For Brazilian products already subject to the 25% tariff imposed under the Section 301 investigation, the new 12.5% levy will come on top of the existing duty. The 25% tariff was announced by the Office of the U.S. Trade Representative (USTR) on July 15 and took effect on July 22.

The Brazilian government expects the two rates to be cumulative, bringing the total tariff to 37.5%. Amcham Brasil, the American Chamber of Commerce in Brazil, estimates that a large share of Brazilian products will be subject to the combined rate.

Sector impact

Development, Industry, Trade and Services Minister Márcio Elias Rosa said at a press conference after the announcement that several Brazilian industries would face the combined tariffs. They include footwear, machinery and equipment, parts and components, apparel and non-pharmaceutical chemicals.

About 2,000 products exported to the U.S., including beef, coffee, orange juice and fruit, remain exempt from both tariffs. A complete list of goods subject to the two levies, however, has yet to be released.

Washington based its decision on the claim that Brazil purchases goods from countries that fail to uphold adequate labor standards. Those products can therefore enter Brazil at lower prices, creating what the U.S. government considers unfair competition with American producers.

Five products were cited in Brazil’s case: aluminum, cotton, electronics, lithium batteries and tobacco.

Brazil and 53 other countries will face the 12.5% rate. Canada, Ecuador, the European Union, Indonesia, Mexico and Pakistan were assigned a lower 10% tariff. The U.S. government said the lower rate applies to countries that have taken steps to combat forced labor.

The USTR said a broad range of products would be exempt globally, including oil and gas, fertilizers, some food products and goods already covered by Section 232 national-security tariffs, such as automobiles, steel, aluminum and copper.

Products that comply with the United States-Mexico-Canada Agreement will also be exempt because of the highly integrated North American supply chain and the significant level of U.S. content in those goods.

Brazilian response

President Luiz Inácio Lula da Silva’s government criticized the new 12.5% tariff, accusing the U.S. of manipulating the issue without a legal basis “to sustain its protectionist trade policy.”

“The Brazilian government rejects the U.S. government’s decision to impose 12.5% tariffs on Brazilian products as a result of the Section 301 investigation concerning import prohibitions related to forced labor,” the presidential communications office, Secom, said in a statement released Thursday night.

“In the absence of a domestic legal basis to support its protectionist trade policy, the USTR chose to manipulate an issue that is fundamental to human rights and to the struggle of workers around the world in order to accuse 59 countries and the European Union of unfair practices,” the statement added.

Lula’s government also renewed its criticism of the tariffs as “completely arbitrary and unjustified.” It said it would immediately begin the procedures needed to activate mechanisms under Brazil’s Reciprocity Law, approved by Congress, and would bring the dispute before the World Trade Organization’s international dispute-settlement mechanism.

Negotiation strategy

Despite the government’s public stance, officials view the prospect of invoking the Reciprocity Law as remote. The Lula administration is still assessing the potential consequences of using the legislation. For now, Lula has instructed the government to remain at the negotiating table with the U.S.

Finance Minister Dario Durigan also rejected the additional tariff on Brazil. He said that despite the U.S. measures and the conflict in the Middle East, Brazil’s economic situation remains under control.

With an eye on this year’s elections, General Secretariat Minister Guilherme Boulos adopted a sharper political tone. He said the election would pit Lula against Bolsonaro’s political movement and Trump’s “colonialist ambitions.”