Brazil and Germany: A 21st-Century Relationship – Opportunities in Trade, Investment and Finance

On the surface, it would seem that Brazil and Germany present many opportunities for fruitful bilateral trade and investment. In terms of comparative advantages, the Brazilian export portfolio tacks heavily towards precisely the raw materials German manufacturers require—and lack domestically. Conversely, German producers specializing in high-end technological and knowledge-based goods could find an expanding consumer base both in the burgeoning Brazilian middle class and in business-to-business trade with Brazilian partners. In terms of investment, Brazil would appear to be a prime destination for surplus German savings. For example, Brazil faces an infrastructure deficit while German firms have achieved particular sophistication in this field. For German firms, investment in this sector in Brazil can offer returns currently unavailable in continental Europe.

To an extent, the statistics reflect the growing opportunities between the two. As this study demonstrates, both bilateral trade and investment have increased in recent years. Nevertheless, the relationship has yet to reach its full potential. Politics and policies have curtailed trade expansion. Brazil’s membership in the Mercosul trade bloc and Germany’s membership in the European Union have hampered the pair’s ability to forward a bilateral trade agreement, as each bloc maintains certain defensive positions that limit the other from exercising its comparative advantages. Capital flows between the two countries—especially long-term foreign direct investments—remain underwhelming.

This paper, jointly authored by economists and political scientists from the Bertelsmann Stiftung of Germany and the Fundação Getúlio Vargas of Brazil, reviews economic relations between the two countries with a particular focus on highlighting the opportunities while addressing the bottlenecks that slow bilateral trade and investment.