Concerns mount over potential U.S. trade retaliations against Brazil amid an already challenging economic outlook
01/22/2025
The return of Donald Trump to the U.S. presidency has introduced an additional layer of uncertainty to Brazil’s already challenging economic landscape, analysts warn.
Over the past two years, Brazil’s “strongly expansionist” fiscal stance has pushed the economy beyond its potential, raising inflationary risks. This domestic backdrop now intersects with “strong headwinds from abroad,” which are expected to worsen, wrote Silvia Matos and Armando Castelar in the January edition of the FGV Ibre Macro Bulletin, shared exclusively with Valor.
For Elizabeth Johnson, an analyst at TS Lombard, Mr. Trump’s return adds another element of unpredictability to Brazil’s economic prospects. Despite being one of the least U.S.-dependent nations in Latin America and running a trade deficit with the country, “there’s concern that Brazil and its leftist leader, President Lula, could become easy targets for Trump as he pushes his ‘America First’ agenda,” Ms. Johnson explained in a report to clients.
FGV Ibre researcher Lia Valls also recalled Mr. Trump’s past comments about Brazil’s “high import tariffs” and lack of reciprocity, raising the possibility of Section 301 investigations. This U.S. trade law allows for retaliatory actions if American companies are deemed disadvantaged.
Ms. Valls explained that with the WTO dispute resolution mechanism currently paralyzed by U.S. blockages, Brazil could face difficulties in challenging such measures or imposing counter-retaliation. “As during Trump’s first term, the way forward is through negotiation,” she said.
While a blanket increase in tariffs on Brazilian goods seems unlikely, Ms. Valls did not rule out sector-specific hikes, particularly on steel or possibly meat products, influenced by U.S. industry lobbying.
Global trade war
Indirect impacts could be equally significant. Ms. Johnson of TS Lombard warned that a promised trade war could destabilize China—Brazil’s largest trading partner—and the global economy. Facing multiple challenges, including soaring public debt, high inflation, and slowing growth, Brazil risks a hard landing ahead of its 2026 presidential elections, especially if the trade conflict disrupts agricultural exports or prompts populist policy measures to manage the fallout.
Luis Otávio Leal, chief economist at G5 Partners, noted that Mr. Trump’s apparent moderation toward China during his inaugural speech, alongside his recent outreach to Chinese President Xi Jinping, might indicate a willingness to negotiate. However, this could harm Brazil’s soybean exports, which had benefited during Mr. Trump’s first term due to U.S.-China trade tensions.
“I don’t believe lightning strikes twice,” Mr. Leal said. “I think regarding China and the U.S., Brazil will be harmed either way. Whether due to a reduction in international trade, a global trade war, or because the U.S. and China reach an agreement, which would reduce our agricultural exports there.”
China currently absorbs nearly 75% of Brazil’s soybean exports. While the 2025 soybean harvest is largely secured, a U.S.-China agreement in the first half of the year could jeopardize Brazil’s mid-year corn exports and the 2026 harvest, Mr. Leal added.
Brazil’s commitment to non-alignment in foreign policy and trade could be tested by intensifying U.S.-China tensions. Ms. Valls of FGV Ibre emphasized the significance of Brazil signing the Mercosur-European Union trade agreement as a step toward diversifying its trade relations.
“The agreement still requires approvals and, even once approved, includes a tariff reduction schedule that spans up to 18 years in some cases. However, it could result in trade diversion from U.S. imports, particularly in the industrial sector. Notably, a framework was negotiated for the treatment of critical minerals, which could affect U.S. interests in this area,” Ms. Valls noted.
At the same time, China has been preparing for potential U.S. retaliation under Mr. Trump. In late 2024, during Chinese President Xi Jinping’s visit to Brazil, the two nations signed 37 agreements, including memoranda on technology, health, and innovation. Significantly, China opened its market to Brazilian sorghum exports, a move Ms. Valls interpreted as a preemptive strategy against potential U.S.-China conflicts.
Paris Agreement
Mr. Trump’s withdrawal from the Paris Agreement, executive orders curtailing incentives for the energy transition, and announcements of increased oil production signal that the U.S. is “turning its back on the world,” Mr. Leal of G5 Partners warned. He noted that these actions could present challenges for Brazil, which holds a key position in global climate discussions, and potentially undermine the COP30 climate conference set for November in Belém.
Diplomatically, Brazil’s 2025 presidency of the BRICS bloc—with members including China, Russia, and Iran—adds another layer of complexity. The U.S. has long viewed BRICS with skepticism, and any renewed discussions about a common currency within the bloc could provoke retaliatory actions from the Trump administration, Mr. Leal cautioned. As BRICS president, “Brazil will be in the spotlight,” he said, and Mr. Trump will not hesitate to push back if the bloc challenges U.S. interests.
*By Marta Watanabe, Marcelo Osakabe e Anaïs Fernandes — São Paulo
Source: Valor International