Concerns rise over Trump’s victory and increase in import tariffs
11/06/2024
Bilateral trade between Brazil and the United States is expected to face potential challenges as Donald Trump returns to power. Experts believe that while specific measures against Brazil are unlikely under a new U.S. administration next year, Mr. Trump’s victory could drive up import tariffs overall. A key concern with the former president’s campaign is his proposal to raise tariffs, which could impact global trade volumes or trigger currency devaluations. Some fear a “spiral of tariffs and retaliations,” though it remains uncertain what parts of Mr. Trump’s platform are campaign rhetoric versus actual policy intentions.
Experts believe the U.S.-China relationship will remain marked by intense geopolitical competition, with Brazil striving to balance relations. While trade protectionism could harm intra-company exports due to U.S. investments in Brazil—the largest among foreign investors—the U.S.-China rivalry could continue to benefit Brazil’s agricultural exports, though increased protectionism is not viewed as ideal for global trade.
“Politically, it would be preferable for the Lula administration if Kamala Harris won, given the president’s previous endorsements of her,” said José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB). From a trade perspective, he points to Mr. Trump’s campaign pledge to raise import tariffs by at least 10% across the board and 60% on Chinese goods. “Such measures could curb global growth, impacting commodity consumption and reducing trade. But we must remember that the world is transitioning, and many factors will need adjusting.”
Sergio Vale, chief economist at MB Associados, suggests that a blanket tariff increase proposed by Mr. Trump could affect Brazil through currency devaluation. “This type of competitive tariff policy could lead to currency depreciations worldwide.”
Mr. Vale observes that this is already happening to some extent. “The recent depreciation in currencies reflects concerns over a potential Trump administration, as markets weigh the risk factors such a government could pose for U.S. fiscal and economic policy.” Mr. Trump’s victory, he adds, could keep these concerns around exchange rates alive, “given his signaling of economically challenging policies.”
Mr. Vale expects no direct measures against Brazil under a Republican administration, “despite the political disagreements likely to arise with the Lula administration.” However, the U.S.-China rivalry is unlikely to change regardless of the election outcome, as Livio Ribeiro, partner at BRCG and researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), explains: “This is a state-to-state confrontation, not merely a clash between administrations.”
“Trump brings more noise,” Mr. Ribeiro said. “He’ll likely push policies perceived as aggressive from the start, like general tariffs and specific taxes targeting China. But in the end, it’s mostly noise rather than substantial change in frequency.”
On Mr. Trump’s proposed general tariff, Mr. Ribeiro explains that if the measure is uniformly applied, it would raise the cost of U.S. imports globally. “The real risk here is getting caught in a cycle of tariffs and retaliations—a non-trivial concern. But we need to separate Trump’s noise from what his administration will actually implement,” Mr. Ribeiro pointed out.
Welber Barral, a partner at BMJ and a former foreign trade secretary, notes that certain Brazilian industries are still affected by Mr. Trump’s policies from his first term, including steel, aluminum, and copper. According to Mr. Barral, a general tariff hike could also impact Brazilian exports of manufactured goods.
Another factor, according to Mr. Barral, is that Brazil competes with the U.S. in exporting agricultural goods to China. He points out that during Mr. Trump’s previous term, tensions with China led to increased Chinese purchases of Brazilian agricultural products, such as soybeans.
“Protectionism isn’t good for anyone. In the end, everyone loses, though effects vary across supply chains. Trump’s main challenge is his unpredictability.”
Political scientist Hussein Kalout suggests that Mr. Trump’s victory would likely strain Brazil’s current administration. The Republican agenda contrasts sharply with President Lula’s priorities, and Mr. Trump’s return could end today’s aligned perspectives between the Brazilian government and the U.S., according to Mr. Kalout, former secretary of strategic affairs under the Temer administration, a researcher at Harvard, and adviser to the Brazilian Center for International Relations (CEBRI).
“Trump has shown a preference for an international policy agenda that conflicts with Brazil’s current stance. His is a climate-skeptic, anti-multilateralist agenda that opposes reforms in international organizations, particularly the WTO [World Trade Organization],” Mr. Kalout points out.
Mr. Trump’s presidency could accelerate inflation and halt the recent trend of falling U.S. interest rates, impacting foreign capital flows to emerging markets like Brazil. Former Brazilian ambassador to China and CEBRI adviser Marcos Caramuru suggests that if Mr. Trump enacts the import tariffs he’s proposing, it “would disrupt the global economy, potentially driving export companies to invest in the U.S. The impact of his policies could be more significant than Biden’s.”
Mr. Caramuru adds that Mr. Trump’s proposed high tariffs, combined with limited foreign labor availability, would drive up U.S. inflation. “As a result, interest rates may stop falling, and more capital could shift to the U.S., affecting emerging markets like Brazil.”
*By Marta Watanabe, Camila Zarur, Paula Martini — São Paulo and Rio de Janeiro
Source: Valor International