Balancing reindustrialization and expansion of trade agreements must be a challenge for Lula

The government of President Luiz Inácio Lula da Silva (PT) already begins with the challenge of rebuilding the foreign policy bridges shaken by former President Jair Bolsonaro (PL) and by Ernesto Araújo, the longest-serving Minister of Foreign Affairs in the last administration.

The PT’s promise to promote the country’s reindustrialization, however, may conflict with the expansion of trade agreements —seen by some as potentially harmful to the sector. For experts, balancing them will be a second challenge for the new government.

During the Bolsonaro government, Brazil was marked by offensive statements against China, the country’s main trading partner, and the worsening deconstruction of the environmental agenda —which was, until then, one of the flagships of national foreign policy.

Bolsonaro’s quarrels with French President Emmanuel Macron, his automatic alignment with former US President Donald Trump and his delay in recognizing the victory of the new occupant of the White House, Joe Biden, also went down badly.

One of the main victims of the foreign policy adopted in recent years was the agreement between Mercosur and the European Union, blocked by the Europeans, who used environmental problems as justification.

For Roberto Dumas, professor of international economics at Insper, the Lula government has already sent positive signals abroad. One of them is the choice of the Minister of the Environment, Marina Silva, to join the delegation of the World Economic Forum, which begins this Monday (16th) in Davos, Switzerland.

Dumas claims that the resumption of the agreement with the European Union needs to be a priority for Brazil, since the argument of environmental degradation should fall to the ground with Lula’s signals and with the return of Marina to the portfolio.

“Lula is a well-known figure out there, but the government’s work is going to be much harder now than it was 20 years ago, it is necessary to rebuild the bridges that Bolsonaro did not take care of. On the trade side, it can also be hard work, since there is an illiberal booklet that directs the PT discourse, and I fear that any offer of agreement will be seen as harmful for harming Brazilian industry.”

The coordinator of the FGVcnd (Center for Studies on New Developmentalism at the Getulio Vargas Foundation), Nelson Marconi, argues that the Lula government seeks agreements that benefit trade in manufactured goods —which can be done at a regional level through Mercosur. He only considers that the damages of Bolsonarism in foreign policy may go beyond the former president’s term.

“International trade is a struggle, but there is room for Brazil. There is a positive predisposition to receive Lula abroad, but the political instability in Brazil, after last Sunday’s attack on democracy, cannot prosper, it would bring medium-term negative consequences.”

Marconi also considers that the Lula government can try to re-edit South-South cooperation —of commercial and political rapprochement with the objective of developing the countries of the hemisphere. “But the most important thing is to trade with what interests the country. It would be more interesting to strengthen Mercosur flows with the northern hemisphere.”

REINDUSTRIALIZATION MAY BE COUPLED WITH TECHNOLOGY TRANSFERS

The scenario for international trade in the coming years is still the subject of uncertainty, with the advance of Covid-19 in China and doubts whether the Asian country will be able to maintain firm growth rates.

In 2022, Brazil exported the equivalent of US$ 334.46 billion (up 19.1% compared to the previous year). Imports in the period totaled US$ 272.7 billion (an increase of 24.3% compared to 2021), according to data from the Mdic (Ministry of Development, Industry, Commerce and Services).

As exports surpassed imports in the period —something that had been happening for the last eight years—, the country closed 2022 with a surplus of US$ 61.76 billion.

The comparison with the more rigorous period of the Covid-19 pandemic in previous years weighed in favor of exports to China, the United States and the European Union.

They grew 1.2% for China, with a total of US$ 91.06 billion; for the United States, the increase was 20.2%, totaling US$ 37.44 billion; for the European Union, totaled US$ 50.82 billion (increase of 39.1%).

Despite going through a serious internal economic crisis, Argentina also bought more from Brazil last year, with exports totaling US$ 15.35 billion (up 29.2%). Trade with the neighbor is important, above all, for the national industry.

Regarding the prospects for signing new trade agreements, the coordinator of the Research Group on Competitiveness and International Economy at Unisinos (University of Vale do Rio dos Sinos), Marcos Lélis, recalls that these pacts must be combined with the type of industrial policy that the new government intends to implement.

If Lula seeks to promote reindustrialization, it makes sense to look for partnerships that have the transfer of technology from developed countries as a counterpart, for example.

“But everything can be facilitated, if the agreement with the European Union starts to move forward, even if this does not happen at the speed that the government would like. Germany has already given a very positive signal to resume the financing of environmental management, and the country has a little more strength inside the block.”

Analysts also welcome the choice of vice-president Geraldo Alckmin (PSB) to lead the Mdic. Being the second in the government hierarchy, his command signals that both industry and foreign trade should have strength in the current management. Under Bolsonaro, the Mdic was part of the umbrella of Paulo Guedes’ superministry of the Economy.

“Reindustrialization is essential for Brazil to be able to resume sustainable development, and for this recovery to take place under the prism of social justice”, said the vice president and minister during the inauguration ceremony at the ministry.

“Having the deputy as minister demonstrates appreciation of the area. We do not expect anything radical, opening up the country without putting the house in order is something that will not happen, but we can move towards reducing costs, with the approval of a tax reform”, evaluates José Augusto de Castro, president of the AEB (Brazilian Foreign Trade Association).

He also points out that the shift in environmental policy, which is indicated by the new government, is fundamental for Brazil to recover its image. “The image of the previous government harmed the country’s interests. With Norway’s return to the Amazon Fund, expectations are positive.”

Retired diplomat José Alfredo Graça Lima believes that trade agreements bring legal certainty, but “do not create trade” by themselves.

According to him, “relevant tariff concessions” have already been made under the GATT (General Agreement on Tariffs and Trade) and the WTO (World Trade Organization), while sensitive goods and services are excluded or maintain levels of protection.

“The proposal [do novo governo] it should go towards liberalization, through a tariff reduction program, and I believe that this will not be done. At least it’s not appearing on the radar”, says Graça Lima, who is vice-president of the Board of Trustees of Cebri (Brazilian Center for International Relations).

He considers that Brazil’s entry into the OECD (Organization for Economic Cooperation and Development), advocated in the Bolsonaro government, could bring gains for the country with investors. The continuity of the process, however, still needs to be analyzed by Lula’s team.