The trade relationship: what impact on Argentina can leave the election in Brazil

Luiz Inacio Lula da Silva’s victory in Brazil’s presidential runoff on Sunday signals a future of limited business expansion for Argentina, according to trade analysts. While experts predict that the historical commercial bond will remain largely unchanged, they warn of potential reductions in bilateral exchange due to a projected five percent devaluation of the Brazilian real. This economic shift occurs against a backdrop of continuing political tension between the newly elected Brazilian president and Argentine leader Javier Milei. Specialists suggest that unless diplomatic relations escalate, Lula’s fourth term will not significantly alter the trade relationship, nor will it accelerate investments or the negotiation of new commercial agreements. The economic stakes are substantial. Brazil stands as Argentina’s primary trading partner and the top destination for its exports. The automotive sector dominates this flow, accounting for approximately 40 percent of total shipments, data indicates. According to the Chamber of Exporters of the Republic of Argentina, dispatches to Brazil grew by 4.1 percent during the first eight months of the year, while imports fell by 17.2 percent. In August alone, Argentina sold goods and services worth $1.099 billion to its neighbor. Of that amount, $446 million was attributed to the automotive complex. Sales of dairy products rose 27.6 percent year-on-year, and energy sales increased by 80.8 percent. Despite these figures, Argentina recorded a trade deficit of $2.216 billion with Brazil. Other data points highlight the scale of the dependency. A report from the Rosario Stock Exchange noted that 64 percent of exports to Brazil consist of industrial origin manufactures, primarily linked to the auto industry. During the first nine months of 2026, Argentina exported nearly $10 billion to Brazil, a 4.5 percent increase over the previous year. Imports totaled around $12 billion, down 17 percent in the same period. Consequently, Brazil absorbed 12.7 percent of Argentine exports and supplied 21.4 percent of its imports. This makes Brazil the main buyer of national goods and the second-largest supplier after China. For the period from January to September, the trade deficit exceeded $2.2 billion. Analysts argue that Brazil’s integration with the global market will face delays under Lula. They cite the challenge posed by the coexistence of left-wing leadership in the executive branch and the dominance of the Liberal Party in the legislature. This dynamic is expected to create friction in passing laws involving regulatory changes. Dante Sica, former production minister and head of Abeceb, stated that entry into the Brazilian market will remain difficult. He described Brazil as a closed economy burdened by bureaucratic hurdles similar to those present during the Kirchner era. Sica warned that the depreciation of the real would reduce the competitiveness of Argentine products by making them more expensive for Brazilian importers. Sica acknowledged that trade volume could multiply if access were simpler. However, he projects less dynamism in external relations, with agendas for signing agreements within and outside Mercosur likely to stall. He advised that the greater tension between the Brazilian executive and Congress will lead to limited growth and governability issues for Lula. Unless a reform plan allows for rapid economic recovery in Brazil, which positively impacts Argentina through higher export volumes rather than exchange rates, the outlook remains constrained. Sica emphasized the need to lower systemic risk for regional investments, a goal achieved during the administrations of Mauricio Macri and Jair Bolsonaro, who shared ideological affinity with his son Flavio. Ricardo Diab, president of the Argentine Confederation of Medium Enterprises, noted that despite tariffs and border advantages, small and medium enterprises continue to face difficulties placing merchandise in Brazil. He highlighted years of private sector efforts to open markets through meetings and fairs. Diab expressed doubt about major changes without improved diplomatic dialogue and pending negotiations. He urged both sides to activate Mercosur mechanisms if deep bilateral reforms fail to materialize. Marcelo Elizondo, an international business specialist, observed that Argentina has a greater dependence on the Brazilian market than vice versa. Argentina represents roughly 15 percent of its total exports to Brazil, whereas Brazil accounts for only 4 percent of Argentine foreign sales. Despite recent political frictions between Milei and Lula, bilateral trade continued to grow. This trend was facilitated by Argentina’s removal of restrictions such as SIRAs and the normalization of currency operations. The key question now is whether the incoming Brazilian administration will pursue greater opening of Mercosur or maintain the current restrictive framework. Elizondo suggested that a victory for Lula’s party implies continuity in the current regional integration scheme. Industrial sectors with strong presence in Mercosur, particularly automotive, metallurgical, and manufacturing industries, may feel more secure in a scenario that preserves regional protection built in recent years. An alternative scenario involving different political orientations might shift this balance, though specific details on opposing candidates' policies were not detailed in the immediate analysis. The consensus among observers is that the outcome hinges on the capacity of both governments to construct a common agenda beyond their domestic political differences.