Building convergent agenda with Washington’s interests and avoiding war of words in media would be best bet, they say
02/18/2025
Brazil is likely to face greater challenges in renegotiating the impact of tariffs imposed by U.S. President Donald Trump during his second term compared to his first. While it would be helpful to avoid a war of words in the media and especially over politics, which could hinder negotiations, Brazil also could do well by developing a convergent agenda with the new U.S. administration.
This was one of the recommendations from analysts and economists at an event organized by the American Chamber of Commerce for Brazil (Amcham Brazil). They also noted that reducing domestic uncertainty could help mitigate potential external shocks affecting an economy already expected to see modest growth this year.
The first issue at hand is the 25% tariff on Brazilian steel and aluminum. According to Christopher Garman, executive director for the Americas at Eurasia Group, the process to mitigate tariff impacts will resemble 2018’s, albeit more challenging. “Previously, American producers dependent on foreign steel also exerted pressure. Brazil’s task is again to engage with these buyers and highlight the importance of Brazilian products,” he said.
Unlike during his first term, the Republican president is now more convinced that tariffs are the right tool to boost the economy and create jobs in the U.S. Evidence of this includes announcements made without full clearance or planning from his team, such as the 25% tariffs on Mexico and Canada, which were temporarily suspended less than 24 hours later.
“The bottom line is that they were retracted not because they were a mere negotiating bluster, but because they weren’t well-aligned,” argues Mr. Garman, indicating that part of the private sector remains complacent on the issue.
Mr. Garman highlights that the Trump administration is prioritizing renegotiating tariffs with partners in the United States-Mexico-Canada Agreement (USMCA), also known as NAFTA 2.0, delaying any resolution with Brazil.
Another contentious issue is reciprocal tariffs. Former U.S. Ambassador to Brazil Todd Chapman described Brazil as one of the “kings” of tariffs to protect national interests, alongside China. He cited ethanol as an example, where Brazil exports four times more in value terms to the U.S. than the inverse flow.
“Brazil has high tariffs, we have low tariffs. Why should we allow nearly free access to the world’s largest market without reciprocal access?” he summarized.
Bradesco chief economist Fernando Honorato notes that Brazil is somewhat shielded from the U.S.’s focus, given its trade deficits with the U.S. and the relatively insignificant trade flow between the two countries.
“Even an aggressive 25% tariff might reduce exports by $7 million to $10 million, minimally impacting Brazil’s trade balance,” he commented. “Reciprocity poses a risk. I’m more concerned about sector-specific impacts than broader macroeconomic ones.”
This scenario, however, underscores the risks that the lack of stability brings to Brazil’s economic outlook. “Without this anchor, external developments could quickly swing us from side to side, complicating the Central Bank’s task,” added Mr. Honorato.
Ana Paula Vescovi, Santander’s chief economist, warned of potentially indirect impacts from the new American president’s more protectionist stance on the global economy and Brazil, even if all threats aren’t realized.
A more fragmented global economy, combined with mass deportation policies, points to an economy with lower growth potential and higher inflation risk, she indicated. These measures cast doubt on the Federal Reserve’s ability to maintain its interest rate cut cycle.
“These macroeconomic risks and a stronger dollar in the medium term are concerns for the Brazilian economy,” Ms. Vescovi stated, noting that U.S. inflation expectations have been climbing since the end of last year, which could influence the Fed’s policy actions and inflation convergence.
To navigate these risks, Mr. Chapman advocated for greater private sector involvement in government negotiations. “International relations are too important to be left solely to government officials,” he affirmed.
He suggested considering investments in the U.S. as a strategy, citing companies like Gerdau and JBS, which already operate in the country.
Mr. Garman echoed this sentiment. “It won’t be easy, so there’s all the more reason to engage aggressively and highlight Brazil’s alignment with American interests,” he said. “Brazil is a critical supplier of minerals for the defense industry. The U.S. is also focused on energy security and reducing dependency on China in key supply chains. Brazil plays important roles in these areas.”
*By Marcelo Osakabe e Marta Watanabe — São Paulo
Source: Valor International