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(Bloomberg) — Brazilian leaders are walking a fine diplomatic line to appeal to both the US and China and shield their nation from any potential blowback in an increasingly polarized world. 

The idea that Brazil and other nations in the region shouldn’t have to pick between close relations with the world’s two largest economies was front and center at Bloomberg New Economy at B20 in Sao Paulo. 

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Top executives said it was crucial in order to avoid trade barriers, and compromising commercial business and much-needed growth. That followed comments Tuesday evening from Brazil’s agriculture minister calling for the country to join China’s Belt and Road, the superpower’s flagship global trade and infrastructure program.

“Brazil is not interested in a cold war between US and China,” said Brazil’s development bank President Aloizio Mercadante, adding that Brazil is one of six countries that has relations with all United Nations members. “We must have a relationship with China, which has to be realistic because we have to defend ourselves, their competitiveness in unsurmountable. But we need to engage into partnerships to bring investment to infrastructure.”

While he said he is not necessarily in favor of officially signing on to Belt and Road, he would be open to more alignment with China as long as there are discussions about certain industries that could be hurt by their subsidies and competitiveness.

This year, Brazil, Colombia, Chile and Mexico announced increased tariffs to stem a flood of cheap metal coming from China. It marked a strain in what’s been an otherwise cozy relationship between Latin America and China, which has become the biggest buyer of raw materials from the region and a major investor. 

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Brazil meat tycoon Wesley Batista said the increasing tensions between the US and China are a huge concern as both are key trade partners for JBS SA, the world’s largest meat-processing company. 

“Brazil needs to be talking with China, with the US, with Russia, and try help to find solutions to finish these wars, improve relationships between these countries,” said Batista, who controls the company with his brothers. “Leaders need to talk even with countries they disagree with.”

Playing Nice

Brazil in particular has found itself in the midst of the global competition between the US and China, partnering on climate and labor issues with the former and building stronger agriculture trade ties with the latter. 

Sigma Lithium CEO Ana Cabral defended a non-aligned position by global leaders. “You can’t just leave the table. Because once you leave the table, all hope is gone to finding the areas where you agree,” she said.

Not everyone believes that being nice to everyone is sustainable. Armínio Fraga, the former central banker of Brazil and founder of Gavea Investimentos, admonished the idea that Brazil should abandon its moral and cultural values in pursuit of business and investment interests. 

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While it’s good for Brazil to trade with countries around the world, its ideals of democracy and human rights should still be clear, Fraga said. “I think we must have very clearly in our minds that we are a Western country.”

President Joe Biden’s top trade negotiator, Katherine Tai, explicitly said she would “encourage” Brazil to consider the prospect of joining China’s Belt and Road through “an objectivity lens, through a risk management lens.” She added that the US wants to protect sovereignty, and any final decision is up to the Brazilian government. 

The US Trade Representative will also attend the G-20 Trade and Investment Ministers’ Meeting in Brasilia, and visit Mexico, about which she projected optimism. Her office will soon review the free-trade pact, US-Mexico-Canada Agreement, or USMCA. 

However, Tai again suggested that China’s encroachment in the region was concerning. She said the US has seen “some potentially concerning developments in terms of Chinese company acquisitions in Mexico to build factories.” 

In all, she said the “very nebulous and often non-transparent connection between the state and the economic actor” in China was a key question to consider “in an increasingly geopolitically tense world.” 

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The night before, White House Deputy National Security Adviser Jonathan Finer acknowledged the intensifying competition with China but said that under Biden, the US has “reversed” a narrative that the country was “on the verge of being passed by China as an economic power, that the United States’ influence was waning in the world, that China’s influence was on the rise.”

Challenges Ahead

In order to take advantage of its relative neutrality, the region has to overcome some of its own challenges. 

“What holds us [back] is not anything that’s outside,” said JBS’s Batista. “It’s inside Brazil.”

He said he ran the US operations of the meat-processing giant for four years in the aughts, and that experience showed him how inefficient and costly it can be do business in Brazil, particularly when it comes to bureaucracy. 

“Brazil needs to reduce its complexity, bureaucracy, the cost to do business here,” he said. “And Brazil is going to be naturally really competitive in a lot of different sectors.”

More broadly, Brazil is facing a series of fiscal woes as a result of Lula’s increased spending on social programs. Fears over inflation have pushed the benchmark interest rate up to 10.75%, in turn sending investors into low-risk government bonds. That’s helped to precipitate a slide in Brazilian equities, which are now among the worst-performing in the world. 

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Still, Brazil has a solid democracy, an organized and large economy and deserves more investment, said Eduardo Parente, the chief executive officer of Yduqs, one of the country’s biggest education companies in an interview on the sidelines of the event. It’s just a matter of time. 

“There will be a time when money will return to emerging markets and Brazil may have a higher flow because it is in a very low level,” Parente added.

One area expected to draw new investment in Latin America is ESG, said Abrao Neto, the CEO of commerce chamber Amcham Brazil, who believes that Brazil will attract new money especially in a scenario of transition to a low-carbon economy.

“We are seeing a new cycle of American investments in the country, with a record number of new projects in the last 10 years, concentrated in sectors such as the digital economy, data centers and renewable energies,” he said in another interview during BNE.

Investors are looking for indicators and sustainability, said Karina Saade, a partner at MEP Family Office. “The US investors have been taking limited risk appetite in emerging-markets because rates in the US are so very high and that has affected emerging-market flows more broadly.”

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Billionaire philanthropist Bill Gates said that one of the keys to ensure that the green transition is successful is to find less expensive ways to generate energy, and that nuclear power will play a significant role in the future of renewables. Gates, who invests in climate tech, said one of his companies is building a plant to produce steel more sustainably with partners in Brazil. 

Of course, whatever happens in the US’s upcoming presidential election could reset the trajectory for Latin America’s business community — particularly as there is a potential for the entrenchment of protectionism.  

Former President Donald Trump, who is running against Vice President Kamala Harris, told Bloomberg News last week that tariff “is the most beautiful word in the dictionary.” He said he would dramatically increase duties in a bid to get companies to return manufacturing to the US.   

“If you start to brave net markets because of either tariffs or regulatory barriers to that trade, it absolutely takes away the lower prices and high-speed innovation,” Gates said. 

Plus, global welfare will improve less under new tariffs, he said. And if the US moves forward with tariffs, other countries will too. 

DISCLAIMER: New Economy at B20 is being organized by Bloomberg Media Group, a division of Bloomberg LP, the parent company of Bloomberg News.

—With assistance from Giovanna Bellotti Azevedo, Daniel Carvalho and Barbara Nascimento.

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