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Potential Trade War with U.S. May Prompt China to Rely on Troubled Brazil

Supporters of Brazilian former president Luiz Inacio Lula da Silva gather in front of his house in Sao Bernardo do Campo, Sao Paulo state, Brazil as the Supreme Court of Justice in the capital, deliberates on whether he should start a 12 year prison sentence for corruption, on April 4, …
NELSON ALMEIDA/AFP/Getty Images

The likelihood of an all-out trade war between the United States and China may drive communist Beijing to increase further its reliance on top economic partner Brazil, Latin America’s largest economy.

However, Brazil currently finds itself reeling from the decision made by the nation’s top court to send former president and presidential frontrunner socialist Luiz Inácio Lula da Silva to jail for corruption.

Leftist policies under Lula’s tenure and that of his successor, impeached Brazilian President Dilma Rousseff, rendered China Brazil’s top trade partner.

Although pro-Beijing Lula remains the frontrunner for the upcoming presidential election, the socialist politician’s prison warrant may grant the victory to the second most popular candidate, conservative lawmaker and veteran Jair Bolsonaro, pushing Brazil to further to the right.

Center-right conservative Michel Temer took the Brazilian presidency following Rousseff’s removal.

Reuters notes:

China, whose demand for raw materials increased during rapid economic growth the past two decades, is already the top trade partner for countries ranging from Brazil, Latin America’s largest economy and the world’s top soybean exporter, to tiny Uruguay.

The trade fight [between Washington and Beijing], which escalated further on Wednesday with China targeting key American imports including soybeans, planes and cars in retaliation for proposed U.S. tariffs on US$50 billion in Chinese goods, has left Latin America in the middle, analyzing risks and opportunities.

Citing the Reuters article, the South China Morning Post points out that Latin America is caught in the middle of the trade dispute between China and the United, fearing that they will be forced to take sides.

Already, the trade argument appears to be benefiting Brazil’s soybean industry.

The cost of Brazilian soybeans, which analysts reportedly believe China will be forced to purchase now, hit a record high this week, making them the most expensive in the world.

Reuters reports:

China’s announcement of tariffs on U.S. products will boost South American agribusiness sales, especially Brazil’s soybeans, which are better placed to serve the Chinese in the midst of a record harvest, traders and analysts said on Wednesday.

Experts point out that this will mean firm prices for Brazilian producers and high premiums for Brazil’s soybeans, considering that the region will not be able to supply all the volumes demanded by China to eventually replace North American products that lose competitive prices.

The U.S. military and U.S. President Donald Trump’s administration as a whole have warned against China’s growing economic influence in Latin America.

Beijing is seeking to “pull the region into its orbit through state-led investment and loans,” Trump’s National Security Strategy notes.

Specifically, the U.S. military reported in February that China’s decision to expand its ambitious multi-trillion-dollar “One Belt, One Road” (OBOR) initiative to Latin America may create security vulnerabilities for the United States by allowing Beijing to expand its influence over the region.

“The larger strategic challenge posed by China in this region is not yet a military one,” Adm. Kurt Tidd, the top U.S. commander in South America, told lawmakers. “It is an economic one, and a new approach may be required to compete effectively against China’s coordinated efforts in the Americas.”

“Some of the most critical elements needed in this effort are not ones that [U.S. military] can bring to bear,” Tidd cautioned, noting that the American troops in the region need more resources.

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