Geopolitics and Trade Links in the Global Context

Challenges and Strategies of Lula’s Government

Let us not be naïve; SELIC movements are not as foolish as the left suggests. Exaggerated, perhaps… but the future of all G20 nations is subject to thunderstorms and scattered storms in the coming period.

Let us be ants… those who choose to act as grasshoppers may face a far harsher winter than they expect.

The global economic and political landscape, exacerbated by trade tensions, protectionism, and incumbent crises, has challenged emerging economies to find new strategies to ensure stability and growth.

President Luiz Inácio Lula da Silva’s government, in its third term, faces a context marked by persistent high interest rates, resilient inflation, and fluctuations in advanced economies, particularly in the United States. Nevertheless, Lula has embraced active commercial diplomacy as a response to these challenges.

Global Economic Tensions

In the United States, the risk of recession and protectionist economic policies, intensified by the nationalist rhetoric of former President Donald Trump and the continuation of some of these measures under Joe Biden, have global repercussions. Tariffs on foreign products raise domestic costs, fuel inflation, and pressure the Federal Reserve (Fed) to maintain a tight monetary policy. This scenario challenges interdependent economies like Brazil, which rely on robust external markets for exports.

Recent examples highlight the impacts of such policies. The United States-Mexico-Canada Agreement (USMCA), which replaced NAFTA, introduced clauses that further limit commercial advantages for North American partners. Additionally, Trump’s threats to annex Canada as a “state of the US” during bilateral meetings underscore a hostile environment for international negotiation.

Another destabilising factor is the ongoing trade war between the US and China. While it reduces US dependence on Chinese goods, it disrupts global supply chains.

For Brazil, the slowdown in trade between these powers represents direct risks, as China and the US are its two main export destinations.

The Incumbent Crisis and the Post-COVID Landscape

In the post-pandemic era, the world faces the atypical convergence of high inflation and elevated interest rates, complicating traditional economic policies.

The “incumbent crisis,” a phenomenon where leaders seeking re-election lose support due to economic deterioration, reflects these challenges. Examples include Donald Trump’s defeat in 2020, Jair Bolsonaro’s in 2022, and other leaders in countries such as Uruguay and Argentina.

This global instability demands innovative solutions. In Brazil, internal disputes between the Executive and Legislative branches, combined with a shift in Congress’s profile—from “fiscalist” to “amendment-focused”—add another layer of complexity to governance and the implementation of structural reforms.

Geopolitics and Lula’s Strategies

Faced with these adverse conditions, Lula’s government has turned to commercial diplomacy as a central pillar of its geopolitical strategy.

Strengthening ties with emerging powers, fostering regional partnerships, and diversifying markets aim to reduce Brazil’s dependence on unstable economies like that of the United States.

Partnerships with BRICS and the Belt and Road Initiative

One key front has been the consolidation of BRICS (Brazil, Russia, India, China, and South Africa).

At the Johannesburg summit in August 2023, Lula advocated for greater commercial integration and the use of local currencies in international transactions.

This measure seeks to mitigate the effects of currency volatility, particularly in relation to the US dollar, which continues to dominate global trade.

China, Brazil’s largest trading partner, plays a pivotal role in this strategy. The bilateral agreement signed in 2023, allowing trade transactions in yuan and real, exemplifies this attempt to bypass the dollar.

Moreover, Brazil’s inclusion in projects linked to the Belt and Road Initiative presents an opportunity to attract investments in infrastructure and technology.

Regional Agreements and New Markets

In Latin America, Lula’s government has revitalised Mercosur and sought to finalise the long-negotiated free trade agreement with the European Union.

Despite European resistance regarding environmental concerns, Lula aims to position Brazil as a leader in the green transition, highlighting progress in combating Amazon deforestation to unlock the deal.

Furthermore, the recent rapprochement with African countries reflects a long-term strategy to diversify Brazilian exports and boost South-South cooperation.

In October 2024, Lula made a historic trip to the continent, forging strategic partnerships in sectors such as renewable energy, mining, and agricultural technology.

Domestic Reforms and Market Signalling

Domestically, the government has pursued structural reforms to attract international investors.

The approval of the tax reform in 2023 marked an important milestone, signalling a commitment to greater fiscal simplification and efficiency. However, challenges persist, especially given Congress’s resistance to more austere agendas.

Despite criticism, Lula has garnered support from pro-market sectors to pass measures aimed at boosting Brazil’s competitiveness.

Recently, representatives from the financial sector, known for their pragmatism, intervened in congressional negotiations to unlock economic agendas.

Conclusion: Overcoming Turbulence

Lula’s government faces a world marked by economic and political uncertainty but has embraced multilateralism and economic diplomacy as ways to overcome these adversities.

While the global context remains challenging, Brazil’s initiatives to diversify markets, promote strategic partnerships, and advance structural reforms suggest a promising path forward.

The key to success will lie in the government’s ability to balance internal and external interests, using geopolitics as leverage to drive sustainable growth amidst global complexity.

The execution of these strategies will determine whether Brazil can solidify its position as a relevant actor on the international stage or remain vulnerable to external turbulence.

Sérgio Vieira

@sergiovds at X, Bluesky, Threads, Mastodon, Medium, Instagram

mailto: Projeto Impressões Digitais

Brazilian Portuguese version in Medium