Feeding the “Dragon” with Iron Ore

The CBS program 60 minutes run an interesting special on Brazil this past December 12, 2010 (http://www.cbsnews.com/video/watch/?id=7143554n).  The program, interesting in itself, brings a very important subtle aspect: the existing trade between China and Brazil.  Both members of the BRIC group (Brazil, Russia, China, and India), Brazil and China are by far the most active of the four in international trade.  China, the “dragon”, is hungry for foreign natural resources to leverage its necessary growth.  With limited natural resources, and the need to continue feeding economic prosperity at the risk of losing power, the communist Chinese government has turned to the largest provider of iron ore in the world: Brazil.  By far the world’s largest consumer of iron ore, China is draining “energy” (the iron ore, among other commodities) to sustain its development.  Interestingly, this topic brings together all three items of this blog: Energy, Economy, and Politics.  Energy can be seen as a generalization of the basic raw materials – the “fuel” – needed for China’s growth.  Economies are affected: not only Chinese and Brazilian, but also the world’s economy.  The artificially low Yuan-Dollar exchange rate has prompted the Brazilian government to recently propose a different currency (either the Chinese Yuan or the Brazilian Real) to be used as the basis currency for drafting contracts (observe this topic has been an agenda topic in the recent G-20 meeting in France – http://www.nytimes.com/2011/02/15/business/global/15group.html).  This would alleviate, for Brazil and for China, the uncertainties behind the current US-China foreign exchange war.  Politics: without the Brazilian raw material, China’s government would not be able to maintain economic growth.  The Chinese government is smart enough to foresee the toppling of the communist regime if economic growth is hindered: it happened to the defunct Soviet Union faster than one could blink, and without he help of Facebook and Tweeter!  So, two growing powers helping each other without American, European and/or Japanese interference … or so we believe.

About Jose Lage

School of Engineering
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