In 2022, Brazil achieved a trade surplus of US$98.8 billion, a record in current dollars. This balance was obtained with a 1.7% increase in total exports compared to 2022 and, especially, an 11.7% reduction in the country's imports. This, however, was a result of trade in agricultural, fisheries and mineral products.

When analyzing the performance of the manufacturing industry, to which this Letter IEDI is dedicated, the picture is more controversial. It is a fact that the trade deficit of the sector fell and not only a little bit: from US$61.1 billion in 2022 to US$41.1 billion in 2023, that is, 1/3 lower. This, however, was accompanied by a contraction in its exports.

In 2023, foreign sales of manufacturing goods shrank 2.3% against 2022, to US$177.2 billion. It was the first time since the COVID-19 shock of 2020 that the sign was negative. As we will see in more detail below, out of the four technology intensity groups, three had stable or declining exports last year.

Thus, it was industrial imports that commanded the performance of the sector's foreign trade balance. The deficit fell because foreign purchases by the manufacturing industry as a whole shrank 10% compared to 2022, a rate not far from that caused by the pandemic (-13.2% in 2020).

At the origin of these lower imports is the weak dynamism of manufacturing, whose output fell 1.0% in 2023, but also the decline in some international prices, influenced by commodity prices, such as oil derivatives and chemicals.

The purpose of this Letter is to analyze the foreign trade flows of Brazilian manufacturing, according to the technology intensity of its branches. The methodology has been used for a long time by the OECD and periodically employed by the IEDI for the Brazilian case. 

There are four intensity ranges for the industry: high, medium-high, medium and medium-low. There are no branches classified as low-tech by the latest version of the OECD methodology. The low-intensity range contains goods from agriculture, forestry and fishing.

For 2023, the fall in the industry's foreign trade deficit was notably due to the medium-high technology group, whose negative balance shrank 21.1% against 2022, from US$82 billion to US$64.7 billion. This result was due to the virtual stability of its exports (+0.2%) and the drop in imports (-13.8%).

External purchases of medium-high technology industrial goods were the ones that fell the most in 2023 among the four ranges identified. The highlight was chemicals (-29.5%), which represent 45% of imports in this group.

The second category that contributed the most to the lowest industrial deficit was medium-low technology. This group is traditionally in surplus and generates the largest positive balance in the manufacturing industry. This is because it includes branches responsible for the initial processing of commodities, thus taking advantage of the competitiveness of our primary sector and of a lower exposure to the Brazilian economy's distortions than other branches further down in the production chains.

The positive balance of the medium-low range in 2023 reached US$54.6 billion, the highest in the historical series at current prices started in 1997. The increase was of 10.1% in relation to 2022. But even in this case, the improvement in the balance did not come from an expansion of exports, which fell 0.9% in 2023. Despite the rise in foreign sales of food (+5.0%), all other products in this group declined.

Thus, also for medium-low technology, the 2023 result was explained by the evolution of imports, whose drop reached 12.2%, being the second largest among the technology intensity ranges. In this case, the causative factor was the decrease in imports of petroleum products (-24.3%), under the influence of international prices.

The third positive contribution in 2023 came from the high-tech industry, whose deficit declined 4.6% to $40 billion. The drop was not large, but at least it was accompanied by an expansion of its exports: +8.8% versus 2022. It was the only significant positive variation among the four ranges, but it should be noted that it is also the only part of the industry whose exports are not yet back to pre-pandemic levels.

Exports of high technology goods in 2023 were about 20% below the level of 2019, in current values, and almost 30% below the annual average of the five-year period 2015–2019. Much of this reflects the impacts of the pandemic on the aircraft market.

It was not only foreign sales that helped the high-tech category; its imports also shrank 2.8%, driven by foreign purchases of electronics (-11.5%). Another highlight, positive in this case, concerning imports is the pharmaceutical industry (+8.8%), which after the pandemic has been systematically registering annual foreign purchases above US$10 billion.

Finally, the medium technology intensity industry, usually in surplus, presented a 32.3% reduction in its balance, being the only group to move in the opposite direction and weakening the improvement in the result of manufacturing as a whole. 

Exports of medium technology shrank 11.6%, mainly due to metallurgy (-13.7%), but also to non-metallic minerals and rubber and plastic. Its imports rose +1.3%, mainly driven by rubber and plastic (+2.0), which represent 30% of the external purchases of this group.

The full text is available in Portuguese.