Table of contents
2.0 Brazil and China Bilateral trade
3.0 Theories of International trade
3.1 Theory of factor endowment
3.2 Theory of Comparative advantage
3.3 Theory of Absolute Advantage
4.0 Options Brazil can adopt to combat competition from China
5.0 Strategies Chinese manufacturing producers are pursuing in entering foreign
In the contemporary business environment, country’s growth and development is determined by among others it’s GDP and its ability to invest and export its products abroad. Indeed international trade in the recent past has been necessitated by the concept of globalisation. In this case free movement of goods and people is a reality, a concept that promotes trade between countries, regions and organisations. International trade is thus, the exchange of goods and services between two or more countries across international territories. Generally in most cases international trade contributes a lot to a country’s Gross Domestic Product (GDP).Indeed it’s unthinkable to deduce what would be without international trade. In essence bilateral trade between two countries is becoming a common concept that seeks to compliment two country’s potentialities in modern business environment.
Bilateral trade can be defined as the trade between two countries. This trade has numerous benefits to the parties involved, but consequently it can lead disastrous consequences, especially if one party benefits more compared to the other or consequently dominate the other market. What distinguishes international trade from domestic trade is among others, is the concept that, international trade is normally costly compared to domestic trade, and this is due to the fact that borders usually enforce supplementary costs such as tariffs Again time wastage due to delays in the border ant other technical factors. Further according to economists, factors of production are naturally more manageable inside a country than across countries. This study seeks to critically analyse the bilateral relationship between Brazil and China with emphasize on the nature of the trade based on theoretical underpinning and consequent export and import volumes. It will subsequently recommend ways to tackle the problems imminent, in this case what Brazil should do to stop influx of cheap Chinese products in its market.
2.0 Brazil and China Bilateral trade
Brazil trade volumes with China over the last decade have been increasing tremendously. In this case China has replaced US as the major Brazilian trading partner. However though a great concept, there has been increased tensions as influx of cheap cineaste product threaten the survival of the once vibrant Brazilian manufacturing sector. Indeed Brazil’s mounting dependence on imported Chinese produced is intimidating manufacturers in Latin America’s leading economy.
The trade is fueled by the increased Chinese appetite for raw materials which are abundant, in Brazil .Analysts accentuate that, the demand for Brazilian resources such as soybeans and iron has enabled the growing economic giant to surpass the U.S. as Brazil’s principal trading associate. Indeed in the year 2011 Imports from China have increased by 47% amounting to $4.7 billion. This constitutes to over 16% of all Brazil’s Expenditure. Indeed in the year 2010 Brazil’s trade with China increased by 53 % to $56 billion. Consequently Imports from China increased by 61 %.This amounted to $25.6 billion .On the other hand Brazils exports to China increased by 70 % in 2011 compared to the previous year. Exports to China contributed to over 15% of overall Brazilian exports in 2011.
Brazil exports materials, produce, iron ore, and China conducts value addition and consequently shifts the products back to Brazil. Indeed the challenge the so called Dutch disease effect on Brazil economy.
Indeed, the mounting significance of China as a major investor to Brazil, is a concept that attracts diverged views, in this case as much as the opportunities are many, the negative impacts are profound. This is authenticated by the risk of a “Dutch disease” or a “de -industrialization” of the Brazilian economy. According to analyst, the frequent and recent overvaluation of the Brazilian currency and the subsequent lack of result oriented strategies and approaches to tackling labor issues as regards labor market regulation and the poor infrastructural development, has been a impetus to the countries reduced productivity in the manufacturing industry .This has reduced Brazils comparative advantage to China hence the influx of Chinese imports in the country (Mesquita M, 2006).
The result of such failures is the increased threat and death of the country’s manufacturing sector. According to analyst a country’s manufacturing sector should be vibrant if such economy is to grow and develop. Indeed, Brazilian companies are concerned over ways to compete unswervingly against, the Chinese influx of produced goods.
According to data on bilateral trade between the two countries, it is believed that, between the year 2006 and 2010, 45% of Brazilian manufacturing companies, which compete with products imported from China, reported to have lost a large percentage of domestic market share .Further 67% of exporters from Brazil competing with Chinese Companies reported having lost foreign market share .To address such challenges, the Brazilian firms have been forced to restructure and adopt strategies that will enable them survive in the competitive market (Jenkins 2010). Such include reduction of costs, improvement of productivity, and improvement of products quality