Trade shifts pose bigger risk than tariffs, analysts say

There is consensus among analysts at banks and brokerages that Brazilian companies with more globalized operations are better positioned to cushion the impact of any new trade barriers. However, continued uncertainty surrounding U.S. policy—driven by erratic decisions and reversals—makes it difficult to clearly separate potential winners from losers.

Embraer remains somewhat shielded thanks to its “near-monopoly” in the U.S. regional jet market, analysts say.

The case of Iochpe-Maxion, a Brazilian auto parts manufacturer, illustrates the challenges in assessing risks. Earlier this month, J.P. Morgan had identified the company as one of the sector’s most exposed to the proposed tariffs. But that assessment came before news reports suggested that U.S. President Donald Trump was considering exemptions for vehicle and parts imports to allow companies more time to establish local manufacturing operations.

Should such exemptions materialize, there is room for a positive impact if Iochpe avoids direct tariffs, according to UBS BB. The same would apply to Tupy, another listed Brazilian auto parts supplier.

Brazilian firms would be indirectly affected by tariffs imposed on light vehicles exported to the U.S. that contain parts manufactured in Mexico, where both companies operate. Mexico is facing additional tariffs of 25%. In a worst-case scenario, with no exemptions, J.P. Morgan estimates up to a 6% revenue hit for both firms. The bank also reiterated that the potential drop in demand triggered by tariffs poses another layer of risk.

XP analysts echoed that concern, emphasizing how higher prices could dampen volumes or squeeze supply chains by distributing added costs downstream.

The Financial Times recently reported that Trump may exempt Chinese auto parts from tariffs following pressure from industry executives, while maintaining existing tariffs on imports from other countries.

In the pulp and paper sector, XP does not foresee significant changes in volume, given the limited U.S. production of short-fiber pulp, which depends heavily on Brazilian exports. However, analysts at U.S. bank Truist, citing Dow Jones Newswires, warned that the new tariffs could suppress demand from American buyers. While the industry is known for its resilience during downturns, the sweeping tariff hikes could become the tipping point that deepens a broader economic slowdown, weakening demand for paper and packaging.

In Brazil, the impact on Suzano is expected to be minimal, given the company’s relatively low exposure to the U.S. market, XP noted. However, the recent drop in pulp prices in China is likely to weigh on results for exporters, according to Bank of America.

Embraer, with global operations that include factories in Portugal and the U.S., maintains a strong market position in regional jets but is not immune to macroeconomic threats, Citi analysts warn. A recession would likely curb demand for both commercial and executive aircraft, and the company still faces risks tied to higher and more aggressive tariffs.

WEG, often viewed by analysts as one of the companies least exposed to trade disruptions, remains on XP’s watchlist due to the cyclical nature of its commodity-linked product portfolio. About 8% of its revenue comes from exports to the U.S.

“As long as the domestic U.S. outlook remains uncertain, we see room for WEG to expand local production by ramping up capacity at its Marathon facilities, reducing reliance on other regions if needed,” the brokerage noted. WEG acquired Marathon in 2023; the U.S.-based company has operations across several countries.

In the steel sector, Gerdau is seen as a likely beneficiary thanks to its substantial U.S. footprint, although it remains vulnerable to a potential recession. XP estimates that around 50% of Gerdau’s EBITDA comes from its North American operations. “If tariffs are indeed raised to those levels, it’s good news for local producers, including Gerdau’s U.S. unit,” Itaú BBA commented. According to the bank, every 5% increase in Gerdau’s average selling price in the U.S. adds 12% to its EBITDA. The bank also pointed to data from American steelmaker Nucor, which estimated that only 18% of imported steel volumes into the U.S. would be subject to the new 25% tariff. Since Mr. Trump’s election in November last year, shares of Gerdau and other U.S. steelmakers have gained more than 15%, XP noted.

However, multinational companies such as Ternium and ArcelorMittal are expected to be among the hardest hit if the 25% tariff on steel and aluminum imports is enacted.

So far, the U.S. president has not announced additional tariffs on steel and aluminum, which have been subject to a 25% duty since the first Trump administration. Still, Brazilian mining giants like Vale and CSN Mineração could be affected if the trade conflict increases uncertainty around Chinese exports, driving down iron ore prices—the core business for both companies.eyond the additional 10% tariffs on Brazilian imports to the United States, investment analysts are more concerned about the new trade conditions likely to arise from a trade war between the U.S. and China.

Experts from banks and brokerages agree that Brazilian companies with more global operations will be better positioned to mitigate the effects of these changes.

However, there’s still a lot of uncertainty about the direction of U.S. policy, with frequent shifts in government decisions, making it more complex for analysts to clearly identify winners and losers.

The case of Iochpe-Maxion exemplifies this difficulty. The automotive parts and components manufacturer was flagged by J.P. Morgan in early April as one of the sector’s companies most affected by the tariffs. However, this analysis was made before the possibility of exemptions for vehicles and parts imported by the U.S. emerged.

According to recent reports, U.S. President Donald Trump might be considering possible exemptions to give companies in the sector more time to establish factories in the U.S.

If this happens, there could be positive impacts if Iochpe remains exempt from direct tariffs, according to UBS BB. This also applies to Tupy, another publicly traded auto parts manufacturer.

Brazilian companies would be indirectly affected by tariffs on light vehicles exported to the U.S. that contain parts manufactured in Mexico, a country where they have operations and which faces additional 25% tariffs. In the worst-case scenario, without an exemption, J.P. Morgan estimated up to a 6% impact on the revenues of both companies. Additionally, the bank reiterates the potential effect of reduced demand caused by the tariffs.

This is the same concern for analysts at XP, who highlight the potential price increases that could negatively influence volumes or pressure the supply chain by distributing additional costs.

The British newspaper “Financial Times” reported that Trump might be planning to exempt auto parts imported from China, following intense pressure from industry executives, without, however, altering the tariffs established for other countries.

In the paper and pulp sector, XP does not anticipate significant changes in volumes due to the low production of short-fiber pulp in the U.S., which relies on Brazilian exports. However, analysts at the American bank Truist believe that tariffs may result in lower demand from American companies, according to Dow Jones Newswires. Although the sector has shown resilience during tough times, the tariff hikes could be the decisive factor leading to a broader recession, with weaker demand for paper and packaging.

In Brazil, the impacts are limited for Suzano, considering its relatively low exposure to the U.S., says XP. The decline in pulp prices traded in China is expected to negatively influence the results of commodity exporters, explains Bank of America.

Embraer, with its global operations, continues to defend its “quasi-monopoly” position in the U.S. regional jet market, according to XP. In addition to Brazil, the company has factories in Portugal and the U.S. However, it is still not shielded from the recession threat, believes Citi: an economic slowdown would reduce the momentum for Embraer’s executive and commercial jet orders, as well as pose risks of higher and more aggressive tariffs.

The case also applies to WEG – identified by analysts as one of those with limited impacts – which still worries XP, considering the cyclical nature of the company’s portfolio, exposed to commodities. Approximately 8% of the company’s revenue comes from exports to the U.S.

“While the domestic scenario in the U.S. remains uncertain, we see room for WEG to expand its local production by accelerating capacity utilization at Marathon facilities, reducing reliance on other regions if this proves beneficial,” says the brokerage. Marathon, acquired by WEG in 2023, has operations in various countries, including the U.S.

In the steel industry, Gerdau is seen as a beneficiary due to its operations in the U.S., but it remains exposed to a recession. About 50% of the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) comes from its North American division, calculates XP. “If tariffs indeed increase at these levels, it’s positive news for local producers, including [the American operation of] Gerdau,” opines Itaú BBA. For every 5% increase in the average selling price of Gerdau in the U.S., the company’s EBITDA rises by 12%, according to the bank, which refers to data from the American steel company Nucor, which would have only 18% of steel volumes imported to the U.S. subject to the tariff increase to 25%. Since Trump’s election in November last year, Gerdau and U.S. steel companies’ shares have risen by more than 15%, XP notes.

However, multinational companies Ternium and ArcelorMittal are expected to be the most adversely affected by the implementation of 25% tariffs on steel and aluminum imports.