Volume 43, Number 168,
January-March 2012
Threats and Opportunities for Brazil's Trade
with China: Lessons for Brazil
Fernando Augusto Mansor de Mattos and Marcelo Dias Carcanholo
CONCLUSIONS ( ...continuation )

Furthermore, the Brazilian exchange rate, which has been excessively devaluated for many years, exacerbates the country's structural difficulties in generating productivity differentials in economic activity. The few sectors that have achieved advances in productivity, in general, have been supported by employment reduction strategies and/or marginal increases in salary reduction costs, facilitated by an excessively flexible labor market, favoring entrepreneurs. There has not been any significant improvement in productivity gained from investment contributions to science and technology, or from innovations strategies.

The Brazilian government has recognized the difficulties facing industry, particularly with regard to foreign competition and has recently launched a package of measures32 -generously self-entitled "industrial policy" - which in reality superficially touches upon some features related to industrial competitiveness and the problems associated with refocusing Brazilian exports. This package is no more than a list of intentions, without much practical effect, because firstly it does not include measures that effectively change the two prices that are most important to the economy (the interest rate and exchange rate, both interdependent and at current levels unfavorable to production, employment and industrial competitiveness). Secondly, the package does not indicate important changes to the national system of technological innovation, to strategic industrial activity and to the expansion of public investment in infrastructure.

This study supports the conclusion that significant growth in foreign trade, particularly within the Latin American market, will increase the competition between Brazilian industrial production and Chinese manufacturing products. China, as both a giant economy, and the most dynamic in the world at this time, promotes more than any other country or economic block, important changes in the make-up of Brazil's imports and exports, once many activities in the structure of the country are concurrent. Furthermore, as we have seen, Brazil has still not managed to build an economic strategy or a new internal political settlement to face the questions related to her loss of competitiveness on the international commercial stage. It is also important to note that Chinese expansion will continue to affect the foreign trade profiles of all other Latin American countries.

It is also clear that the sectors in which China has increased her historic competitiveness (such as labor intensive sectors) and the sectors in which she has built increasing foreign competitiveness33 in the last three decades at least (such as technology intensive and scale intensive sectors) have had powerful effects on Brazilian industrial activity. These effects are apparent both in the penetration of Chinese imports within the Brazilian domestic market, significantly increasing the weight of apparent consumption in Brazil, and in the limiting of the external market to Brazilian exports in certain industrial sectors. In this respect, as mentioned previously, the data in the first two sections of this study clearly corresponds to the data highlighted in the third and fourth parts.

This difference between Brazil's and China's performance is a direct result of a lack of strategy in Brazil, apparent in the lack of public investment in infrastructure, in action more effective on the international geopolitical stage and in something close to a national system of innovations, factors which together limit gains in productivity in economic activity, and therefore the competitiveness of Brazilian industry on the international stage.

32 See the so called "Plano Brasil Maior" on the Ministry of Development website: http://www.brasilmaior.mdic.gov.br/oplano/medidas

33 For Chinese economic strategy in the last three decades, see: Medeiros (2006; 2010); Oliveira (2005), among others.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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