The trade balance of Brazil’s manufacturing industry has been in deficit since the 2008–2009 global crisis, under competitive pressure from China, which, in this context, sought to diversify its markets. In Q1 2025, our trade deficit persisted, now facing the risk of a new wave of displacement of Brazilian industrial products by Chinese competitors in both external and domestic markets.

A previous IEDI study showed that, in Brazil, the import penetration coefficient for manufacturing goods rose from 15.8% in 2010 to 23.2% in 2023, widespread across its segments, with China alone accounting for 42% of this increase. Another study found that out of the ten main external markets for Brazilian industry, China gained ground in eight of them over the past decade, with its exports ranging from 9 to 12 times the value of Brazil’s sales.

Alongside this process, in addition to the trade deficit in industrial goods, there has been a strong concentration of primary products in our export basket, undermining the complexity of our economy, as discussed in Letter IEDI No. 1292, as well as a reduction in the share of higher-technology industrial goods in our external sales.

Exports of high- and medium-high-technology industrial goods, which accounted for 33% of Brazil’s total exports in 2005, dropped to 22% in 2015 and to just 14% in 2024. The trade balance for these goods went from a deficit of US$7 billion in 2005 to a deficit of US$124 billion in 2024, in current values.

Today’s Letter IEDI analyzes the evolution of foreign trade flows for Brazil’s manufacturing industry goods by technological intensity groups in Q1 2025. The classification of activities by technological intensity is based on the OECD methodology, with four of the five intensity ranges encompassing manufacturing goods: high, medium-high, medium, and medium-low. The low-intensity range includes goods from agriculture, forestry, fishing, and aquaculture.

In Jan–Mar 2025, the trade deficit for manufacturing goods reached US$19.2 billion, maintaining the strong year-on-year increase (+48.6%) observed since Q2 2024.

Much of this, however, was due to the deficit in medium-technology-intensity goods (US$-1.1 billion), driven by the accounting effect of importing an oil platform. Typically, this range shows a trade surplus.

Excluding this factor, the total deficit of manufacturing would have grown by 27.7% compared to Jan–Mar 2024, still a significant rate but much lower than in previous quarters (+51% in Q3 2024 and +56% in Q4 2024).

The high-technology deficit rose by 11.8% compared to Q1 2024, reaching US$-12.4 billion, despite a third consecutive quarter of strong export growth (+12.8% in Jan–Mar 2025), driven by all its components.

In the medium-high technology range, the deficit reached US$18.8 billion in Q1 2025. Although it maintained a double-digit growth rate (+16.9%), it slowed significantly compared to previous quarters, when the deficit grew at a rate above 20%.

The automotive industry was primarily responsible for this slowdown in the medium-high range, as its deficit decreased by 22% between Q1 2024 and Q1 2025. This was due to a 24.1% increase in exports of these goods, alongside a much slower growth in imports at the start of the year (+3.8%). This was partly driven by a decline in imports of electric and hybrid vehicles, which have been progressively taxed since last year.

Finally, medium-low technology manufacturing goods, which are closer to the initial stages of commodity processing chains, traditionally show a positive trade balance in Brazil, benefiting from our competitiveness in raw material production.

In Q1 2025, the surplus in this range was US$13.1 billion but remained virtually stagnant compared to Q1 2024, interrupting a sequence of expanding quarters. Our exports grew by only +1.1%, due to declines in metal products (-2.2%) and food, beverages, and tobacco (-3.3%). Meanwhile, imports of these goods rose by 2.4%, following a decline at the end of last year (-2.5%).

It is also worth noting that, in the medium-low technology group, the textile, clothing, leather and footwear, and metal products branches recorded a billion-dollar deficit in current dollars for the first time in the Jan-Mar period: US$-1.1 billion, 20.5% higher than the deficit in Q1 2024.

The full text is available in Portuguese