Carrying on his shoulders the future of Brazil’s relationship with China and his country’s place in the world, Brazilian president Inacio Lula da Silva landed in Shanghai on Tuesday. It was the start of a four-day visit that could put Brazil at the epicenter of one of the most significant geopolitical battles of our times.
The outcome could signal a red flag for the U.S. as Brazil leads South America in defining the future of the region and the balance of global power in an epic struggle for supremacy and influence over territory that was once considered America's undisputed backyard.
The red flag for America is, in fact, the Chinese flag. Vowing to "relaunch relations," strengthen ties and attract new investments, Lula aims to claim for Brazil an important piece in the global chessboard.
Shaped by health and circumstance, Lula’s opening move is one he hopes will set the tone for the rest of the visit and determine the strategic direction of the Brazil-China relationship. On Wednesday, he will attend the installing of his ally and former Brazilian President Dilma Rousseff as president of the BRICS New Development Bank in Shanghai.
This is a crucial move because Rousseff is an economist who has good relations with the Chinese leadership and BRICS has been trying since the Fortaleza Conference of 2014 to weaken the dollar’s dominance. The NDB, with its expansion drive that already includes Bangladesh and the UAE and the ability to fund massive projects, is in a position to promote and leverage non-dollar transactions.
Over time, success of the strategy away from the dollar would decrease demand for the dollar and the amount of dollars needed as reserves for international transactions. This is worrying for the United States and there are quiet grumbles about it. That is because the dollar’s dominance and its use as an international settlement currency is the ultimate source of most U.S. power. Because dollar transactions go through New York, the U.S. is also in the unique position of being the one country that can impose economic sanctions on any other country on Earth with a high degree of effect.
Among the 20 or so agreements that are expected to be signed during Lula’s trip is one that establishes the settlement of China-Brazil transactions in Yuan and Reals instead of dollars. This is possible because the Chinese and Brazilian currencies have a degree of stability and belong to large, diverse countries, a fact that lowers the exchange rate risk. The development of currency swap agreements makes the transactions themselves doable. China and Brazil signed an agreement in 2019.
China has been promoting its own currency as an alternative to the US dollar in global trade and investment with marginal success, but this agreement with Brazil means that the largest economy in South America will be settling transactions with its largest global trading partner without using the dollar. It is the demand for dollars that props up its value, and indirectly underwrites America’s economy.
Florida Senator Marco Rubio is a lone high-profile voice loudly raising the alarm about this. But the success of the Lula visit in broadening Chinese influence in South America might be seen as a hostile act toward the United States by Rubio’s Republican Party, and it may soon be reviving the 200-year-old Monroe Doctrine —which has been used often by America as a justification for aggressive foreign policy initiatives, including the establishment of U.S. bases, military interventions, and support for anti-communist regimes during the Cold War — to react to Chinese influence in its old back yard.
Lula has said that his approach with China does not mean distancing from the U.S. But the reality is that it does mean a threat to the U.S. interests. It could be seen as a sign that China is, in fact, consolidating its efforts in South America. Brazil represents 30 percent of its geography and 50% of its population.
There are other red flags for the U.S.
When Lula visited Washington at the invitation of U.S. President Biden, he took a small delegation for a visit of 24 hours.
For his China visit, Lula put together a delegation of over 200 people, including 5 state governors, the country’s congressional leadership along with 5 ministers of government, senators and deputies, along with leaders of business and industry. They filled two planes.
This clear signal of the importance of China to Brazil could herald lasting effects on the country’s geopolitical position and influence. Lula also hopes to get a boost and Chinese blessing to his plan to become the peacemaker between Russia and Ukraine, a harder sell as we will see below.
In 2004, Lula, then in his first term as president, embarked on a four-day visit to China, aiming to strengthen the ties between the two emerging economies. During his second term, Lula visited China again in 2010. The visit was crucial as it came at a time when the world was recovering from the financial crisis, and Brazil was looking to expand its reach and influence as part of the BRICS alliance. The visit helped cement China and Brazil's strategic partnership, which Lula is looking to build on during this visit.
In 2013, China was emerging as a major player in the global economy, and Brazil, as the "B" in BRICS, was also making strides. Lula's visit was, thus, an opportunity to explore ways in which the two countries could work together to further their interests and challenge the existing world order.
Fast-forward back to 2023. The world has changed significantly. Russia, the "R" in BRICS, is now seen as a pariah by much of the world and is facing international sanctions and isolation. China, on the other hand, is still rising, now openly challenging the United States and asserting its influence in various regions of the world. Brazil is then in a unique position to leverage its relationship with China and its growing influence to make for itself the role of an important piece on that global chessboard.
But chess is about war, and Lula says he wants to promote peace.
That may be a tall order in a world where the R in BRICS is at war, and the C is indifferent. Russia has been a strategic partner for China in challenging the West.
Both countries using the global hostilities to flush out a form of catharsis over longstanding grievances against the U.S. and the West that date back to the Soviet times and the Opium Wars in China. Lula may find himself the cultural and historical odd-man-out in getting a BRICS nod to play the role of mediator or peacemaker. There are grand chess strategies that do not need the extra piece.
The "neutral" approach of negotiating peace without the withdrawal from occupied lands is not a position likely to make any friends or influence with the United States or the West.
Lula is seen as more likely to have better luck with his other initiatives. He has said he is looking for Chinese investment in Brazilian agrobusiness, infrastructure, and the environment.
Not to sell Brazil to China, says his administration, "but to industrialize Brazil in partnership with China." The broadest consensus in Brazil is that it gains by Chinese participation. The unanswered question so far is, What type of participation it is, and how it looks once it is implemented.
Opposition politicians want the technology exchange but are weary of the model of Chinese involvement seen in Africa that has created much criticism for what they see as an exploitative model.
Critics point out that next-door Argentina has not achieved the quality of investment that it had hoped for. Reports of shoddy workmanship, mismanagement, Chinese takeover of tracts of land, and hidden debt are not the quality of the investment business sectors want to see in Brazil.
The U.S. is currently the largest source of foreign investment in Brazil. Though China is the world’s second-largest economy, it is increasingly seen in Latin America as the premier economic power.
Lula has pledged to restore Brazil's global leadership role, which was undermined by his predecessor, Jair Bolsonaro’s nationalist and far-right policies.
China is welcoming him as an "old friend."
One expected development is a move to join Xi Jinping’s massive One Belt one Road Initiative, which is evolving into a "Silk Road Economic Belt," focusing on infrastructure development and investments in routes that connect to China. Xi Jinping has been presiding over significant inroads into the region, investing heavily in infrastructure, trade, and diplomacy.
The continent is home to vast natural resources and a growing population, making it a key battleground to expand Chinese reach and influence, filling in the U.S. void.
The partnership with China has the potential to bring significant economic benefits to Brazil. China is already a major investor with 47% of all its investments in Latin America going to Brazil.
China's demand for soybeans, iron ore, oil, and meat has helped fuel Brazil's rapid growth making it the world's sixth-largest economy, but it is an uneven relationship that Lula hopes to negotiate better for Brazil.
Chinese culture reaches across the geography and demography of Brazil, but in China Brazilian culture and Brazilian goods barely register with the population. It is a huge market that Lula is eager to open for his country, and the large numbers of business and industry chiefs in his delegation underscore the importance it gives China for its economic future.
However, Brazilian talk radio and media are watchful and somehow apprehensive. Lula, they say, must be cautious in the partnership with China. They are afraid that it may not align with the country’s culture, domestic priorities, and values.
China has been criticised for its environmental degradation; Brazilian voters and Lula critics will be watching to see how agreements reconcile with the president’s agenda of environmental protection.
Lula will be meeting with Xi Jinping and the high leadership of the Communist party Thursday and is expected to negotiate several agreements. Chess moves can be gambits, blunders, or brilliant strategies.
To avoid a blunder, Brazil must ensure that its partnership with China does not come at the expense of its relationship with the United States, points the Washington-based Center for Strategic and International Studies Americas Program.
Standing in Beijing, on one side of the world’s complex chessboard, it is Lula’s move that the world is watching.
