2008 to the end of December 2008, the trading relationship between Brazil and Argentina crumbled. Brazilian exports to Argentina fell 43 percent, with the slump hitting the industrial sectors hardest. This fall in demand has caused Brazil’s industry to pull back sharply on its production levels and re-evaluate its options. The reality is that Argentina has proved to be an unreliable trading partner, with its economic incoherence accelerating rapidly over the past decade.
Given that Argentina is Brazil’s second-largest export market, the decline in the reliability of this relationship will force Brazil to find additional markets for its exports, and quickly. But these things are more easily said than done, and Brazil will face a number of challenges as it pushes forward.
First and foremost, all markets are not created equal. The goods (such as automobile parts and tractors) that Brazil exported to Argentina will not automatically fit other markets. And while exports to Mexico, China, Venezuela and Japan have been on the increase at the same time exports to Argentina have fallen dramatically, there is no guarantee — indeed, it is unlikely — that rising trade partners can take up all the slack from Argentina. Furthermore, Brazil’s industrial sectors will be forced to adjust the products they offer in order to meet the specific needs and demands of any new market(s). That requires capital and time for retooling industry, and capital and time are not exactly in deep abundance during a global recession.
The second problem is finding a welcoming market. The biggest markets on the international scene, the United States and the European Union, are both prone to fits of protectionism that have been exacerbated by the international economic downturn. The United States is in no position to open trade opportunities for Brazil in the wake of its recent political transition, and both markets would require lengthy and politically costly negotiations before a deal could be reached. Other markets around the world, such as Japan, might be more viable options for Brazil as it reaches out.
The real gains for Brazil, however, would be in Latin America. Although it would require a great deal of initiative on the part of Brazil, which historically has been a very inward-looking country with limited foreign policy goals, the search for new export markets could be a perfect opportunity to make serious strides in expanding non-Argentine trade links within Latin America.
Trade integration has long been a challenge for Latin America, as each country has generally opted to orient its markets toward major global economic powers — in particular toward former colonizing powers and the United States. Should Brazil lead a successful push toward higher levels of economic integration within Latin America, not only could the economic benefits be significant, but this would put Brazil in an unprecedented position of regional leadership. But first, Brazil would have to commit itself strongly to an aggressive, regionally focused multilateral trade agenda.
Brazil has been unable to pursue this kind of regional leadership previously (in part) because it was not until the economic reforms of the Cardoso administration eliminated runaway inflation in the late 1990s that Brazil’s economy began to come under control. Brazil’s vast internal market and enormous geographic buffers have made the country very inward-looking, and there has seemed to be little need for Brasilia to push itself into the international spotlight when there were so many problems (with crime, poverty, etc.) to deal with at home. President Luiz Inacio “Lula” da Silva is Brazil’s first president to make foreign relations and regional leadership important foreign policy goals.
But the need to revamp the kinds of goods it exports and find another market to replace Argentina means that Brasilia might now have an opportunity to step into the regional spotlight. In order to repair its trade relations, Brazil will have to do more than simply wait for the international economy to turn the corner. It must make some serious changes within its own system if it is to adapt to the apparent secular decline of Argentina.
Despite this challenge, Brazil starts out a step ahead of the game. The country already has a respectable industrial capacity — and it is much easier to tweak industry than it is to build it from scratch. Furthermore, Brazil has a burgeoning oil sector, which gives it enormous potential in developing high-tech industry in order to tap its extremely challenging oil and natural gas reserves. And even if Brazil fails at all of this, it is still a major commodity exporter, so when the international economy turns around again, Brazil will find itself with cash in hand from its already-developed primary product export sector.
This is not to say that the immediate future is rosy for Brazil, nor that the country is on the verge of launching itself to world power status. But the challenges it faces in the current downturn are also opportunities to break out of a reserved, introspective foreign policy, and emerge as a dynamic economic power with a firm grip on the leadership of its region. |
