By Jeffrey T. Lewis
SÃO PAULO–The U.S. says it intends to diversify its supply chain to reduce its reliance on China. Companies in Brazil say if the U.S. wants their help, it will need to make some changes.
Representatives from companies and trade groups say measures, from high tariffs to stringent environmental regulations, present hurdles to selling more products to the U.S., which is looking to move away from countries that present geopolitical and security risks to its supply chain. U.S. Treasury Secretary Janet Yellen has called such an approach “friendshoring.”
Brazilian steelmakers have long wanted to increase exports to the U.S. but are held back by tariffs and quotas, according to Marco Polo de Mello Lopes, president of the Brazil Steel Institute, a group representing companies including Gerdau SA and Usiminas SA.
“Brazil is a longtime supplier of strategic raw materials to the U.S., and we want to increase our exports,” Mr. Lopes said. “If the U.S. really wants more sources for steel imports, the first thing they have to do is remove the barriers.”
The U.S. government placed import tariffs on certain steel products in 2018 and then granted Brazil an exemption for a set amount of the alloy. The quota and the tariff need to be lifted before Brazilian companies can consider taking measures to boost exports, Mr. Lopes said.
While buying from China can cost less, Brazil has some advantages to attract U.S. buyers, such as shorter delivery times, said Luiz Simm, sales director of furniture maker Treboll Móveis Ltda.
“We can generally deliver in half the time that a delivery from China would take,” Mr. Simm said. “Being closer, especially to the East Coast, is an advantage for us.” He said there is also more shipping capacity available to East Coast ports.
The Office of the U.S. Trade Representative said the U.S. is committed to working with the administration of new Brazilian President Luiz Inácio Lula da Silva to strengthen their trade relationship.
In an email, the USTR said it would continue to implement an updated protocol on transparency and trade rules between the two countries. “Through this protocol and our shared priorities, we will help U.S. and Brazilian businesses bring their products to new customers,” the USTR said.
Brazil’s economy could use the boost from increased exports to the U.S. Brazil’s gross domestic product is expected to grow less than 1% in 2023, after an expansion of about 3% in 2022.
Brazilian companies face other challenges to increasing exports. The country’s stringent environmental and labor laws add to the so-called Brazil Cost.
Employers must pay at least the minimum wage, currently about $250 a month, while also paying into the social security system, providing paid holidays and vacations, paying overtime and other benefits for workers. Companies also must meet environmental rules that promote worker safety, limit the use of pesticides, protect forests and criminalize actions that damage the environment, among other measures.
While the businesses argue the higher costs make them less competitive, investors are putting a greater emphasis on social and environmental responsibility, which could benefit some of the companies.
“You won’t buy from Brazil if you want Chinese prices, but if you want environmental and labor guarantees, along with guarantees that you’ll be getting a quality product, then you’ll come to us,” said Guilherme Rosman, CEO of lingerie maker Demillus SA Indústria e Comércio. “If you want nearshoring, you can’t buy from countries that don’t follow those norms.”
Brazilian companies have long clamored for reforms to reduce the Brazil Cost. Tatiana Prazeres, director of international relations of the Federation of Industries of the State of São Paulo, which represents more than 100,000 businesses from Brazil’s most industrialized state, said that friendshoring presents an opportunity for Brazil but the country needs to take steps to become more business friendly.
“We need to convert this desire to reality,” she said.
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