It appears the new Brazilian President, Dilma Rousseff, is willing to take on China. The reason is the invasion of cheap Chinese products in Brazil which are having adverse effects on Brazilian industrial production.
The Ottawa Citizen reports today that the label 'Made in China' is causing an ever-greater backlash in Brazil as cheap imports "ravage manufacturers, putting pressure on new President Dilma Rousseff to fight back".
"While Brazil boasts one of the world's few pockets of robust growth, its emergence as an economic power masks deep, fundamental imbalances, especially in the manufacturing industry. From car parts to shoes and textiles, imports are flooding Brazilian factory floors and supermarket shelves.
Finance Minister Guido Mantega says Brazilian industry is being hurt by a global "currency war" with China, the United States and others pushing down the value of their currencies to boost exports. Brazil's currency, the real, has gained more than one-third against the dollar in a little more than two years, and imports from China have surged, climbing 60 per cent last year.
"The government won't remain passive or inert as our currency appreciates and harms our industry," Trade and Industry Minister Fernando Pimentel said when he took office earlier this month.
Rousseff has said she will prioritize some kind of tax reform and adopt large spending cuts to reduce government borrowing needs and help lower interest rates. However, with much of her political support linked to public-sector unions, Rousseff has expressed little interest in structural reforms such as cutting generous labour and pension benefits. She also defends a big state apparatus and is unlikely to lower the overall tax burden.
Brazil's problems highlight how this week's meeting between U.S. President Barack Obama and Chinese President Hu Jintao -- at which the issue of the yuan will be front and centre -- has reverberations well beyond those two countries' borders. Worried by Chinese policies, Rousseff is moving away from the stance of her predecessor and mentor Luiz Inacio Lula da Silva, who saw Beijing as more of an ally than an enemy in his effort to stem U.S. and European influence in Latin America.
Rousseff has pledged to raise the sensitive issue of the yuan during an April summit of the BRIC group of emerging economic powers: Brazil, Russia, India and China.
Rousseff could even seek closer ties to the U.S. to pressure China on the issue, one cabinet minister said.
Economic growth of around 7.5 per cent last year, due in part to high prices for Brazilian commodities, has partially masked the fallout from the overvalued real and the currency war, a termed coined by Mantega last year.
"This has been a silent war, hard to discern because of the overall growth, but, once you look at the numbers, it's alarming," said Rogerio Cesar de Souza with Iedi, an industry-financed think tank in Sao Paulo.
Industrial production has largely been flat since August of last year, and the trade balance in manufactured goods has swung from a surplus of $5 billion in 2006 to a deficit of $71 billion last year".
Chinese Imports Jump
Chinese imports actually jumped to $25.6B in 2010, up from $16B in 2009 and just $5.3B in 2005. China is now the second-largest supplier to Brazil after the United States, with around 80 per cent of its sales made up of manufactured goods.
According to Goldman Sachs, a main culprit is clearly the real currency, "which is the world's most overvalued currency".
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