Lula calls for end to dollar dominance ahead of meeting with Xi Jinping

Brazilian President Luiz Inácio Lula da Silva is on a state visit to China from April 12 to 15. He will meet with Chinese counterpart Xí Jìnpíng 习近平 in a bid to strengthen ties with his country’s largest trading partner and elevate Brazil on the global diplomatic stage.

Lula, whose initial plans for a trip to China were postponed in March because he caught pneumonia, arrived in Shanghai yesterday to attend the inauguration of former Brazilian president Dilma Rousseff as head of the New Development Bank (NDB), also known as BRICS Development Bank. BRICS is the grouping of major emerging economies that includes Brazil, Russia, India, China, and South Africa.

In an impassioned speech, Lula urged for an end to the dominance of the U.S. dollar. “Every night, I ask myself why all countries have to base their trade on the dollar. Why can’t we do trade based on our own currencies?” he said to the applause of Brazilian and Chinese dignitaries at the event today. “Who was it that decided that the dollar was the currency after the disappearance of the gold standard?”

Earlier on February 7, the People’s Bank of China signed a memorandum of cooperation with the Central Bank of Brazil to establish yuan clearing arrangements in Brazil, as Beijing looks to create a rival currency system to challenge the U.S. dollar.

“Lula and Xi both envision a far more prominent role for the Global South, not just in global economic governance, but in shaping geopolitical outcomes,” Margaret Myers, a scholar at the Woodrow Wilson Center, told The China Project yesterday. “Whether and how Brazil and China would engage in a proposed alternative approach to peace brokerage is unclear. But the interests in bilateral engagement are many, and extend far beyond the trade realm.“

Lula also took a tour of Chinese telecom giant Huawei’s innovation center in Shanghai. He will travel to Beijing to meet with Xi on Friday. They are expected to discuss a number of cooperation agreements, as well as the Ukraine war.

Will Lula do “business as usual” with a stronger China?

Left-wing Lula’s trip comes as Brazil aims to thaw the frost created under the four-year tenure of his right-wing predecessor, Jair Bolsonaro. Bolsonaro had been a vocal critic of China despite his enthusiasm to expand trade ties between the two nations.

Known as an “old friend” in Beijing, Lula previously served as Brazil’s president from 2003 to 2010. He oversaw the deep engagement between China and Brazil’s economies, leading China to become Brazil’s largest trading partner in 2009.

“Practically speaking, the Lula administration will continue doing business with China just as the Bolsonaro administration did,” Rebecca Ray, a senior academic researcher at the Boston University Global Development Policy Center, told The China Project today. Under Bolsonaro, Brazilian exports to China grew, serving as alternative sources for key Chinese agricultural imports like soy and beef during the trade dispute between China and the U.S.

“In this regard, the Brazil-China relationship has not meaningfully changed based on the ideology or party of Brazilian leadership,” Ray added.

But Lula’s return to leadership will likely be more difficult than his past tenure, as he contends with China’s rise as a world power. He ended his last term two years before Xi took the helm in 2012 as China’s most powerful leader since Máo Zédōng 毛泽东.

“China is a far more powerful partner now for Brazil than it was during Lula’s previous time in office. This will presumably make it even more difficult for Brazil to forge a bilateral relationship that is as supportive of Brazil’s interests as it is of China’s,” Myers told The China Project. “China is of course exceedingly dependent on Brazil for imports of soy, but China’s many economic and strategic interests would appear to be front and center in many of the discussions unfolding in Beijing.”

Lula has proposed a free-trade agreement (FTA) between China and Mercosur, South America’s major trade bloc, which is at risk of being undermined by member countries seeking their own separate deals with Beijing. China is also a key investor in Brazil’s electric vehicle industry and a crucial partner in building out the South American country’s 5G network, in moves to develop a more sustainable bilateral trade relationship.

Navigating a geopolitical minefield

Lula’s trip to China comes during the same week that he marked his first 100 days of his third term in office, and just two months after his state visit to the U.S. and meeting with President Joe Biden in February.

A veteran leftist, Lula has prioritized shifting Brazil’s foreign policy to a more multilateralist stance, and has sought to maintain good relations with the U.S., China, and the Global South.

“Lula is attempting something of an international balancing act, including efforts to strengthen relations with the U.S. and other partners,” Myers told The China Project. “But Lula’s trip to Beijing is a very clear effort to underscore not just the economic importance of that relationship, but also the sort of political and strategic partnership that he promoted during his first presidency.”

But the task at hand is daunting. Lula must navigate an intensifying rivalry between the U.S. and China, which has been further inflamed by disputes over Taiwan and Beijing’s support for Russia over the war in Ukraine.

Deep economic linkages muddy a resolution to Ukraine

While a number of Latin American countries have been trying to remain as neutral as possible over the war in Ukraine, Lula is expected to discuss with Xi a “peace club” of countries, including Brazil and China, to help end the conflict between Moscow and Kyiv.

But given that China has a number of vested interests with Russia, such as its cheap energy exports and Moscow’s role as an ideological counterweight to the West, “it’s hard to imagine Lula’s proposed club achieving major gains in the near term, including any success in pressing Xi on Russia,” Myers told The China Project. “China’s alliance with Russia has been forged with China’s own economic and geopolitical interests in mind.”

Meanwhile, Brazil’s own interests with its largest trading partner are inextricably linked with its ties to Russia. In order for Brazil to produce key agricultural exports to China, it relies on a steady supply of fertilizer from Russia.

“Brazil’s imports of Russian fertilizer are crucial for its agricultural exports to China. So, as an open, developing economy, Brazil can no more disentangle itself from trade and investment with China and Russia than it can with the U.S. and Europe,” Ray told The China Project.

Update: Lula met Xi in Beijing on Friday. The official Chinese readouts (English, Chinese) call Lula an “old friend of the Chinese people;” and say the two leaders discussed their countries’ mutual interest in the “development of the global governance system in a more just and reasonable direction;” mention Lula’s visit to Huawei; name check the Belt and Road; report that various trade and cooperation agreements were signed, and call for peace in Ukraine without mentioning any specifics.