The more the tariff war is intensified between the United States and China, the closer these countries will be in agreement, which can directly affect Brazilian agribusiness. The evaluation is from Vallya Agro’s executive director, Larissa Wachholz, in an exclusive interview with Broadcast Agro.
Wachholz has been a special advisor to the Ministry of Agriculture for issues related to China, during the management of then Minister Tereza Cristina, and has a large experience in the Asian country, where he lived from 2008 to 2013 and where he returns frequently. You must even participate in an event on April 23 in Shanghai.
The trade war between the giant economies intensified this week.
At this time, the import fares imposed on China by US President Donald Trump are 125%. Already the Chinese raised the rates against the US to 84%.
As such a situation is unsustainable, as both countries have an extremely interconnected economy, Wachholz evaluates that at some point Washington and Beijing will have to talk and firm agreements. And Brazil, as the largest exporter of agricultural products to China, can be directly affected.
For her, grains and meats are the main products that the United States could provide to China – exactly the same as Brazil exports there. Therefore, it recommends “caution” to Brazilian agribusiness at this volatile moment.
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Although she does not risk saying when negotiations will occur, she believes China’s intention is always to maintain a healthy environment in global trade, which depends enormously, both for selling and buying. So the tendency would be to negotiate.
Next, the main points of the interview:
China and the United States are overcoming heavily in the tariff war imposed by the US country. In your vision how far can this go and how should Brazilian agribusiness be affected?
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It worries me a lot. I think the more this tariff war intensifies, the closer United States and China they get a trade agreement. I think it is unlikely that the tariff climbing lasts a long time. One hour these countries will have to sit at the table and talk, as their economy is extremely interconnected.
From this perspective, there is a potential for this negotiation, if it occurs, is harmful to Brazilian agribusiness, in line with what we have already seen in January 2020, in the trade agreement phase 1, signed in Donald Trump’s first term. The agreement determined that China would commit to US agricultural purchases, which was not fulfilled because soon we entered the covid-19 pandemic, which disrupted global trade.
Now, in a phase 1 “reissue”, I would say that agribusiness is at the negotiating table is fundamental. Because there is nowhere to run, in terms of what China could commit to buying from the United States. It is not that China will not buy from Brazil anymore, but it will have to direct certain purchases to the United States. In this respect, the Brazilian competence, competitiveness and productivity are no longer at stake.
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In what sectors could Brazilian agribusiness be more affected?
Brazil and the United States export exactly the same food products, ie grains and meat. This makes us competitors for the same markets. And in the current scenario of tariff war, and with China figuring as the main global buyer of these commodities, competition between Brazil and the US can be a point of concern from now on.
Not even the fact that Brazil appears today as the main supplier of grain and meat for China and being qualified as a “reliable partner” by the Asian giant could alleviate any impact on agribusiness exports from now on?
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Well, in a trade agreement, which should happen, I don’t know if in the coming days or in a year or two, so that China buy more products from the United States the agribusiness must enter this negotiation, including as a protagonist.
After all, what could Americans sell to China? Or it is the products with high technology, which the Chinese even want to buy, but the US does not seem to want to sell for fears about intellectual property, defense, etc., or agricultural products.
With agricultural commodities is that China could hang the balance more in favor of the United States in a possible trade agreement. This is what she has done in the Agreement Phase 1, which was not taken ahead.
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Why, in your view, will they at some point sit down to talk, even in the current scenario of tariff climbing?
First, it is not in the interest of the Chinese to be permanently in a tariff war, as they are the main commercial partner of 140 countries. Specifically in relation to China and the United States, we are talking about the two largest economies in the world, which are very interconnected, interconnected.
These two countries even have joint and triangular businesses – including Brazil, such as the large multinationals of global agribusiness, technology suppliers, seeds, inputs. In general, these companies are global. So, I find it very unlikely that they do not reach an agreement.
In what horizon of time do you see that this conversation can start?
It depends on how this will be done, how long companies, especially the Americans, will accept this situation without showing resistance. I think this will determine how long this situation will last. It will depend on American society, how will it react, how people will be in relation to the price of things, inflationary pressure, whether or not it will be very strong, so much so that people will realize these cost increases in their daily lives.
Secondly, as companies will behave, given that they are greatly affected by all this situation, how much they will be able to show to the Trump administration that they are being harmed, and perhaps indicate ways to meet the demand for industrialization, which the United States has presented.
If there is the perspective on the horizon that these two powers will sit at the negotiation table, why is the tariff climbing to these levels of reciprocal retaliation?
For an agreement to happen you need the two parts wanting to do the same thing. So, at this moment, if the US applies rates to China, China needs to respond to it because otherwise, in the face of its internal audience, it demonstrates weakness. How could you not answer?
But I reinforce that at some point they will negotiate. I only believe that maybe China has no other option, because USA and China have a very interconnected economic relationship. So, yes, they would have the potential to be economically harmful, mutually.
Now the question is, are you interested in what happens? No, because China is concerned with moving forward, continuing to ensure minimal growth for its economic development objectives.
What has changed in China since the First Trade War with Trump here?
China’s situation today is very different from what we saw in the early years of the Trump administration. From the experience of the First Tariff War with the US, the Chinese realized how much they depend on international trade to have a healthy savings, continuing to grow, both with imports and exports. So much so that she diversified buyers and suppliers, which reduced her dependence on the United States.
If in the First Tariff War the US was the main suppliers of agricultural products for China, today this place is occupied by Brazil, which has about 20% of the Market Share with the Chinese. And imports of US products through China fell to 7%. Already 15% of all the US matters comes from China.
But even if the importance of the United States in the Chinese trade balance has decreased, there is still a lot of complexity in this relationship, reciprocal rates have increased and there is a tangle of economic relations that makes it very difficult to predict exactly how much China will lose with all this, which will be the most affected sectors.