Projections point to closer ties with China, potential delays in investment
04/10/2025
The Trump administration’s surprise decision to impose new tariffs on Chinese imports has split Brazilian analysts over the potential fallout for Brazil’s economy. Experts interviewed by Valor expect continued headwinds for sectors like steel and aluminum—particularly if the 25% tariffs remain in place, well above the general 10% rate—while also anticipating a further deepening of Brazil’s commercial ties with China. At the same time, there are concerns that Brazilian products could lose ground to competitors in the U.S. market and that investment decisions may be postponed.
These measures add to global uncertainty and insecurity, said Welber Barral, partner at consultancy BMJ and former secretary of foreign trade. They’re likely to trigger a wave of negotiations with countries and blocs most affected by the U.S. trade policy. Mr. Barral warned that the move could open new markets for U.S. agricultural goods, posing risks to Brazil’s export sector. He believes blocs hit hardest by the new tariffs—such as the European Union, Japan, and South Korea—will likely receive priority in trade talks with Washington. Brazil, he says, could end up “at the back of the line” in negotiations for the 10% base tariff.
“In exchange for lower tariffs, the EU will offer the U.S. access to its agricultural market, which would be bad news for Brazil. Japan is expected to do the same, and South Korea may seek to negotiate around meat exports,” Mr. Barral added. According to Mr. Barral, the U.S. must secure new buyers for its agricultural output.
If the 25% sector-specific tariffs—which in Brazil’s case target steel and aluminum—remain, the executive believes the Trump administration will effectively be blending trade policy with commercial defense issues, heightening uncertainty. The 125% tariff on Chinese electric vehicles is also likely to raise concerns among U.S. Midwest farmers, who rely heavily on Chinese demand.
Sergio Vale, chief economist at MB Associados, sees a natural shift ahead: stronger Brazil-China relations. “If there was still any doubt that Trump would take a hard line against China, there’s none now,” he said. “This tariff will likely be reduced in time, but the broader consequence will be a faster decoupling between the U.S. and Chinese markets—and a growing alignment between Brazil and China.”
Trade between Brazil and China has surged in recent years and now amounts to twice the total volume of trade between Brazil and the U.S., Mr. Vale noted. Currently, trade between Brazil and China totals $160 billion, compared to $80 billion with the United States. “Within five years, Brazil-China trade could reach $200 billion—nearly three times the volume with the U.S., which may fall to $70 billion,” he said.
Still, Mr. Vale cautions that the short-term outlook remains volatile. “Even if Trump backtracks and returns to the negotiating table, this episode sends a clear message: the U.S. is no longer seen as the reliable trade partner it once was. And it’s making poor decisions on trade,” he said.
Luis Otávio Leal, chief economist at G5 Partners, sees a potential short-term window of opportunity during the 90-day suspension of reciprocal tariffs. “If all tariffs are in fact reduced to 10%—including those already levied on aluminum and steel—it could give U.S. companies a chance to rebuild inventories in preparation for a potential tariff hike once the suspension ends,” he said.
However, forecasting Brazil’s gains or losses is far from straightforward, said Carla Beni, economist and professor at the Getulio Vargas Foundation. “Companies need stability to make investment decisions and sign long-term contracts,” she said, adding that the prevailing uncertainty is likely to delay capital allocation—a negative outcome for all involved.
*By Marta Watanabe, Marsílea Gombata, Michael Esquer and Alex Jorge Braga — Brasília
CitrusBr says cost to Brazilian exporters could rise 80%
04/08/2025
The tariff hike announced by U.S. President Donald Trump is expected to cost Brazilian orange juice exporters more than half a billion reais. According to CitrusBR, which represents exporters Cutrale, Citrosuco, and Louis Dreyfus, the new 10% tariff on the commodity could add $100 million per year in taxes for Brazilian companies.
The additional tariff, unveiled last week, targets a range of Brazilian products.
CitrusBR’s estimate assumes Brazil will export around 235,500 tonnes of orange juice to the U.S. during the 2024/25 harvest season. The U.S. currently accounts for 37% of Brazil’s total orange juice exports.
Data from the Foreign Trade Secretariat (SECEX), compiled by CitrusBR, show that between July 2024 and February 2025, Brazil shipped 207,200 tonnes of frozen concentrated orange juice (FCOJ 66 Brix) to the U.S., generating $879.8 million in revenue.
The new tariff would be in addition to existing charges, including a $415-per-tonne duty on FCOJ at 66 Brix concentration. That charge alone amounted to $85.9 million in 2024, according to CitrusBR.
Taken together, the existing and new tariffs could push the total annual tax burden on Brazil’s orange juice exports to about $200 million, or roughly R$1.1 billion.
“This 10% tariff leads to an over 80% increase in costs. We’re jumping from $415 per tonne to nearly $800, while Mexico—our main competitor in the U.S. market—pays zero thanks to its free trade agreement with the U.S.,” said Ibiapaba Netto, CitrusBR’s executive director, in an interview with Valor.
Despite the headwinds, CitrusBR said that “Brazilian companies continue, individually and in line with their commercial strategies, to supply the U.S. market with high-quality orange juice.”
“The industry regrets, however, that the decision was made without taking into account the long-standing complementary relationship between Brazilian production and Florida’s processing industry, as well as long-term partnerships with U.S. bottling companies,” Mr. Netto added.
Last year, the U.S. was the destination for 32.12% of Brazil’s orange juice exports.
Ibovespa falls sharply, real weakens to R$5.91 per dollar amid global sell-off
04/08/2025
A surge in global market volatility led to broad losses in Brazilian assets on Monday (7), following renewed trade tensions between the United States and China. A threat by U.S. President Donald Trump to impose an additional 50% tariff on Chinese products hit emerging markets hard, dragging down Brazilian stocks, pushing the U.S. dollar to its highest level against the real since February 28, and driving long-term interest rates higher.
Mr. Trump’s increasingly aggressive trade stance has stoked recession fears in global markets in recent sessions. Following several banks’ warnings about a possible recession this year, Goldman Sachs lowered its U.S. GDP growth forecast from 1% to 0.5% and raised its 12-month recession probability from 35% to 45%.
Against this backdrop, emerging market assets underperformed developed markets on Monday. In Brazil, the foreign exchange rate jumped 1.29% to R$5.91 per dollar. The U.S. currency posted even larger gains against other emerging market currencies, including the Colombian peso, Chilean peso, and South African rand.
In equities, benchmark Ibovespa dropped 1.31%, mirroring the decline in the iShares MSCI Brazil ETF (EWZ) in New York, which fell 2.24%. This contrasted with the near-flat performance of the S&P 500, which dipped 0.23% amid a volatile session. Emerging market stocks (EEM) slumped 3.72%, largely dragged down by Asia. The iShares MSCI China ETF (MCHI) ended the day with a steep 8% loss.
Emerging market impact
The slowdown in the U.S. economy could also weigh on emerging markets, said Gilberto Nagai, head of equities at SulAmérica Investimentos. “What we’re seeing unfold doesn’t look like a good deal for anyone—it’s full of uncertainty and depends entirely on Trump. If the U.S. economy slows significantly, there will be a broad risk-off movement across markets,” he said.
Fears of a Chinese slowdown triggered another sharp drop in oil prices, which fell for a third straight session. The decline pressured oil-related stocks on the Ibovespa after China announced reciprocal tariffs on Wednesday.
Markets are now discussing whether the sharp drop in oil could force Brazil’s oil giant Petrobras to adjust gasoline prices. Ativa Investimentos said the move would be negative for Petrobras shares, particularly after the company cut diesel prices just 60 days after a price hike announced on January 31.
“If another price cut is confirmed, it would be the third move in less than 120 days, exposing the company’s pricing policy—designed to shield domestic prices from barrel volatility—as ineffective,” analysts said.
Rising interest rates
Brazilian interest rates also provided no support for stocks. Long-term yields rose steadily throughout the session as investors corrected recent excesses and tracked the uptick in U.S. Treasury yields.
At the close, the DI (Interbank Deposit) rate for January 2029 climbed from 14.03% to 14.16%, and the January 2031 DI advanced from 14.35% to 14.48%.
Citi said it closed its positions betting on falling interest rates futures and on rising fixed-rate NTN-F bonds maturing in January 2029. “While we still believe the economic outlook supports medium-term disinflation and lower long-term rates in Brazil, we’re concerned about the spillover effects from equity market selloffs via the dollar/real, along with potential idiosyncratic risk surprises,” the bank’s strategists said.
On the other hand, Morgan Stanley strategist, Ioana Zamfir, doubled down on her position, betting on a decline of Brazilian interest rate futures (January 2029 DI), and added a new bet on falling prices of inflation-linked NTN-B bonds maturing in August 2028.
Ms. Zamfir said the rates position reflects expectations of a potential slowdown in Brazil’s economy amid relatively muted fiscal policy risks and a more favorable global interest rate environment. She described the short position on medium-term real interest rates as “extremely attractive” and argued “it does not match global growth risks or Brazil’s medium-term economic outlook.”
Challenging environment
Vagner Alves, fixed-income portfolio manager at Kinea Investimentos, said that while the market reaction has been sharp, emerging markets will likely continue to suffer as recession fears grow. “In this environment, it’s natural for emerging market assets to lose more value—especially those tied to commodity prices, like Brazil’s,” he said.
“The recent moves happened very quickly, so we may see a partial correction, but that’s more likely in U.S. markets. For emerging markets, the environment remains challenging,” said Mr. Alves.
A reversal in this scenario would require a drastic shift in the U.S. government’s stance, “but there’s no sign of that—quite the opposite. There was even a rumor today [Monday] of a [tariff] delay, but the White House quickly denied it,” he noted.
Despite investor fears about a severe global slowdown, Mr. Alves said the downturn may not be so deep. “Countries still have fiscal tools they can use. That could help reverse the current market gloom,” he said.
Marcello Siniscalchi, a partner at Asset 1, said the slightly more resilient performance of Brazilian assets in recent sessions was partly due to Brazil facing a lower tariff rate of 10%. He also noted that foreign investors had already reduced their exposure to local markets, leaving them with fewer positions to liquidate. “Investors held a certain position based on a specific volatility pattern. When that pattern changed, they had to cut back,” he said.
Currently, Asset 1 has a clearer outlook on equities and interest rates than on currencies. The firm’s chief economist, Luis Cezario, said they expect a slowdown in the U.S. and Europe, and foresee back-and-forth developments in trade negotiations between the two sides. As a result, he said it will be hard to predict currency moves.
“It’s difficult to know how the dollar will behave against the euro, or whether it will strengthen. Will Europe remain a more independent player? Tariffs lead to lower growth and higher inflation. It’s easier to believe that equities will fall in a recession than to predict which currency will come out on top,” he said.
*By Maria Fernanda Salinet, Arthur Cagliari, Bruna Furlani and Gabriel Caldeira — São Paulo
Economist sees unprecedented shock increasing global uncertainties with repercussions in Brazil
04/07/2025
Santander Asset Management has adopted a defensive stance on global assets and is taking a tactical approach to domestic markets amid heightened uncertainty prompted by the “unprecedented shock” from the sweeping tariff hike announced by the United States, said Chief Economist and Strategist Eduardo Jarra. In an interview with Valor, Mr. Jarra expressed concerns about the potential impact of the tariffs on global economic activity and noted that repercussions could be felt in Brazil—possibly leading the Central Bank to end its interest rate tightening cycle earlier than expected.
The following are key excerpts from the interview:
Valor: What’s your assessment of the global outlook now that the Trump administration has announced new tariffs?
Eduardo Jarra: We’re dealing with a situation that has no recent historical precedent. Typically, in our analysis, we rely on past events as a reference to understand how markets and economies might react. This time, there’s no roadmap; we’re operating on assumptions. We had marked April 2 as a key date to get more clarity, but the announcement surprised markets with its scale and timing.
Valor: What kind of tariff levels had you anticipated?
Mr. Jarra: Like most of the market, we were expecting something in the 10% to 15% range. Therefore, the announcement was surprising not just in terms of size but also in terms of the rationale behind it. By April 2, the picture was very different from what we had imagined. At least we now have clarity on what the tariffs look like. The uncertainties now revolve around how other countries will respond and whether there’s any room left for negotiation. That has left us in a highly uncertain environment, and we’ve adopted a more defensive management stance. We’ve shifted to a defensive management mode.
Valor: Has Santander Asset shifted to more defensive assets?
Mr. Jarra: I’d say we’ve moved toward more defensive positioning rather than specific defensive assets. Given that we saw this as a significant event, we had already begun reducing risk across portfolios. After the announcement, we still believe that de-risking was the right move. We’re now navigating more uncharted territory. China responded with a 34% tariff on U.S. goods—a strong reaction that immediately impacted markets. We’ll have to wait and see how the U.S. responds. Is this the end of the escalation or just the beginning? Given the magnitude of the U.S. tariffs, is there still room to negotiate? In an environment with this much uncertainty, we believe the prudent approach is to wait, digest the information, and observe how key players act. It’s too early to take positions based on hypotheticals.
Valor: Can we already assess any concrete economic impact from the tariffs?
Mr. Jarra: We knew that a tariff shock would likely lead to slower growth and higher inflation. Now, we’ll try to gauge the magnitude of those effects. The problem is that we still don’t have a full picture—retaliatory measures from other countries are still unfolding. U.S. inflation will rise as import prices climb. However, the spike in uncertainty is also likely to make companies pause investment decisions, possibly leading to reduced capital expenditures. Consumer purchasing power will also be hit. On top of that, we need to consider the impact on financial markets since a significant portion of Americans’ savings are in equities. And don’t forget supply chains. What does this disruption mean for corporate production structures? That concerns me more than inflation.
Valor: Could the U.S. be heading for a recession?
Mr. Jarra: The probability has increased. We need more data to know how much more likely it is now, but yes, the risk has risen. The real question now is how severe the U.S. slowdown will be. If conditions remain roughly as they are, I believe the focus will shift more toward growth concerns, which will eventually lead to rate-cut discussions.
Valor: Have you changed your outlook for Federal Reserve rate cuts?
Mr. Jarra: We were projecting two 25-basis-point cuts this year and two more in 2026. I’m still comfortable with that forecast for this year. From here, the question is whether there’s room for additional cuts in 2025—perhaps bringing forward some of the easing we expected next year.
Valor: How is your global portfolio positioned now?
Mr. Jarra: We started the year optimistic about the U.S., driven by strong economic data and the tech sector. Even with elevated valuations, there was a compelling case for U.S. “exceptionalism.” However, with rising uncertainty around the U.S., and with fiscal stimulus in Europe and promising developments in Chinese tech, we began diversifying our global equity exposure geographically. Even before the tariff announcement, we were already becoming more defensive. Today, our global exposure is significantly lower—neutral or close to it, depending on the portfolio. As we continue to assess the post-announcement landscape, we’re maintaining that defensive posture and plan to revisit our strategy once things settle.
Valor: Given the weaker U.S. growth outlook, are you allocating to U.S. fixed income?
Mr. Jarra: Not through a directional bet. That said, we’ve been combining U.S. fixed income with our global equity risk bucket. We like U.S. fixed income as a complementary asset within our risk allocation framework, though not as a standalone opportunity. Our current stance is neutral.
Valor: Does this defensive stance also apply to Brazilian markets?
Mr. Jarra: We’re also holding neutral positions across all asset classes in Brazil. However, we’re actively managing the portfolios with a more tactical eye, looking for short-term opportunities. It’s a tactical allocation strategy that remains close to neutral overall.
Valor: The market had been concerned about a sharper slowdown in Brazil. Has that changed?
Mr. Jarra: We still project 2% GDP growth for this year and 1.5% for next. The economy is generally unfolding as expected. The first quarter was strong, largely due to agribusiness, and the labor market remains tight, providing a tailwind. That momentum should moderate in Q2 as the agribusiness’s impact fades. For the second half of the year, the restrictive monetary policy should lead to a more noticeable deceleration.
Valor: Are any of the government’s stimulus policies likely to offset this slowdown?
Mr. Jarra: We’ve already factored in measures like expanded payroll-deductible credit and the proposed income tax exemption. Based on current information, we believe the Central Bank is nearing the end of its tightening cycle. The economy appears to be entering a gradual slowdown. If new data changes the picture, we’ll reassess.
Valor: Is there any bias in your GDP outlook?
Mr. Jarra: Given the current strength in the labor market and agribusiness—and some uncertainty around fiscal stimulus—the bias is to the upside. Two downside risks remain: first, the lagged impact of restrictive monetary policy; second, the global backdrop, which has become more concerning and could influence the Central Bank’s decisions moving forward.
Valor: Could that lead to an earlier start to a rate-cutting cycle?
Mr. Jarra: Right now, we’re more focused on the current cycle coming to an end. Given the global developments, the probability of ending the cycle with the Selic policy interest rate at 14.75% has increased—this is our base case. If the global economy slows but avoids a more serious disruption, the external environment could help ease Brazil’s economic deceleration. That would provide room for the monetary authority to hold rates steady at 14.75% or 15.25% and monitor the effects. In that scenario, the global factor could tilt the odds in favor of rate cuts starting in 2026. But as things stand today, Brazil still seems far from any discussion of an early start to easing this year.
*By Arthur Cagliari and Victor Rezende — São Paulo
If prices remain low, country will earn less from top export while Petrobras gets room to lower fuel prices
04/07/2025
The decision by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to increase oil production starting in May by a larger-than-expected volume has surprised the market, worrying oil companies and adding further uncertainty to an already challenging global short- and medium-term outlook.
The cartel’s announcement came on April 3, a day after President Donald Trump’s announcement of broad tariffs on the rest of the world. Analysts and industry executives believe the combination of these two factors has heightened uncertainties. The American trade tariffs are expected to slow down the global economy, which could reduce growth in countries and decrease demand for oil. Yet, despite this already complex scenario, OPEC+ opted to triple the volume of additional supply compared to the previous plan for 2024, causing oil prices to plummet.
On Friday (4), global benchmark Brent crude closed at $64.95 per barrel, a drop of 6.44% from the previous day and 10.73% for the week.
A scenario with lower Brent prices could help Petrobras in reducing diesel and gasoline prices in the domestic market. On April 1st, the company cut diesel prices by R$0.17 per liter, a decrease of 4.6%. It was the first time the oil company reduced fuel prices since December 2023. Gasoline, which saw an increase in July 2024, remains unchanged.
However, if the Brent price reduction persists in the long run, Brazil is likely to earn less from oil exports. In 2024, oil was Brazil’s main export item, surpassing soybeans, with sales of $44.9 billion, a 5.23% increase over 2023.
Daniel Osorio, head of energy for Hedgepoint in the U.S. and Latin America, states that Brazil is in a difficult position: “The increase in production by OPEC members could make it more challenging for Petrobras and other Brazilian players to compete in Europe and Asia.”
On Thursday, OPEC+, which accounts for about 40% of global oil production, decided to raise the commodity’s supply by 411,000 barrels per day starting next month. This volume equates to three months of the supply ramp-up plan announced in December. At that time, the idea was to add 140,000 barrels per day to the cartel’s production from April 2025, including May and June. Until then, it could be said that this week’s supply announcement was anticipated since the end of last year. But what surprised many was the addition of a significantly larger number of barrels all at once.
Given the circumstances, Goldman Sachs revised its oil price estimate to $66 per barrel by the end of 2025, a reduction of $5 per barrel from the previous forecast. According to the bank, in addition to the cartel’s decision, the tariffs announced by Donald Trump also increase the risk, which is expected to bring more volatility through the end of the year.
Mr. Osorio from Hedgepoint says that the OPEC+ announcement is related to the group’s internal policies. “Although the timing might seem strange, it’s important to consider that Russia has been expressing concerns about Kazakhstan’s production growth for some time, especially after the expansion of the massive Tengiz oil field operated by Chevron. The decision reflects ongoing regional tensions rather than a direct response to Trump’s tariffs,” he states.
The Hedgepoint analyst evaluates that while it was expected for OPEC+ to resume production levels in 2025, this decision combined with Mr. Trump’s tariffs could have uncertain effects: “What is certain is that many countries will be forced to negotiate with the United States. Companies are already seeking ways to mitigate the effects of these new tariffs.” The drop in oil prices, he adds, could lead oil producers to reduce supply levels in more expensive fields, prompting oil companies to reevaluate investment plans.
Citi describes the combination of American tariffs and OPEC’s decision as a “double whammy” for the oil and gas sector, increasing risks to global economic growth and demand for the commodity. In a report, the bank states that OPEC’s choice to triple the production increase compared to previous expectations accelerated the oil price decline: “The group of producers’ policy change appears to stem from a period of tensions over certain members exceeding production limits.”
Felipe Perez, an analyst at S&P, says that despite the uncertainties brought by OPEC there is a notion that Trump’s tariffs are short-lived and negotiating tools that might be used in discussions with Saudi Arabia, an OPEC+ member: “OPEC faces challenges in bringing consensus among members. If the price drop trend continues, the American producer will consider production plans and counter with the American campaign for more drilling, ‘drill, baby, drill.’” For Mr. Perez, a lower price could help OPEC+ rein in some members who, due to high foreign private capital in production, were exceeding quotas.
This concern is shared by sources at the Planalto Palace and the Foreign Ministry, including Celso Amorim, special advisor to President Lula.
Mr. Amorim said that weeks of talks between Brazilian diplomats and representatives of the Office of the United States Trade Representative (USTR) helped secure Brazil a place among the few countries facing a 10% tariff—alongside Argentina, the United Kingdom, Australia, Singapore, Chile, and Colombia—nations with which the U.S. runs a trade surplus. By comparison, the new tariffs are 20% for the European Union, 24% for Japan, 25% for South Korea, and 32% for Indonesia.
“The Foreign Ministry did an excellent job of clarifying that the U.S. has a consistent surplus with Brazil,” Mr. Amorim told Valor. “It’s much better to start bilateral negotiations from that position than from one where the situation could be much worse [with higher tariffs]. I just don’t think we should be thanking the U.S. This is incompatible with the multilateral system. There’s nothing to celebrate.”
Defending the multilateral system, Mr. Amorim cited Brazil’s past victories, such as the 2014 resolution of the cotton dispute with the U.S. at the World Trade Organization (WTO), and the country’s success in overriding patents for HIV treatment drugs in the 1990s, backed by international bodies.
The full impact of the U.S. tariff package is still being assessed by the Brazilian government and business associations. At the presidential palace, officials believe this will be a long-term effort, as the final assessment depends on developments such as retaliatory measures from other countries and broader effects on global trade.
One source said the Reciprocity Bill puts “all cards on the table” for Brazil. However, any retaliatory move will take time. For now, the focus is on negotiation.
Next week, a new round of talks will be held by Ambassador Mauricio Lyrio, the Foreign Ministry’s secretary for Economic and Financial Affairs, with the USTR. Officials in Brasília believe the negotiations could take months or even years. Brazil has already requested a return to tariff-free quotas for its steel exports to the U.S.—a demand that remains on the table.
The government is also coordinating with the private sector through industry groups like the National Confederation of Industry (CNI), the National Confederation of Agriculture (CNA), and the Brazil Steel Institute.
Milei’s U.S. tariff pledge
While Brazil continues to advocate for multilateralism, the current trade context could push the country to impose additional tariffs to prevent a flood of Chinese and other Asian goods—a scenario also being considered in the European Union.
There is growing concern in Brasília over the future of Mercosur. During a visit to the U.S. on Friday, Argentine President Javier Milei said he would align Argentina’s tariffs with a U.S. basket of 50 products.
This poses a challenge, as Mercosur is based on a Common External Tariff (CET) and joint trade negotiations with outside partners. If Mr. Milei follows through—something few expect—it could spell the end of the South American bloc, or at least Argentina’s exit from it.
Next Wednesday, President Lula will travel to Honduras for the summit of the Community of Latin American and Caribbean States (CELAC). Gisela Padovan, the Foreign Ministry’s secretary for Latin America and the Caribbean, said Thursday that while the U.S. tariff hike is not officially on the agenda, it may be mentioned in the summit’s final declaration.
Other sources expect the declaration to include a general “defense of multilateralism.” The issue may also be raised during Mr. Lula’s bilateral meetings with other leaders, which have yet to be confirmed.
After pushback on poor poll numbers, communications minister defends strategy and insists all ministers must take responsibility
04/04/2025
Brazil’s minister of Social Communication, Sidônio Palmeira, said on Thursday that all cabinet ministers bear responsibility for President Lula’s low approval ratings, as indicated by recent opinion polls.
He was asked about the matter following an event organized by the communications ministry (Secom) to promote the government’s achievements. Mr. Palmeira showed frustration with journalists, who focused more on the president’s declining approval rates than on the event itself.
“I find it a bit amusing—we just held an event here, which is an important moment to talk about the government’s accomplishments. I think we should focus on that, and yet you’re all asking about polls. We can talk about the polls,” he said. “I’m not trying to wash my hands of the issue—at all. I believe approval rating is a shared responsibility among all ministers and areas: political, administrative, communication—everyone.”
Mr. Palmeira was appointed after President Lula publicly expressed dissatisfaction with his predecessor, Congressman Paulo Pimenta. Many had blamed the government’s weak approval ratings on communication failures, a point Mr. Lula made at a party event in December when he criticized the administration’s messaging.
A political strategist behind Mr. Lula’s 2022 campaign, Mr. Palmeira introduced changes to Secom’s team and the tone used on social media. It was also his idea for Mr. Lula to read from a prepared speech during Thursday’s event—departing from the president’s usual improvisational style.
Still, despite the shake-up in the communications office, President Lula’s approval ratings have continued to plummet in every major poll in recent months.
“My job isn’t to debate the president’s or the government’s approval ratings. My job is to inform the public about government initiatives and how they can benefit from them,” Mr. Palmeira said. “If the public is well informed, then I believe I’ve done my job. Whether they approve or disapprove of the government—that’s not for us to define.”
Mr. Palmeira also pushed back against claims that Thursday’s event—which showcased the administration’s achievements over the past two years—was a campaign-style move.
“That’s a mistaken interpretation. The event’s main purpose was to communicate what the government has done,” he said. “As a minister, I’m not thinking about political campaigns. I’m thinking about government actions.”
The latest poll, released Wednesday by Genial/Quaest, showed a seven-point rise in disapproval of the Lula administration since January, reaching 56%—the highest level recorded by the institute since it began tracking Mr. Lula’s performance in April 2023. Approval ratings dropped to 41% from 47%.
The sharp decline surprised officials at the presidential palace, who had seen signs of stabilization in recent internal tracking polls commissioned by Secom.
Despite that, sources in the administration remain optimistic about a rebound in President Lula’s popularity. The Planalto Palace is betting that recent changes at Secom, improved communication of government programs, and initiatives such as the Public Security constitutional amendment and a proposal to exempt Brazilians earning up to R$5,000 from income tax will help reverse the negative trend.
Officials also believe that many Brazilians are unaware of government initiatives and are therefore not taking advantage of them. Thursday’s event, which drew around 3,000 people to the Ulysses Guimarães Convention Center auditorium, was part of an effort to close that gap.
Privately, and despite the poor poll numbers, presidential aides still see Mr. Lula as the front-runner for reelection in 2026. They argue that dissatisfaction in some regions—such as the Northeast—and among certain voter groups reflects “very high expectations” placed on the president. In the words of one government insider, “you don’t fall out of love overnight.”
That belief was reinforced on Thursday when new data showed President Lula would still win the election in every simulated matchup.
*By Fabio Murakawa, Estevão Taiar and Ruan Amorim — Brasília
Industry fears an influx of low-cost imports and pressure on local jobs and production as Chinese sellers seek new markets
04/04/2025
Brazilian retailers and consumer goods manufacturers are expressing concerns about the potential impact of the U.S. government’s recent decision to impose higher tariffs on certain Chinese products, according to industry representatives. As of May 2, items shipped from China and Hong Kong to the United States that cost up to $800—previously exempt from import duties—will now be taxed at a 30% rate.
There is growing apprehension that some of these goods, which are often cheaper than those produced locally, could be redirected to Brazil. Industry leaders also fear that the Chinese government might increase export subsidies to support businesses hit by the new U.S. tariffs—measures that could further distort global trade.
The Brazilian Textile and Apparel Industry Association (ABIT) warned of a potential “avalanche of Asian imports,” which could overwhelm domestic producers in what has been dubbed the “blouse war”—a metaphor for the fierce competition between foreign and local brands in Brazil’s retail market originated from the flood of cheap clothes from China.
As Asian products become more expensive for U.S. buyers, online marketplaces and merchants selling through those platforms may look for alternative markets to offset revenue losses. They could also attempt to absorb part of the new 30% duty, potentially with government backing from Beijing.
According to Jorge Gonçalves Filho, president of the Retail Development Institute (IDV), foreign companies selling in Brazil already pay a combined 44.6% in taxes, factoring in import duties and the standard 17% state-level sales tax (ICMS). In states where ICMS reaches 20%, the total tax burden rises to about 50%. For domestic retailers, the effective tax rate can be as high as 80% to 100%, depending on the sector.
“They [Asian companies] pay half of what we do,” Mr. Gonçalves said. “That imbalance makes the country more vulnerable to imports. It’s only natural they would look for alternatives after Trump’s tariffs. This could harm us, and we’re waiting to gather data to assess the impact,” he added. “If countries with more protectionist policies begin subsidizing prices here in Brazil, we’ll quickly feel the consequences, especially in terms of job losses.”
Mr. Gonçalves cited data from Brazil’s General Register of Employed and Unemployed Persons (CAGED), which shows an uptick in retail job creation since August, when the country began taxing shipments under $50 at a rate of 20%, ending the previous tax exemption.
Although many of these platforms depend on consumer demand, some produce and sell their brands. They often use subsidies to boost sales—such as covering part of the taxes paid by customers—or adopting aggressive pricing strategies in certain countries through incentives offered to third-party sellers.
These e-commerce websites have the autonomy to define their pricing and tax strategies on a country-by-country basis. In 2023, Shein partially covered ICMS taxes for buyers in Brazil.
According to two sources familiar with the lobbying efforts of Chinese platforms in Brasília, foreign marketplaces have been developing contingency plans since the beginning of the year. Until the announcement by former U.S. President Donald Trump earlier this week, the expected tariff increase was 10%, not 30%—a rate that could also be applied as a flat $25 per item, rising to $50 after June 1.
While more mature markets such as Japan and the United Kingdom—both with lower import duties—are natural targets for redirected shipments, Brazil’s significance as a fast-growing consumer market means that some of the redirected goods are likely to land there too, according to industry insiders.
On social media, ABIT president Fernando Pimentel warned that several major exporters of textiles and garments to the U.S. are likely to be severely impacted by the new American tariffs. Even with the new duties, taxes in the U.S. remain lower than in Brazil.
“We don’t yet know how they’ll respond to this tax tsunami,” Mr. Pimentel wrote on LinkedIn. “But given how vital these exports are to their economies, they will seek new markets—and here lies the danger: that Brazil becomes a prime destination, putting pressure on local production, investment, and employment.”
He called for immediate “legitimate trade defense measures” to avoid being overwhelmed by a flood of low-cost Asian imports. “We were already actively working on this front, and now we must double down,” he said.
The largest Asian consumer goods platforms operating in Brazil include Shopee, Temu, Shein, and AliExpress.
Shein declined to answer questions about potential impacts in Brazil and said it would respond via AMOBITEC, a trade group representing mobility and technology companies. AMOBITEC said that it is too early to evaluate the consequences of the U.S. decision, and emphasized that Brazil’s high taxes—among the highest in the world—remain a barrier to large-scale market shifts.
“We cannot lose sight of the fact that taxes on purchases in Brazil remain the highest globally,” the group said, noting that the announcement alone is unlikely to significantly alter current trade flows.
AliExpress, Shopee, and Temu did not respond to requests for comment.
According to the director of a textile manufacturer in Minas Gerais state, Brazil could soon face a “torrent” of Chinese imports due to the U.S. tariff changes.
When asked whether Brazil’s relatively closed economy might shield it from such a wave, he said that even with the 20% import tax and ICMS, Asian platforms continue to grow rapidly in Brazil—often outpacing domestic retailers—making the country an attractive alternative.
To illustrate the scale of the potential impact, the U.S. Customs and Border Protection processes over 4 million shipments of up to $800 per day. In Brazil, the Federal Revenue Service reported about 187 million international parcels in 2024 so far—an average of 520,000 per day.
Economists see inflation closer to 5% than 5.5%; Treasury yields fall
04/04/2025
The sweeping global tariffs announced on Wednesday (2) by U.S. President Donald Trump—on what he dubbed “Liberation Day”—may create downward pressure on Brazil’s inflation outlook for this year. Economists now see inflation numbers hovering around 5%, rather than above 5.5%. The median projection in the Central Bank’s Focus survey currently points to an IPCA official inflation rate of 5.65% in 2025 and 4.5% in 2026.
Inflation expectations embedded in NTN-B bonds (Brazilian Treasury notes indexed to the IPCA) due in May 2025 fell to 5.64% on Thursday, from 5.96% the day before, 6.48% five days ago, and 9.83% a month ago, according to Warren Rena. For NTN-Bs maturing in August 2026, implied inflation fell to 4.95%, down from 5.27%, 5.42%, and 6.26% over the same periods.
Despite the downward bias, projections remain above the upper limit of the inflation target, set at 4.5%. Brazil was less affected by the newly announced tariffs, as its products will face a 10% surcharge—the minimum rate imposed by the Trump administration.
If the situation remains as it is, the measure could result in higher inflation in the U.S., slower growth there, and a broader global economic slowdown, said Andréa Angelo, chief inflation strategist at Warren. These effects, she noted, could weaken the U.S. dollar, easing inflationary pressure on goods in Brazil.
Ms. Angelo pointed out that when the real strengthens against the dollar, the pass-through to consumer prices tends to be smaller than when the Brazilian currency depreciates. Still, an exchange rate of R$5.50 to the dollar, for example, could reduce Brazil’s goods inflation and lead to a 0.27 percentage point drop in the IPCA, bringing the projection to 5.2%. On Thursday, the dollar’s exchange rate closed at R$5.62. “There’s also the possibility that Asia will face a glut of goods, since it won’t be exporting as much to the U.S.,” she added.
Inflation risks
Mirella Hirakawa, head of research at Buysidebrazil, said that inflation risks for 2025, which had been tilted to the upside, now appear more evenly balanced. The consultancy had already projected a lower inflation rate for 2025 than the market consensus, with a year-end IPCA of 5.2%. Last week, the forecast was revised upward to 5.4%, and the 2026 projection increased from 4.4% to 4.6%.
“I think that for 2025, we and the market will likely meet halfway—somewhere between 5.4% and 5.5%. But for 2026, the projections shouldn’t change much,” Ms. Hirakawa said. She noted that the estimates do not yet factor in the impact of private payroll-deductible credit in 2025 or the income tax reform scheduled for 2026.
She said Thursday’s drop in Brazil’s exchange and interest rate markets reflects the relatively limited impact of the U.S. tariffs on Brazil, combined with a higher risk of recession in the U.S. than of global price pressure. “But we’re talking about a potential new world order, with a high degree of uncertainty around the new map of trade agreements.”
She sees two possible scenarios: one where all countries reduce tariffs and economies become more open—including the U.S.; and another where nations retaliate against the U.S. and forge new trade deals among themselves, with the U.S. left out.
“In my view, regardless of the scenario, the U.S. will feel the inflationary effects before any hard data on activity. Initially, uncertainty will play a larger role in the slowdown, but the most significant impact would come in the second half of the year, possibly reinforcing fears of a recession—which could become a self-fulfilling prophecy,” she said.
The Trump administration’s tariff hike could trigger responses from other trade partners, potentially sparking a trade war that would hurt the global economy. Still, Brazil stands to lose less than other countries, said Iana Ferrão, economist at BTG Pactual. The extent of that loss, however, will depend on how much the global economy deteriorates, she noted.
‘Impoverishment Day’
Sergio Vale, chief economist at MB Associados, called “Liberation Day” an “Impoverishment Day,” saying it would “shackle the American population to much higher prices.” For Brazil, he said, the announcement strengthened the country’s growing alignment with China and bolstered commodity trade chains. The relatively mild tariff rate imposed on Brazil helped strengthen the real through expectations of an improved trade balance, he added.
“The idea of a stronger trade balance with China and other countries, combined with accelerated progress on trade deals with Europe, for example, should help keep the exchange rate lower in the coming months. As a result, the real is likely to remain around R$5.70 throughout 2025,” Mr. Vale said.
This stronger exchange rate supports MB’s IPCA estimate of 5.1% for 2025 and helps push inflation away—for now—from levels above 5.5%, he said. “Still, both this year and next, when we expect 4.5%, inflation is likely to end President Lula’s term near the upper limit of the target range.”
The combination of a stronger real, moderate global slowdown risk, and a possible increase in oil supply in May, as announced by OPEC+, led Banco Pine to lower its 2025 IPCA forecast from 5.25% to 5.1%. “Given our outlook for the domestic and global economy, we feel relatively comfortable with this projection,” said Cristiano Oliveira, head of economic research.
XP expects some recovery in commodity prices and the U.S. Dollar Index (DXY) in the coming weeks, despite the high level of uncertainty. It also does not anticipate a near-term interest rate cut from the Federal Reserve. As a result, XP maintained its exchange rate forecast at R$6 to the dollar at the end of 2025 and R$6.20 in 2026. Still, the brokerage acknowledged that the probability of stronger Latin American currencies—beneficial for inflation and monetary policy—has increased.
XP also lowered its 2024 goods inflation forecast from 4.7% to 4.3%, driven by first-quarter currency gains. However, it now assumes a yellow flag for electricity tariffs in December, with an additional surcharge. This kept its 2025 IPCA forecast at 6%. For 2026, the forecast rose from 4.5% to 4.7% due to the expected impact of income tax reform.
Business Confidence Index falls 0.6 points in March to 94 points, lowest level since November
04/02/2025
The impact of rising interest rates drove the decline of the Business Confidence Index (ICE) in March. The index fell by 0.6 points last month to 94 points, its lowest level since November 2023, due to a sharp drop in the retail sector, where the cost of installment payments significantly affected sales.
Compiled from the confidence levels of the four sectors covered by the business surveys conducted by the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), the ICE was dragged down by a 2.4-point fall in retail confidence, which dropped to 83.1 points. The other sectors—industry, construction, and services—all posted gains in March. Industry confidence increased by 0.1 points to 98.4 points; services rose 1.2 points to 92.9 points, and construction increased 0.7 points to 95.0 points.
“I see a sharper decline in retail goods that hinge on credit. Interest rates are likely starting to take effect,” said Aloisio Campelo, a researcher at Ibre-FGV overseeing the ICE survey.
The economist added that high interest rates are also making consumers more cautious, especially amid high household debt. Mr. Campelo noted that sales of durable and semi-durable goods posted the weakest performances in March. “Food wasn’t behind the weak retail performance in March,” he claimed.
Mr. Campelo said that despite the March drop and the steep decline in retail, the overall ICE reading for the month “is not all bad.” He acknowledged negative aspects, such as the index’s third consecutive monthly decline, but pointed out that recent ICE downturns have largely concentrated in retail and services. On the positive side, he highlighted the resilience of the industrial and construction sectors.
“Short-term indicators show that industrial activity remains resilient. Confidence in construction declined, but there’s a limit to how far it can fall given government programs targeting the sector,” Mr. Campelo argued.
Among the components of the overall index, the ICE decline in March was driven by worsening expectations. The Expectations Index (IE) fell 1.4 points from February to 91.5 points, while the Current Situation Index (ISA) edged up 0.3 points to 96.5 points.
It was the fifth straight decline for the IE. The sharpest drop was in expected demand over the next three months, which fell 1.9 points to 91.4 points. Expectations for business conditions six months ahead declined 0.9 points to 91.8 points.
