What Awaits Brazilian Economy in Trade War Between Its Main Partners?

The Sao Paulo stock market's main index Ibovespa fell by 2.69% to 91,726 points on Monday after the Chinese government announced plans to take action in response to a US increase in tariffs on Chinese goods. How is this trade war between Brazil’s two largest trading partners affecting the South American country’s economy?

US President Donald Trump recently announced an increase in tariffs on Chinese imports worth $200 billion, launching a new round of trade war with Beijing, which, in turn, promised to take retaliatory measures. Brazilian economists have already begun to calculate the possible consequences of this conflict for the national economy.

READ MORE: Strategist: American Producers, Consumers to Pay for US-China Tariff Tit-for-Tat

According to economist Juliana Inhasz, coordinator of the undergraduate economics programme at the Insper Institute of Education and Research, at first glance there is reason to believe that Brazil can benefit from the trade war between China and the United States because these two countries may start looking for new trade partners for the goods on which duties have been imposed. The economist recalled that Brazil is a major supplier of some of these products and currently has spare production capacity.

"We still have a surplus of our products that can be exported and sold abroad", Inhasz said in an interview with Sputnik. "In this situation, selling, conquering new markets, increasing exports to the United States and China, initially does not bring as many problems as they could bring, for example, if we had an overheated economy and we would have to sacrifice the domestic market for export", she explained.    

According to Inhasz, Brazilian producers are already benefiting from the increased demand for their goods caused by the trade war between the world’s two largest economies. It is highly likely that this situation will continue as trade disputes become more intense. However, the expert warns that this situation also has downsides.

"We do not have such an attractive exchange rate at the moment, especially because we are very dependent on imports. And imported goods will start to go up", she explained. "Therefore, we must take into account that the cost of living in our country may also slightly increase due to the growing strength of the US dollar".    

Inhasz, however, wonders what kind of economic capital China and the United States have in order to actually wage and endure this major trade war.

READ MORE: US Treasury Chief to Plan for Trade Meeting in China Soon

"I think most likely when we have a summit meeting within the G20 framework, some of these tensions will already have subsided because the market is naturally adapting to this news".    

Views and opinions, expressed in the article are those of Juliana Inhasz and do not necessarily reflect those of Sputnik.