Brazil Will Work With Obama to Counter China Imports

Brazilian President Dilma Rousseff will discuss with her U.S. counterpart Barack Obama ways to counteract the threat posed by cheap imports from China, a Brazilian official said.

China’s policy of undervaluing the yuan will be discussed when Obama travels to Brazil next month for his first meeting with Rousseff since she took office Jan. 1, said the official, who is not authorized to speak publicly on the matter.

Rousseff, who will visit China in April, created a task force comprised of trade officials, diplomats, businessmen and outside experts to suggest policies to cope with rising Chinese imports. Among the options is a multilateral agreement between China and Latin American nations to boost manufacturing exports to the world’s second-largest economy, said the official.

Chinese exports to Brazil rose 61 percent last year to $25.6 billion as a 34 percent rally by the real against the yuan since the start of 2009 lowered the cost of imports. The U.S. trade deficit with China soared 21 percent to $252 billion in the January-November period last year. China overtook the U.S. as Brazil’s biggest trading partner in 2009, as demand for the South American country’s iron ore and soybeans surged.

Chinese Goods

A survey by Brazil’s National Industrial Confederation published today shows that one out of four manufacturers face competition from Chinese goods in the local market. In that group, 45 percent lost market share to Chinese imports, the survey of 1,529 companies, taken Oct. 4 to Oct. 19, showed.

Of Brazilian companies that export, more than half compete with Chinese goods overseas, and 67 percent said they lost foreign clients to China, the survey sent by e-mail said.

U.S. Treasury Secretary Timothy F. Geithner will discuss bilateral and Group of 20 issues with senior Brazilian officials on Feb. 7 in his first visit to Brazil since taking office in 2009, the Treasury Department said Feb. 1.

A spokesman for Rousseff’s office didn’t return phone calls by Bloomberg News yesterday seeking comment.

Global trade rules under the auspices of the World Trade Organization are powerless for dealing with the competitive edge provided by China’s currency policy, the official said. Brazil’s decision last year to raise tariffs on Chinese-made toys to 35 percent, the maximum under provisions of the Geneva-based WTO, from 20 percent hasn’t helped local toymakers, the official said.

Deeper Ties

Rousseff has signaled she wants to work more closely with the U.S. than did her predecessor Luiz Inacio Lula da Silva. On Dec. 2, she told Washington Post columnist Lally Weymouth she has “great admiration” for Obama, and in her inaugural speech to Congress said she hopes to “deepen” ties with the U.S.

Obama said during his State of the Union address last month that he will visit Brazil as part of his first-ever tour to South America. He’s also visiting Chile and El Salvador.

The dollar has weakened 3.5 percent against the Chinese currency over the last two years. The real’s 39 percent gain against the dollar in the same period is the second-best performance among 16 major currencies tracked by Bloomberg after the Australian dollar.

Yuan A ‘Priority’

Rousseff plans to make China’s trade and currency policies a “priority” in bilateral relations between the two countries, Trade Minister Fernando Pimentel said Jan. 4. Rousseff is as concerned about China’s attempts to keep the yuan undervalued as she is about the weak dollar, Marco Aurelio Garcia, the president’s special adviser on foreign policy, said Jan. 11.

Complaints about the Chinese currency by policy makers around the world “do add to the U.S.’s case that the lack of yuan flexibility impairs the trade pattern globally,” Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank AG, said in an interview in New York.

A further devaluation of the yuan would “create an environment of greater flexibility throughout the world and take some of the pressure off a lot of countries,” Ruskin said.

China has been increasing its investments in Latin America’s largest economy.

Sinopec Group, as China’s second-largest energy company is known, agreed last year to pay $7.1 billion for a 40 percent stake in Madrid-based Repsol YPF SA’s Brazil unit. In 2009, China’s development bank agreed to loan state-controlled Petroleo Brasileiro SA $10 billion, and signed a long-term supply contract with the oil company.

Economic growth in the U.S. accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years. Gross domestic product grew at a 3.2 percent annual rate.

Brazil’s $1.6 trillion economy likely grew 7.3 percent last year, the fastest pace in more than two decades, according to central bank estimates. China’s economy expanded 9.8 percent in the fourth quarter.

Brazil’s Bovespa stock benchmark has declined 0.2 percent over the past year, compared with a 17 percent rally for the Dow Jones Industrial Average and 4.6 percent decline in the Shanghai Composite Index.

China is the U.S.’s second-biggest trading partner, responsible for $416 billion in trade in the first 11 months of 2010. Brazil, ranked 10th, had $54 billion in trade with the U.S. during the same period.