The Magnitsky Act: Scope, Applications, and Repercussions for Brazilian Citizens.

 

The Magnitsky Act: Scope, Applications, and Repercussions for Brazilian Citizens.

By Alberto Murray

 

 

 

  1. Concept and Origin.

The Magnitsky Act is legislation originally enacted by the United States in 2012 in response to the death of Russian lawyer Sergei Magnitsky. He had exposed a corruption scheme involving Russian authorities and died in state custody under suspicious circumstances. The law was created to sanction individuals involved in serious human rights violations and transnational corruption. Over time, its scope was expanded through the Global Magnitsky Human Rights Accountability Act (2016), allowing the U.S. to apply sanctions to any foreign person or entity involved in such conduct, regardless of nationality.

  1. Sanctions Provided

Sanctions under the Magnitsky Act primarily include:

  • Freezing of assets in the United States;
  • Ban on entry into U.S. territory;
  • Prohibition on transactions with U.S. individuals and companies.

These sanctions are administrative and unilateral in nature and do not depend on prior judicial conviction in the sanctioned person’s country of origin.

  1. International Expansion

Other countries and blocs have adopted similar legislation, such as:

  • Canada (Justice for Victims of Corrupt Foreign Officials Act, 2017);
  • United Kingdom (Sanctions and Anti-Money Laundering Act, 2018);
  • European Union (Global Magnitsky Sanctions Regulation, 2020);
  • Australia and Estonia, among others.
  1. Targeted Individuals and Countries

Since its enactment, the Magnitsky Act has been applied to hundreds of individuals and entities from various countries, including:

  • Officials from Russia, China, Venezuela, Myanmar, Saudi Arabia, Iran, and North Korea;
  • Businesspeople, security forces personnel, intelligence agents, and political leaders involved in:

(a) Torture, extrajudicial executions, forced disappearances;
(b) Systemic corruption, such as embezzlement of public funds and bribery.

Notable examples include:

  • Saudi officials involved in the assassination of journalist Jamal Khashoggi;
  • Myanmar generals implicated in the repression of the Rohingya people;
  • Venezuelan officials tied to political repression and civil rights violations.
  1. Impact on Brazilian Citizens

Technically, a Brazilian citizen may be sanctioned under the Magnitsky Act if deemed by U.S. authorities (or those of other countries with similar laws) to be responsible for serious human rights violations or internationally significant corruption.

Possible consequences include:

  • Freezing of assets held in U.S. bank accounts;
  • Inability to travel to or conduct business with entities in the U.S.;
  • Inclusion on international sanctions lists, with banking and diplomatic implications.

However, there is no direct civil or criminal effect in Brazil unless Brazilian authorities decide to cooperate judicially or administratively with the sanction, which depends on sovereign discretion and often on international agreements.

  1. Legal Limitations

Application of the Magnitsky Act to Brazilian nationals respects Brazilian sovereignty: it has no direct extraterritorial effect on civil or political rights within Brazil. Nevertheless, its practical effects can be far-reaching internationally, especially in financial operations, global reputation, and international mobility of the sanctioned individual.

  1. Practical Effects of the Magnitsky Act on a Sanctioned Brazilian Citizen

Although the Magnitsky Act is an extraterritorial, administrative, and unilateral sanction (with no legal force in Brazil), its practical effects can be extensive, particularly when involving U.S. companies or those operating with U.S.-based technology and infrastructure. Key impacts include:

7.1. Digital Services and Technology Platforms

If a Brazilian individual is sanctioned under the Magnitsky Act, U.S. companies are legally required to immediately terminate any direct or indirect commercial relationship with that person. This may include:

Suspension or blocking of accounts with services such as:

  • Google (Gmail, YouTube, Google Drive)
  • Apple (iCloud, App Store)
  • Meta (Facebook, Instagram, WhatsApp)
  • Amazon (product purchases and Prime Video access)
  • Microsoft (Outlook, OneDrive, Teams, Xbox Live)
  • Netflix, Spotify, and other U.S.-based streaming platforms

These companies, even when operating in Brazil, follow the laws of their home country and block accounts linked to sanctioned individuals based on name, taxpayer ID (CPF), email, IP address, credit card information, physical address, and other associated data.

7.2. Use of Apps and Digital Stores

  • Block downloading or updating apps via Google Play or Apple App Store;
  • Restrictions on digital payment services such as Google Pay, Apple Pay, and PayPal.

7.3. Credit Cards and Financial Operations

Automatic cancellation of credit or debit cards issued by institutions operating under U.S. networks, such as:

  • Visa
  • Mastercard
  • American Express
  • Elo (in some cases, due to partnerships with international issuers)

This results from legal requirements prohibiting these companies from transacting with sanctioned individuals.

Restrictions also apply to the use of digital currency platforms or banks with U.S. correspondents, including cryptocurrency exchanges operating with dollars through U.S. institutions.

7.4. Banks and Brokerages in Brazil

Although the sanction does not compel Brazilian institutions to act, many avoid relationships with sanctioned individuals to prevent retaliation from the international financial system (such as losing access to U.S. dollar clearing or being subject to secondary investigations). As a result, the sanctioned person may:

  • Have bank accounts closed due to internal compliance procedures;
  • Be blocked from purchasing foreign currency (even for travel or business);
  • Be prevented from making international transfers, especially in U.S. dollars.

7.5. Reputational and Commercial Barriers

Brazilian companies operating with the U.S. or relying on U.S. technology may refuse to contract with or maintain relationships with the sanctioned individual out of fear of secondary sanctions (the so-called “chilling effect”).

This includes law firms, auditing firms, multinationals, e-commerce platforms, international shipping companies, insurers, travel agencies, and more.

7.6. Diplomatic and Mobility Restrictions

A sanctioned Brazilian citizen will not be able to obtain a U.S. visa or even make a flight connection in U.S. territory.

There may also be difficulties obtaining visas for U.S.-allied countries such as the United Kingdom, Canada, Australia, and members of the European Union, especially if they recognize or adopt similar measures.

  1. Final Considerations

Although the Magnitsky Act does not have binding legal force in Brazil, it can materially affect Brazilian citizens when involving companies or financial flows with direct or indirect connections to the United States. In practice, this can result in digital, financial, commercial, and even social exclusion — even without any legal proceedings in Brazil.

The impact is amplified by the global interdependence of payment systems, technology, and communication, all of which are heavily anchored in U.S. infrastructure.

July 2025

 

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Hydropower auction in Brazil faces delay over legal concerns

Energy regulator questions legality of ministry rule on concession terms in R$1.1bn auction to resolve hydropower shortfall debts

07/30/2025

Just two days before the auction meant to resolve Brazil’s hydrological risk (GSF) impasse, the process faces new uncertainty. Scheduled for August 1 and organized by the Electric Energy Trading Chamber (CCEE), the auction was called into question after Fernando Mosna, a director at the National Electric Energy Agency (ANEEL), said a Ministry of Mines and Energy (MME) ordinance regulating the mechanism is illegal.

The criticism, raised during ANEEL’s board meeting on July 29, led Mr. Mosna to request a review of the case, halting its analysis indefinitely. He argued that the ministry’s ordinance oversteps legal boundaries by setting parameters that contradict provisional presidential decree (MP) No. 1,300/2025, the legal basis for the auction.

At the center of the dispute is the difference between the Weighted Average Cost of Capital (WACC) established by the MP and the rate adopted in the ministry’s ordinance.

The MP 1,300 requires that compensation calculations follow ANEEL’s guidelines for concession extensions, as defined in Normative Resolution No. 1,035/2022, which sets the WACC at 9.63% per year. But Ordinance No. 112 sets a 10.94% annual rate in Article 7.

A higher WACC implies longer concession extensions, which Mr. Mosna said creates an economic distortion favoring generation companies and directly harming consumers, since power generation assets belong to the federal government.

“This ordinance is illegal, this concession extension based on a WACC of 10.94% is illegal,” he said. “I understand there’s an auction scheduled, but since the provisional decree is valid until September 17, I believe there’s still time to ensure the auction is carried out properly, legally, and rigorously. This call for bids should be suspended, maybe held on August 15 or September 1, still within the MP’s validity period, but with legal certainty and predictability to avoid the worst.”

It is up to the CCEE and MME to decide whether to postpone the auction. The CCEE did not respond to requests for comment. The MME, in turn, said the ordinance aligns with MP 1,300, was subject to public consultation, complies with legal criteria, and is backed by both technical and legal analysis.

“The MP aims to resolve and unlock up to R$1.1 billion in unpaid liabilities in the Short-Term Market, an issue pending for more than ten years,” the ministry said. “The MME highlights the importance of liquidity in the energy market to ensure investment and the sector’s sustainability while preventing further litigation.”

Financial bottlenecks

The auction seeks to solve one of the energy sector’s major financial bottlenecks. Under the plan, affected generators would purchase government bonds and, in return, receive concessions extensions (limited to seven years) as compensation.

Market players such as Engie, Abrage, Statkraft, and Abragel had already contacted ANEEL requesting clarification on the auction rules. Their concerns included the length of the extensions, the legal framework for energy sales during the extended term, and whether quota plants could freely allocate energy.

Mr. Mosna is expected to send a formal inquiry to the MME on these issues. The case’s rapporteur, director Agnes da Costa, submitted a vote addressing some concerns. She proposed allowing continued tariff discounts during the extended period and clarified that the extension would not alter the quota regime defined in existing concession contracts.

Ms. Costa also noted, citing a legal opinion from ANEEL’s Federal Attorney’s Office, that the seven-year limit applies only to extensions granted through the auction and does not affect any additional extensions provided by other laws or regulations.

In response to Mr. Mosna’s concerns, she suggested adding a recommendation to her vote that the MME reconsider its WACC decision and, if necessary, temporarily suspend the auction. While the proposal was well received by other board members, it did not satisfy Mr. Mosna, who pushed for a stronger recommendation urging immediate suspension. With no consensus, he exercised his right to review the case, putting the process on hold.

*By Marlla Sabino and Robson Rodrigues  — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazilian coffee may be spared U.S. tariffs under new trade deals

Commerce Secretary Howard Lutnick also mentioned pineapple, cocoa, and mango as products that could qualify for exemption

 

 

07/30/2025

U.S. Commerce Secretary Howard Lutnick said on Tuesday (29) that imports of non‑U.S. grown goods, such as coffee and cocoa, could be exempted from tariffs in new trade agreements. He explained that the administration is evaluating such exemptions, which could benefit exporting countries like Brazil, although he did not specify which nations might qualify.

In an interview on CNBC’s Squawk Box, Mr. Lutnick said: “If you grow something and we don’t grow it, that can come in for zero, so if we do a deal with a country that grows mangos, pineapple, then they can come in without a tariff, because coffee and cocoa will be other examples of natural resources.”

Of the four products mentioned by the U.S. official—coffee, cocoa, mango, and pineapple—coffee could offer Brazil the greatest advantage. The country was the top coffee supplier to the U.S. last year. Of the $6.3 billion imported by Americans, 30% came from Brazil. Colombia ranked second with a 21% share, and Guatemala third with 7%.

For Brazil, the U.S. remained the top destination for Brazilian coffee in 2024, with $1.9 billion in sales, ahead of Germany ($1.8 billion) and Belgium ($1.1 billion). Americans have never spent so much on Brazilian unroasted coffee as in 2024, but the 17% share of Brazil’s total coffee exports was the second lowest in the past ten years, above only the 15% seen in 2023.

Coffee was the third most exported Brazilian product to the U.S. last year, trailing only petroleum ($5.8 billion) and semi-manufactured non-alloy iron or steel products ($2.8 billion).

According to a source in the coffee export industry, there is still a great deal of uncertainty. And while Mr. Lutnick’s remarks were an important signal for the sector, a potential exemption might not apply automatically to all countries or products and could also depend on bilateral negotiations.

Another product where Brazil plays a relevant role in sales to the U.S. is mango, which accounts for about 12% of American imports—making Brazil the fourth-largest supplier—although with much smaller trade values. Brazilian data shows the country exported $46 million in mangoes to the U.S. last year, ranking 101st in overall exports to the American market.

Brazil did not rank among the top 25 suppliers of cocoa beans or fresh pineapple to the U.S. last year.

Mr. Lutnick said all tariffs will be finalized by Friday, the deadline set by President Donald Trump for countries to reach trade agreements with the U.S.

On Monday, the U.S. president said that countries that have not received letters from the White House would be subject to a universal tariff of 15% to 20%. Mr. Lutnick reinforced that message on Tuesday: “But for the rest of the world, we’re going to have things done by Friday. August 1 is the date that we’re setting all these rates.”

The Brazilian government was notified by the White House on July 9 that it would face a 50% tariff: the highest rate announced in any of the letters sent by Mr. Trump. In the letter, the U.S. cited alleged “unfair trade practices” by Brazil and a supposed “witch hunt” against former President Jair Bolsonaro, who is on trial before the Supreme Federal Court for attempting a coup d’état.

The tone of Mr. Trump’s communication surprised Brazilian officials. Diplomatic officials noted that the president explicitly mixed political issues involving Mr. Bolsonaro with technical matters of bilateral trade—a move considered unprecedented in the 200-year history of relations between the two countries.

Last week, Mr. Trump said some countries received 50% tariffs because they had not “gotten along well” with the U.S. government. He did not mention Brazil by name, but it was the only country among the 25 letters sent by the Republican leader that received the 50% rate.

Commenting on ongoing negotiations with other countries, Mr. Lutnick said U.S. and European Union officials are still discussing tariffs on steel, aluminum, and digital services, continuing talks aimed at advancing the agreement announced Sunday by Mr. Trump and European Commission President Ursula von der Leyen.

Reporting by Isadora Camargo in São Paulo, with Reuters.

By Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Vale Q2 profit expected to drop 41% on weaker iron ore prices

Revenue and EBITDA also seen lower as volumes and prices decline

 

 

07/29/2025 

Vale is expected to report weaker results in the second quarter, due to lower iron ore prices during the period. According to projections from five firms consulted by Valor—Citi, Itaú BBA, BTG Pactual, Goldman Sachs, and Ativa Investimentos—the mining company’s net income, revenue, and EBITDA should all fall short of the results posted between April and June of 2024. Vale is scheduled to release its earnings after markets close on Thursday (31).

The company’s revenue is projected to reach approximately $8.8 billion, down 11.1% from the same period last year. Net income is expected to average $1.6 billion, a drop of 40.7%. EBITDA is forecast to fall 18.9%, to $3.1 billion.

Ativa noted that even though Vale posted higher-than-expected production in the second quarter, weaker prices disappointed expectations.

Itaú BBA said the quarter was marked by rising inventories and a focus on mid-grade products.

Production and sales data released by Vale on July 22 showed that total sales of iron ore fines, pellets, and run of mine (ROM), a type of raw ore, reached 77.35 million tonnes in the second quarter, a 3.1% year-over-year decline.

Sales of iron ore fines alone totaled 67.68 million tonnes, 1.2% lower than the same period in 2024. Pellet sales dropped 15.6% year over year to 7.48 million tonnes.

Vale attributed the lower iron ore sales to its strategy of optimizing its product portfolio, with a concentration of shipments to China, leading to longer delivery times. Stock rebuilding after first-quarter production and shipping constraints also contributed to the lower sales.

The lower volumes came alongside weaker realized prices. The average price for Vale’s iron ore fines in the second quarter was $85.10 per tonne, down 13.3% from a year earlier. Pellet prices averaged $134.10 per tonne, a 14.7% decrease. In both cases, the declines reflected falling international benchmarks.

BTG Pactual said the Q2 production and sales figures reinforce Vale’s message that market conditions for high-grade ores remain weak. “While we believe Vale’s focus on product mix is the right call in a volatile market, it also highlights how unfavorable conditions remain for higher-quality ores,” the bank said.

Goldman Sachs pointed to lower iron ore prices and a stronger Brazilian real as potential risks going forward, both of which negatively affect Vale’s profit. Still, the bank viewed the mining giant’s strategic positioning favorably: “The reality, not just for Vale, is that mining quality is declining and the market is not rewarding it. So it makes sense to conserve iron molecules to extend output or reserve higher-quality ore for when prices justify it.”

Citi noted that Vale’s iron ore output reached 151.2 million tonnes in the first half, putting the company on track to meet its 2025 guidance of 325 million to 355 million tonnes.

* By Kariny Leal, Valor — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Telefónica’s Vivo considers new acquisitions to expand fiber footprint

Acquisition of full control of FiBrasil increases flexibility for new deals, CEO says

 

 

 

07/29/2025 

Telefônica Brasil’s recently announced acquisition of full control of FiBrasil aims to expand its fiber broadband reach to 30.1 million homes passed, CEO Christian Gebara told Valor, adding that the company is eyeing further acquisitions in the segment. Telefônica, which operates under the Vivo brand, posted net income of R$1.3 billion in the second quarter, according to results released Monday night (28).

“We’re still looking [at opportunities], but it’s clear we need to grow our network given the fiber potential in Brazil,” Mr. Gebara said. FiBrasil currently has 4.6 million homes passed with fixed broadband coverage. Including FiBrasil’s infrastructure, Vivo now reaches 30.1 million homes.

Telefônica estimates that Brazil’s addressable fiber broadband market comprises roughly 60 million homes, based on commercial viability. Founded in 2021, FiBrasil was originally a 50/50 joint venture with Canadian fund CDPQ. Telefônica paid R$850 million to acquire CDPQ’s stake, increasing its ownership to 75%. The remaining 25% remains with Telefónica Infra, a subsidiary of the Spanish parent company.

FiBrasil was designed as a neutral fiber network—open to all operators—but the model failed to gain traction in Brazil.

“This whole neutral fiber network model, with multiple clients, didn’t take off. Not just FiBrasil, but the market as a whole saw little demand from third parties beyond the anchor tenant, which in this case was Vivo,” Mr. Gebara acknowledged.

With full control of FiBrasil, Telefônica expects greater operational flexibility and access to synergies. “It’s time for us to take a more active role in managing this asset. We see opportunities for synergy and increasing network penetration,” he said. “FiBrasil’s current customer penetration rate is about 16%, while ours [Vivo’s] is over 24%.”

In the second quarter, Telefônica Brasil reported net earnings of R$1.3 billion, up 10% from the same period in 2024. Total revenue rose 7.1% to R$14.6 billion, driven by growth in postpaid mobile services (up 10.9% to R$8.2 billion) and fiber broadband (up 10.4% to R$1.9 billion), outpacing inflation, as calculated by the Extended Consumer Price Index (IPCA).

Earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled R$5.9 billion in the quarter, up 8.8%, with a margin of 40.5%—compared to 39.9% a year earlier.

Total costs excluding depreciation and amortization reached R$8.7 billion, up 5.9% year-over-year, mainly due to increased commercial activity.

Cost increases were partly offset by operational efficiencies and higher use of digital channels, such as PIX instant payments, which accounted for 44% of total collections.

Digital services and new business lines accounted for 11.2% of Telefônica’s trailing 12-month revenue as of June, up from 9.5% a year earlier—reflecting efforts to diversify revenue streams. “If we look at absolute values, B2C digital services—which account for three percentage points of the 11.2%—grew by 14.8%,” said Mr. Gebara. Meanwhile, corporate services grew by 31.3% year-over-year.

The operator ended June with a customer base of 116.2 million accesses, a 1.3% increase from the prior year. Postpaid subscriptions continued to grow, up 7% to 68.5 million lines.

When asked about a potential sale of Telefônica Brasil shares by the Spanish parent—a possibility raised by Spanish newspaper El Economista—Mr. Gebara said he did not know any such move.

“What I can say is that Telefônica Brasil remains a core asset for the group, along with Spain, Germany, and the UK. Brazil is a key contributor to the group’s performance in terms of both growth and cash generation. In 2024, we accounted for 23% of group revenue—even with the depreciation of the real—and 32% of the group’s EBITDA and operating cash flow,” he noted.

In late June, El Economista reported that the Spanish parent company was considering two options to finance acquisitions in Spain and elsewhere in Europe without increasing debt: a capital raise or the sale of a 20% stake in its Brazilian operations. Telefónica S.A. currently holds 77.13% of Telefônica Brasil.

*By Rodrigo Carro — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Finep expands support for critical minerals projects

Brazilian Studies and Projects Financing Agency has contracted 171 strategic minerals projects totaling R$1.4bn since 2019

 

 

07/29/2025 

With the increased demand for credit for mining critical and strategic minerals in Brazil, a sector that has come under the U.S. scrutiny after the tariff hike announced by President Donald Trump, the Brazilian Studies and Projects Financing Agency (Finep) has expanded its funding for the sector and also plans to launch a public call to promote the use of these minerals in the energy transition.

Finep has signed 171 contracts involving strategic minerals totaling R$1.4 billion since 2019. Last year, support reached a record high, with R$659.8 million contracted for 41 projects financed through repayable credit using the TR (Reference Rate), which is lower than the benchmark interest rate (Selic), and with grants for companies as well as scientific and technological institutions.

The investments are targeted at two fronts: encouraging research and development to enable the exploration of these minerals and strengthening domestic mineral processing to increase added value to national products.

Brazil has abundant reserves of critical and strategic minerals. For example, Brazil holds the second-largest rare earth reserves in the world, behind only China. However, domestic production remains low, and much of the ore is exported raw, resulting in a product with low value added.

“Finep has invested heavily in the energy transition and in the essential role of critical minerals in enabling this transformation. These minerals are strategic for Brazil from a technological and geopolitical perspective. So, we are expanding support for the domestic processing of these minerals to advance the production chain with high value-added technologies and products,” said Finep president Luiz Elias.

Projections from the International Energy Agency (IEA) indicate that global demand for copper, lithium, nickel, cobalt, graphite, and rare earths are expected to grow by more than 80% by 2024. In Brazil, the increase in public investment is part of the reindustrialization policy of President Lula da Silva’s third term, called NIB, and the new national mining policy, which is in the final stages of development by the federal government.

In the first half of this year, Finep contracted ten projects focused on critical minerals, totaling R$83 million.

The tally does not include a R$5 billion public call launched in partnership with the Brazilian Development Bank (BNDES) in January. The call, which selected projects from national and international companies, such as WEG and Stellantis, as well as small-sized mining companies and startups, involves R$ 4 billion from BNDES and R$1 billion from Finep.

“We expect the projects included in this call to increase our support in 2025, bringing us closer to the amount contracted in 2024. For 2026, we expect an even higher amount,” said Newton Hamatsu, Finep’s superintendent of energy transition and infrastructure.

The high demand for the call with BNDES, which received 124 proposals for a total of R$85.2 billion in disbursements, led BNDES to launch another public call this year. The new call will allocate R$200 million to the implementation of energy transition projects using critical minerals.

“The joint call with BNDES showed the strength and diversity of our scientific and industrial base in this sector. To enable the total investments planned for the submitted projects, we plan to launch a new call this year to support high-risk technological projects,” explained Elias Ramos, Finep’s director of innovation.

Finep downplays the impact of trade negotiations with the U.S. on investments in Brazil but emphasizes the need to continue developing the sector. “It is natural for the United States to seek to expand partnerships with Brazil in this field. I do not believe, however, that the current trade sanctions will harm Brazilian investments,” said Mr. Hamatsu.

*By Paula Martini — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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SPX says election already part of market reality

Brazil interest-rate strategy chief Gabriel Hartung sees room for rate cuts amid signs of economic slowdown

 

 

07/28/2025 

Brazil’s domestic interest rate market still carries an excessive risk premium, despite mounting evidence of slowing economic activity and declining inflation—factors that support a more aggressive monetary easing cycle in 2026, according to Gabriel Hartung, head of Brazil rates at SPX Capital, in an interview with Valor Econômico. One threat to that outlook is the escalating trade conflict with the U.S. following Donald Trump’s new tariffs, at a time when the 2026 presidential election is already influencing market dynamics.

“Although we’re still a year and three months out from the election, the race is already shaping market behavior, and that influence will only grow,” Mr. Hartung says. His base case sees a tight contest but assigns higher odds to the opposition winning. “There’s still a lot that can happen, but based on what we’re seeing today, we think an opposition victory next year is more likely.”

This view stems, he says, from growing signs of structural unpopularity in President Luiz Inácio Lula da Silva’s administration, as well as the potential for the opposition to be led by well-rated governors from the South, Southeast, or Center-West regions. “It’s a competitive race on both sides, but there are clear signals that the opposition has a real shot.”

Electoral dynamics are already impacting asset pricing. Mr. Hartung notes that recent market deterioration coincided with a bump in Mr. Lula’s popularity. He believes the “election trade” will only intensify, and by the second half of 2026, markets may become almost entirely election-driven. “For now, investors are still focused on inflation, activity, and fiscal issues… And on that front, fiscal uncertainty is mounting due to the government’s expected response to Trump’s tariffs—what kind of support package it might roll out for affected companies.”

Depending on the scope of that support package, risk repricing may follow. “It’s a cause for concern,” Mr. Hartung says, warning it could complicate the Central Bank’s work if the aid proves large enough.

He adds that rising tensions between Brazil and the U.S. remain on his radar. “The tariff risk is what’s been driving recent volatility in the yield curve. Not so much because of the 50% hike itself, but because of fears of escalation. From a trade dispute, it could extend to financial flows,” Mr. Hartung warns, noting the U.S. is a crucial source of both direct and portfolio investment in Brazil.

“It’s the single largest source of FDI and also of portfolio flows into the country,” he says. “There’s an estimated stock of U.S. investment in Brazil worth close to 15% of GDP. If that flow is restricted, we’ll see significantly more market stress. That’s why people are getting nervous. When the Brazilian government criticizes the U.S., the market reacts badly. And when the U.S. hits back, the market suffers too.”

This fear, Mr. Hartung says, is contributing to a higher risk premium in the domestic yield curve, which has steepened recently due to a jump in long-term rates—now approaching 14%. “It’s unlikely we’ll actually see restrictions, because those would be extreme measures and rare for the U.S. But the risk is there, so the premium is too.”

SPX’s base case sees economic activity, already showing signs of slowing, weakening further by year-end—despite near-term noise from a large court-ordered payment of government debts (precatórios). “The trend is clear—we’re slowing down, and this is already evident in investment and consumption data. By the end of the year, it’ll likely be visible in the labor market too. If the Central Bank does nothing, the slowdown could become self-reinforcing.”

That’s where SPX sees room for interest rate cuts. “There’s space for yields to decline. Selic is at 15%—an unusually high level, even for Brazil. It’s hard to imagine we won’t see some easing next year. And based on current pricing, markets are still projecting only a modest rate-cut cycle,” Mr. Hartung says.

He reveals that SPX holds long positions in nominal rates (which gain when rates fall) and currently prefers the nominal curve over real rates extracted from inflation-linked NTN-Bs. Shorter maturities have already priced in a significant drop in “implied inflation,” but mid-curve inflation expectations remain elevated. “So, in a scenario of slower growth and falling inflation, we expect further compression in the belly of the curve. Real rates may fall, but not as much as nominal ones. That’s why we see nominal rates as more attractive right now.”

Mr. Hartung also notes a global trend of steepening yield curves, driven by sharply expansionary fiscal policies in developed economies. “Over time, governments compete for capital to finance their deficits. That usually pressures the long end of the curve,” he explains.

In the U.S., Mr. Hartung sees growing expectations that a future Trump administration would appoint a more dovish Federal Reserve chair. “If that happens, it would push the short end of the U.S. curve down but could lift long-term yields, reflecting greater inflation tolerance,” he says.

*By Gabriel Roca and Victor Rezende, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Plan to counter U.S. tariff aims to limit hit to Brazil’s economy

Contingency package includes credit and job protection measures

 

 

 

07/28/2025 

With just four days left before a 50% tariff on Brazilian exports to the United States is set to take effect and negotiations stalled, the federal government is preparing a package to reduce potential impacts on Brazil’s gross domestic product. The plan, which still needs President Lula’s approval, is expected to include subsidized credit and job preservation measures, with a focus on small and medium-sized enterprises. The tariff is scheduled to take effect Friday (August 1).

In recent days, the federal government has been estimating the effects the tariff could have on Brazil’s key economic indicators. One government official said the measure is likely to weigh not only on economic activity but also on inflation. This downward pressure on prices would stem from both weaker GDP performance and greater availability of goods in Brazil, since exports to the U.S. would decline. Another official said sector-specific impacts could pose a problem, although the overall effect on the economy is likely to be marginal.

Still, technical staff see the economic outlook as highly uncertain. Variables such as exchange rate behavior, market reaction, possible retaliation against the United States, and the extent of federal government support for affected sectors remain unclear.

“Not even last year’s floods in Rio Grande do Sul managed to slow GDP growth much,” one official said. At the time, the federal government launched a series of recovery measures for the state, including wage payments by the federal treasury to help companies retain workers, emergency credit lines, and funding for housing reconstruction and responses to environmental and social impacts. The government said then that the total primary impact would reach R$7.7 billion, which would be excluded from the fiscal target.

In the case of the contingency plan for the tariff, one of the priorities will be addressing companies by size. Valor has learned that the presidential palace is particularly concerned about the large number of small and medium-sized enterprises that export to the U.S. and employ many workers. According to data from the Ministry of Development, Industry, Trade and Services (MDIC), 2,043 microenterprises and individual microentrepreneurs in Brazil exported goods to the United States last year, compared to 1,448 that sold to the European Union. Among small businesses, 1,608 exported to the U.S. and 1,272 to the EU. For medium and large companies, the split is more even: 5,903 to the U.S. and 5,875 to the EU.

Job protection and subsidized credit

Other components of the plan include job protection measures and subsidized credit for the most affected companies and sectors. In the initial stage of discussions, the ministries of Finance, Development, Industry, Trade and Services, Planning and Budget, and Labor and Employment were involved.

Last week, Finance Minister Fernando Haddad said the plan “will not necessarily imply primary spending.” “In the case of Rio Grande do Sul, the smallest portion of the investment to rebuild the state’s economy came from primary spending. Most of it went to support affected businesses,” he told radio station CBN.

In addition, Mr. Lula is expected to officially sign the Acredita Exportação program this Monday (28) in a ceremony at the presidential palace. While not formally part of the contingency plan, the program will reimburse micro and small enterprises for 3% of their foreign sales revenue.

The MDIC said this amount “corresponds to the portion of taxes paid along the production chain” by these businesses. The program was introduced by the MDIC and the Ministry for Entrepreneurship, Micro and Small Enterprises in October 2024 and approved by Congress earlier this month, before U.S. President Donald Trump’s announcement.

Meanwhile, Brazil will continue trying to negotiate with the U.S. government, although talks have made little progress so far. To emphasize its willingness to negotiate and highlight the dialogue built with companies from both countries, the Lula administration plans to make daily press statements at scheduled times in the coming days. The move is also aimed at shaping public opinion and countering potential criticism of the government’s handling of the situation. So far, Vice President and MDIC head Geraldo Alckmin has met with over 100 business leaders to discuss the tariff’s impact.

*By Estevão Taiar, Fernando Exman, Sofia Aguiar  and Guilherme Pimenta  — Brasília

Source: Valor Internatonal

https://valorinternational.globo.com/

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Reciprocal U.S. trade retaliation would shrink Brazil’s GDP

Study suggests opening to other markets would soften the blow

 

 

07/28/2025

Brazil could benefit from a trade retaliation strategy against the United States, if the federal government opts for one, that shifts the focus from tit-for-tat tariffs to broader trade liberalization. The idea would be to lower import tariffs on goods from other countries while maintaining current rates for U.S. products, according to André Valério, head of macroeconomic research at Inter bank, and his assistant Gustavo Menezes.

In a previous analysis, Inter’s chief economist, Rafaela Vitória, found that the impact of the proposed U.S. tariffs on the Brazilian economy would be relatively small, due to the country’s low trade openness and limited exposure to the U.S. market. A key assumption in that assessment was that Brazil would not retaliate by matching the 50% tariff on American goods.

So far, the Brazilian government says it aims to resolve the dispute through diplomatic channels. Still, retaliatory measures have been floated as a potential course of action.

Unlike its trade relationships with many other countries, the United States runs a trade surplus with Brazil, exporting more than it imports. That dynamic would make the U.S. economy more vulnerable to Brazilian retaliation than in most trade disputes. However, a tit-for-tat response—imposing a 50% tariff on U.S. imports—would also hurt Brazil, the economists said.

“Taxing these imports could trigger a ripple effect across multiple sectors, particularly in manufacturing, which heavily depends on intermediate inputs,” wrote Mr. Valério and Mr. Menezes in their study.

Smaller GDP

Their general equilibrium model estimates that a proportional retaliation would reduce Brazil’s GDP by 0.17 percentage point, on top of the damage from the U.S. tariffs themselves.

Though this may seem like a modest aggregate effect, it would be broad-based: 56 out of 66 sectors analyzed would experience losses in this scenario. Chemical manufacturing and oil refining would each see production shrink more than 6 percentage points, the study said. The broader manufacturing industry would contract by 2.1 points.

Sugar refining would also suffer a 3.8-point drop, largely due to its reliance on transportation and fuel, both directly affected by tariffs.

The negative production impact stems from the tariff shock: retaliatory tariffs would effectively raise taxes on the chemical industry by 3 points and on oil refining by 2.5 points. Even agriculture would be affected, with an effective tax hike of 1.2 points due to a 4.5-point increase on agricultural chemicals. That would shrink farm output by 3.4 points and agrochemical manufacturing by 4.4 points.

The most heavily taxed individual product would be mineral coal, where the 50-point tariff hike on U.S. imports would translate into an effective tax of 18.8 points. “Ironically, the domestic coal sector—the one most protected by the tariff—would be among the hardest hit, because of its heavy reliance on chemical inputs. This highlights the potential harm of a retaliation policy that overlooks sectoral complexities,” wrote Mr. Valério and Mr. Menezes.

Next in line would be various chemical products, with an 11.9-point tax hike on inorganic chemicals and 4 points on organic chemicals, as well as capital goods, which—even if not mostly sourced from the U.S.—lack local substitutes.

“This analysis suggests retaliation would not be a beneficial strategy for Brazil, as it would deepen distortions in the economy,” the economists said.

Redirection of imports

An alternative that does not appear to be under government consideration, they said, would be retaliating by reducing import tariffs for goods from the rest of the world, while keeping U.S. tariffs unchanged. This could lead to a redirection of imports.

For instance, a 10-point across-the-board tariff cut on imports from other countries could raise Brazil’s GDP by 0.12 point, benefiting 57 of the 66 sectors analyzed.

“Petroleum refining, one of the hardest-hit sectors under reciprocal retaliation, would be among the biggest winners in the alternative scenario, where import taxes from other countries are cut. This is an important factor in weighing potential retaliation strategies, since refining has a strong export role in the Brazilian economy,” the economists wrote.

In that case, oil refining output would rise 3.5 points, chemical manufacturing 5.4 points, and both sugar refining and agriculture by 3 points or more.

The biggest tax relief on any single product would be for electronic components, down 9.9 points, followed by chemicals, fish, coal, and various capital goods—“reflecting differences in Brazil’s import profile from the U.S. versus other countries,” Mr. Valério and Mr. Menezes said.

Sectors hit hardest by reciprocal tariffs would also be the biggest winners from the alternative response. In addition, apparel manufacturing, IT, automobiles, and auto parts would benefit, especially from lower tariffs on electronic components.

“These simulations show how distortive tariffs can be and suggest that a more beneficial response would be to further open the economy to international trade,” the authors concluded.

*By Anaïs Fernandes  — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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