Brazil-PRC Trade: Bikini Wars & Beyond

♠ Posted by Emmanuel in ,, at 1/13/2011 12:02:00 AM
A few days ago, I featured Brazilian Finance Minister Guido Mantega citing China for its unfair trade practices. Today, we feature a rather racy application of this complaint. While the affinity of the Chinese people for intimates is certainly beyond my realm of expertise (even if can vouch that Western-style billboards featuring underwear models are common in Chinese megalopolises), you can be sure that Chinese garment manufacturers love making them for the rest of the world. Only a few years back when Peter Mandelson was exiled to Brussels and served as the EU trade commissioner, he famously prosecuted the "bra wars" that involved invoking safeguard clauses under the terms of China's WTO accession as the multifibre agreement (MFA) was being phased out in 2005 and Europe was being inundated with intimates from the PRC.

Fast-forward to today and it appears our Chinese friends are once again involved in a trade row over their knickers--this time with fellow BRICs nation Brazil. There are two sides to this story that portray the economic relationship differently. On one hand, Brazilian commodity exporters are glad to have the Chinese market fuelling demand for their wares. On the other hand, Chinese imports are proving to be a tough challenge for domestic competition--especially in garments. Brazil is famous for coming up with all sorts of variations on--how should I describe 'em--slinky swimwear. However, inventing or popularizing something is no guarantee of continuing dominance. Think of the British in cricket, football, golf, tennis, etc.

And so it has come to pass that Brazil's bikini industry is up in arms against Chinese competition. I can hear it coming: Unfair trade! Undervalued currency! Slave wages! Like others have found, it's no picnic being in direct export competition with the mighty Chinese manufacturing machine. Let's begin with the happier side of this relationship with jet-setting Brazilian billionaire Eike Batista, purportedly the world's eighth richest person, riding the crest of a massive eastbound commodity wave. From Auntie:
Indeed, the real purpose of our helicopter trip was to view Eike Batista's latest project, a vast superport north of Rio, built with this customer in mind. The centrepiece of the complex is a two-mile-long pier jutting straight out into the South Atlantic, which has been dubbed "the highway to China". Mr Batista's companies control enormous reserves of iron ore and oil - commodities the Chinese economy desperately needs.

In fact, Chinese demand for the raw materials Brazil has in abundance has pushed prices to record highs and, as a result, Mr Batista's business - and the Brazilian economy - is booming. Eike is confident the boom will continue and that Chinese demand will help power him yet further up the world wealth rankings.

"I told Carlos Slim," he recalled with a grin - referring to the world's richest man, the Mexican telecommunications tycoon - "clean your rear-view mirror on the right hand side and clean your rear-view mirror on your left hand side because I don't know which side I will be overtaking you."
But then we get to the domestic bikini industry:
But, down on the beaches below Mr Batista's office [down at the Copa for you Barry Manilow fans], the fit doesn't seem quite so perfect. There are few products as emblematic of Brazil as the bikini but Brazil's bikini industry is in trouble, fighting off stiff competition from - you guessed it - China...

Then, three years ago, the Chinese entered the market. Within 12 months the export business that [Brazilian bikini designer] Ieura had been building up had disappeared completely. "My biggest competitors used to be other Brazilian companies," Ieura said ruefully, "now it is the Chinese."

And it is not just the bikini industry that is suffering. A recent study found that more than 80% of Brazil's manufactured exports are being adversely affected by competition from China. That is a real danger to the Brazilian economy because mining and commodities are not very labour intensive. The bulk of the Brazilian workforce is employed in manufacturing industries. The problem is that, natural resources aside, Brazil has a similar competitive advantage to China - cheap unskilled labour. As a result, the two countries tend to compete in similar sectors and, just as in most other economies around the world, China tends to win.
Even on Copacobana beach, the thong [sic] remains the same in the trade realm, it seems. Mayhaps it's a sexed-up version of the commodity curse.

UPDATE: See this (surprisingly informative and unbiased) USDA feature for a brief description of the multifibre agreement mentioned in the context of the "bra wars."