Intra-BRICS trade has scope for growth
The BRICS members will need to bridge the gaps when it comes to political trust and economic differences. Given time, trade among them will catch up rapidly.
The 10th BRICS summit opened on Wednesday in Johannesburg, South Africa. The meeting takes place at a crucial time, when global trade and economic order are greatly challenged by protectionism.
China had no choice but fight back after the US started a massive trade conflict by imposing additional tariffs on $34 billion worth of Chinese products. A vacuum was created after China imposed retaliatory restrictions and tariffs on US products. This will mean opportunities for the other BRICS (Brazil, Russia, India, China and South Africa) members to substitute for US goods in the Chinese market.
For instance, soybeans, one of the major imports from the US to China, are now being sourced in Brazil. The trade friction has accidentally generated a positive side-effect, that of being a stimulus for the BRICS members to engage in more trade and economic interaction.
In the past 10 years, many factors have stopped intraBRICS trade from growing faster.
The first reason is geography. The BRICS members are spread among different continents with long distances in between. When it comes to international trade, long distances mean higher logistics costs.
Second, industrial structures vary among the BRICS. Some of them have unitary economic structures, while others have a high dependency on resource exports. Exporting large volumes of domestic resources may sometimes lead to nationalistic sentiment.
Third, China is developing a solid manufacturing industry. This may discourage manufacturing activity in India and Russia and bring down employment rates. Therefore, a larger scale of trade with China will cause concern in other BRICS members.
Fourth, BRICS is more of an economic grouping with limited political connections. More political trust should be given to other members within the organization. India has been suspicious about China’s Belt and Road initiative, which has slowed the pace of broader cooperation on trade and economics between the two countries.
The trade war waged by the US against the world has cast a shadow on stability and sustainable growth in the global economy. The US raised tariffs on steel and aluminum, which annoyed India, Russia and other members as well. China, India and Russia have announced retaliatory measures.
The economic performance of the BRICS bloc has been mediocre, except for continued high growth rates in China and India. In the latter half of this year, China’s exports will face challenges from China-US trade friction, as will the exports of other BRICS members. So far, the BRICS members have yet to collaborate to lower tariff barriers and facilitate free trade amid pressure from US protectionism. This factor will push the members to overcome the obstacles within the BRICS mechanism and step up to a new level.
Trade between China and other BRICS members has increased, but there is still space for growth. A proposal is expected at the summit that will promote stronger trade cooperation. But how this proposal is put into practice will depend on the progress made by the working groups and relevant government departments after the summit.
The major question for BRICS members is what are the most promising products that can substitute for US products in China. Soybeans should not be the only example.
To achieve deeper cooperation on trade, Chinese industry associations and chambers of commerce at different levels will have to go abroad and establish branches in other BRICS countries. These branches will act as bridges between governments and enterprises, as well as local and Chinese companies. They will help both sides to learn each other’s needs and solve the problem of asymmetrical information.
Eventually, products from other BRICS members will fill gaps in the Chinese market left by US products. For example, China can encourage farm product associations to go to Brazil, energy associations to look at Russia and renewable energy associations to study India.
Political consensus among the members is important. But finding ways to connect with each other on the company and market levels is more crucial in the current international environment.
Trade between China and other BRICS economies is limited compared with China-US trade. Though their products can be substitutes in the short term, it is uncertain whether they can hold the Chinese market in the long run.
Although the importance of trade relations among BRICS members still cannot compare with the trade relationship with the US, there is room to expand. The members will need to bridge the gaps when it comes to political trust and economic differences. Given time, trade among BRICS members will catch up rapidly.