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Brazil's commodities-heavy trade with China gives some pause

At the height of Brazil's biggest economic boom in a generation, the Schmidt Bros. shoe factory in the southwestern city of Campo Grande was shutting its doors this spring and sending thousands of employees packing.

"Hopefully, most of the workers are finding new jobs in the shoe industry," said Heitor Klein, director of the Brazilian Footwear Industries Assn., "because they had become highly skilled workers after spending their lives there."

Klein puts much of the blame on cheap imports from China, which he accuses of dumping goods at under-market prices by simply routing them through other countries such as Vietnam and Indonesia, in what he called a violation of international trade laws.

Over the last decade, Brazil has moved away from its traditional major trading partner, the United States, and established increasingly close commercial ties with China, whose demand for commodities produced in this massive South American country has powered Brazil's rapid rise as a global economic power.

But fears have arisen about the consequences of this new relationship for some parts of Brazilian society at a time when investment in the country has pushed the value of its currency, the real, to levels that make manufactured goods uncompetitive for export. An undervalued Chinese currency also has some here calling foul, with the finance minister last week accusing Beijing of currency manipulation.

Brazil's Congress has passed legislation requiring approval of large foreign purchases of land, fearing Chinese land grabs in the valuable farm belt. And an overreliance on exports of basic items such as iron ore and soy has led to fear of "de-industrialization."

When newly elected President Dilma Rousseff visited China this year, she said she would be working to promote Brazilian products other than basic commodities. She secured some contracts for Embraer, the Brazilian aircraft producer, but many other industries were left waiting and hoping.

Rousseff hails from the left-leaning Workers' Party of her hugely popular predecessor, Luiz Inacio Lula da Silva, for whom the turn toward China was not only commercial. Ideologically, the movement away from the United States, which backed the military dictatorship that reportedly tortured a young Rousseff in the 1970s, fulfilled a desire to form closer bonds between developing countries.

"After [George W.] Bush took over, Latin America was totally forgotten," said David Fleischer, a political scientist at the University of Brasilia. "A lot of Latin Americans thought that was great: better to be forgotten than be taken care of too much. The U.S. opened a void, and the Chinese came right in."

Many Brazilians, despite the appearance of thorns in the relationship, prefer to be hitched to the stable and growing Chinese economy rather than the crisis-ridden American one.

By international standards, there is comparatively little to complain about in the Brazilian economy. The country shrugged off the effects of the financial crisis and is powering forward while Mexico and the United States lag behind. It is on course to be the world's fifth-largest economy, is experiencing a boom in consumption, and unemployment is at an all-time low.

Few dispute that Brazil has benefited enormously from increased trade with China. But certain parts of Brazilian business and the government have expressed concern that the country's economy is increasingly being reshaped to fit what China needs it to be: an efficient exporter of basic goods, while more complex activities wither away.

Over the last decade, the proportion of exports that is basic commodities has doubled, as trade with China, now by far Brazil's top trading partner, has exploded.

In the first half of 2011, Brazil exported more than $56 billion worth of basic goods, almost 10 times as much as in the same period at the beginning of the millennium. The main exports are soy and iron ore, and the main customer is China, which uses them to build and feed its rapidly expanding country. Since 2000, Brazilian exports to China have increased more than fortyfold.

"The risk of a blowback has always been sort of hanging over Brazilian industry since 2004, when [Chinese officials] visited Brazil and pressured the government to sign on the dotted line of documents certifying China as a market economy," said Fleischer, who says the relationship has nevertheless turned out to be positive on balance for Brazil, because of the flood of cash into nonindustrial sectors.

"The worst affected are certainly textiles and shoe producers," Fleischer said. "There are cases of Chinese imports wiping out Brazilian firms, then the Chinese came to Brazil and recruited the unemployed shoemakers and brought them to China. They wanted to learn what Brazil had learned in the '70s, how to make a shoe fit the American foot."

Bevins is a special correspondent.

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