Today's Letter IEDI analyzes the level of complexity of Brazilian manufacturing exports, as well as the competitive pressure from China in the main markets for our foreign sales of industrial goods—namely, Mercosur (Argentina, Uruguay, Paraguay), LAIA (Bolivia, Chile, Colombia, Ecuador, Peru, Venezuela) and NAFTA (United States, Canada and Mexico).

The most recent data, for the year 2017, show that there was an interruption in the practically continuous downward path of Brazil's exports in the ranking of economic complexity, ongoing since 2000. After occupying the 27th position, our retreat took us to 49th place in 2014; since then, we have not only stopped falling but moved up to 48th in 2017.

It should be noted, however, that the marginal improvement between 2014 and 2017 should be credited more to the performance of other countries than to that of Brazil. This is because the economic complexity index (ECI) of our exports increased very little in the period in question, going from 0.21 to 0.24. Such performance is in line with the country's evolution in the global ranking of manufacturing exports, in which Brazil continued practically at the same level: 32nd in 2014 and 31st in 2017.

Due to the seriousness of our domestic economic crisis in 2015–2016—which put pressure on Brazilian companies to seek some mitigation of losses by turning to foreign markets—and given the strong growth of the international trade in goods—up 4.6% in 2017, according to the WTO, well above the +1.2% projected for 2019—Brazil was expected to do a little better than the data show us.

This illustrates the importance of leveraging the competitiveness of the Brazilian productive structure, establishing broader financing instruments for our exports and promoting greater integration with other markets through trade agreements that allow for a horizontal, transparent and gradual opening.

In contrast to the performance of Brazil, China, a global leader in exports of manufacturing goods, registered an uninterrupted advance in the complexity ranking between 2000 and 2014, going from 39th to 18th. Since then, it has also undergone an accommodation, ranking 19th in 2017, with almost no change in its ECI (1.29 in 2014 and 1.30 in 2017).

Despite this stagnation, the “product space”, drawn from data in the Atlas of Complexity, indicates that the probability of China increasing its economic complexity in the coming years is higher than that of Brazil.

And how did Brazilian and Chinese exports evolve in the main markets for Brazilian industry (Mercosur, LAIA and Nafta)?

Between 2014 and 2017, the IEDI study shows that our export basket has, in some cases, become a little more complex. It seems that, with an economic slowdown in Latin America and a domestic recession, Brazil sought to adapt to the increase in Chinese competition by raising external sales not only of commodities (low complexity products), but also of manufacturing products with relatively higher levels of complexity (such as “automobiles” and “parts for vehicles” in the automotive sector).

This strategy was more successful in some countries with which Brazil has trade agreements, such as Argentina and Mexico. Within LAIA, the best performance in terms of degree of complexity was observed in exports to Colombia and Peru, also due to the greater participation of automotive sector's products.

As the set of goods produced by different countries change over time, the product complexity indexes (PCI) also vary. For example, when a product becomes less complex, it means that more countries have started to manufacture that product or that countries that export it have suffered a reduction in economic complexity. These changes also contributed to the improvement in the performance of Brazilian exports by the criterion of economic complexity.

Thus, the PCI of some important products on the Brazilian basket to the countries considered (such as "automobiles") increased in the period under review. At the same time, there was a reduction in the PCI of products in the electronics and machinery sectors with a higher degree of complexity and with a large share in Chinese exports to the three regions analyzed. For example, “TV and radio transmitters” and “computers”.

However, in the face of competition from China (whose basket is more diversified and has a greater presence of relatively high PCI products), Brazil's advances between 2014 and 2017 remained limited, especially if we consider the important influence of the cyclical economic factors mentioned above.

The results in this Letter reinforce the vision presented by the IEDI in the document “For a world standard industry”, in which the Institute argues that Brazil should adopt an industrial strategy to strengthen the production of more complex goods, associated with a foreign trade policy to stimulate exports of higher PCI products. Our skills in sectors such as automotive vehicles and parts, electronics and machinery could thus be extended towards goods similar to those we already produce, but of greater complexity.

Trade relations with the Mercosur, LAIA and Nafta countries, which import manufacturing products of greater economic complexity from Brazil (with emphasis on Mexico and Argentina), remain strategic for us. But we should also establish commercial ties with as many other countries as possible.

The full text is available in Portuguese.