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.