Brazil has agreed to accelerate negotiations on a long-delayed trade agreement between China and Mercosur, marking a significant reversal of a policy it had championed for years as the South American country seeks to diversify its trading relationships following new tariffs imposed by the United States.
The breakthrough came during a telephone conversation lasting more than an hour on Sunday between Chinese President Xi Jinping and Brazilian President Luiz Inacio Lula da Silva. According to a statement from the Brazilian presidency, the two leaders agreed on the importance of speeding up negotiations for a Mercosur-China agreement that includes the “necessary flexibilities” sought by Brazil.
The decision represents a notable shift in Brasília’s position. For much of the past decade, Brazil, alongside Argentina, regarded a free trade agreement between Mercosur and China as a potential threat to domestic industry and consistently worked to prevent such negotiations from advancing within the regional bloc.
The renewed momentum follows the introduction of new US tariffs on Brazilian exports. A 25 per cent tariff imposed by US President Donald Trump on part of Brazil’s exports came into force days before the leaders’ conversation. Washington subsequently announced an additional 12.5 per cent levy on 60 trading partners, including Brazil, citing inadequate efforts to combat forced labour.
Although the Brazilian government’s statement made no direct reference to the US measures, Lula told Xi that his administration “remains committed to diversifying markets and trade partners”. Earlier the same day, Lula published an opinion article in The Washington Post describing the new US tariffs as “a strategic mistake” and pledging to pursue alternative international partnerships.
The latest development builds on a broader expansion of Brazil-China economic ties. During their discussion, Lula and Xi reaffirmed plans to align their countries’ national development strategies while expanding cooperation in strategic and high-technology sectors, including artificial intelligence, satellite technology, critical-minerals processing and fertiliser trade. The two governments also announced a short-stay visa waiver agreement intended to encourage tourism and facilitate business travel.
China presented the conversation in broader geopolitical terms. According to the state news agency Xinhua, Xi expressed opposition to “external interference” in Brazil’s electoral process and reaffirmed China’s support for Brazil in safeguarding its sovereignty and independence. He also said the two countries should stand “firmly on the right side of history” while assuming a greater role in reforming global governance amid changing international circumstances.
The endorsement of a Mercosur-wide agreement with China represents a remarkable policy reversal for Brazil. The country had previously resisted efforts by Uruguay to negotiate independently with Beijing. Beginning in 2021, then Uruguayan President Luis Lacalle Pou pursued a bilateral free trade agreement with China, arguing that Mercosur’s protectionist policies were limiting Uruguay’s economic opportunities.
Brazil and Argentina opposed the initiative, maintaining that Mercosur’s founding Treaty of Asuncion requires members to negotiate trade agreements collectively under a common external tariff. Brazilian officials also feared that Chinese products could enter the wider Mercosur market through Uruguay, weakening the customs union.
After returning to office in 2023, Lula made halting Uruguay’s bilateral negotiations one of the priorities of his early foreign policy. During a visit to Montevideo in January that year, he persuaded Lacalle Pou to abandon the separate track by offering renewed regional cooperation, including infrastructure projects, financial support for Mercosur’s development fund and a commitment to suspend unilateral reductions in the bloc’s common external tariff. Uruguay subsequently agreed to pursue negotiations with China through Mercosur as a whole.
Brazilian industry has long shared the government’s reservations. In 2024, the Industrial Coalition, representing the country’s principal manufacturing associations, warned that a free trade agreement with China would be a “disaster”, arguing that manufacturers were already facing what they described as a “Chinese invasion” threatening planned investments worth 825.8 billion reais (more than US$150 billion). Marco Polo de Mello Lopes, coordinator of the group and head of the Brazil Steel Institute, warned that Chinese exports were being driven by state-backed policies that encouraged the disposal of excess production capacity at negative margins. He projected that approximately 500 billion reais (around US$97.6 billion) in planned investment could be frozen if a trade agreement proceeded. The carmakers’ association Anfavea similarly argued that the industry’s costly transition towards electrification made further market liberalisation ill-timed.
The political and economic calculus began shifting as US trade measures intensified. In February, Uruguayan President Yamandu Orsi travelled to Beijing with a delegation of around 150 officials and business representatives, where China and Uruguay issued a joint declaration calling for negotiations on a Mercosur-China free trade agreement to begin as soon as possible. Sunday’s agreement between Lula and Xi suggests Brazil has now aligned itself with that objective, while its emphasis on “necessary flexibilities” indicates that Brasília intends to seek safeguards for sensitive domestic industries during negotiations.
Beyond trade, the two leaders also discussed wider international challenges. They expressed concern over the impact of multiple conflicts on global food and energy security, warned that restrictions on free navigation through the Strait of Hormuz and Bab el-Mandeb were harming the world economy, and voiced concern over the continuing humanitarian crisis in Gaza. Lula and Xi also reaffirmed support for the Group of Friends of Peace, an initiative launched by Brazil and China at the United Nations in September 2024 to encourage a political settlement in Ukraine. The two presidents criticised the UN Security Council’s inability to respond effectively to international crises and pledged to maintain close coordination at both the United Nations and within BRICS.
