{"id":95092,"date":"2025-07-28T11:27:09","date_gmt":"2025-07-28T14:27:09","guid":{"rendered":"https:\/\/murray.adv.br\/?p=95092"},"modified":"2025-07-28T11:27:09","modified_gmt":"2025-07-28T14:27:09","slug":"reciprocal-u-s-trade-retaliation-would-shrink-brazils-gdp","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/reciprocal-u-s-trade-retaliation-would-shrink-brazils-gdp\/","title":{"rendered":"Reciprocal U.S. trade retaliation would shrink Brazil\u2019s GDP"},"content":{"rendered":"
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Study suggests opening to other markets would soften the blow<\/strong><\/em><\/h6>\n<\/div>\n<\/div>\n
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07\/28\/2025<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n

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Brazil could benefit from a trade retaliation strategy against the United States, if the federal government opts for one, that shifts the focus from tit-for-tat tariffs to broader trade liberalization. The idea would be to lower import tariffs on goods from other countries while maintaining current rates for U.S. products, according to Andr\u00e9 Val\u00e9rio, head of macroeconomic research at Inter bank, and his assistant Gustavo Menezes.<\/p>\n<\/div>\n

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In a previous analysis, Inter\u2019s chief economist, Rafaela Vit\u00f3ria, found that the impact of the proposed U.S. tariffs on the Brazilian economy would be relatively small, due to the country\u2019s 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.<\/p>\n<\/div>\n

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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.<\/p>\n<\/div>\n

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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\u2014imposing a 50% tariff on U.S. imports\u2014would also hurt Brazil, the economists said.<\/p>\n<\/div>\n

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\u201cTaxing these imports could trigger a ripple effect across multiple sectors, particularly in manufacturing, which heavily depends on intermediate inputs,\u201d wrote Mr. Val\u00e9rio and Mr. Menezes in their study.<\/p>\n<\/div>\n

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Smaller GDP<\/strong><\/p>\n<\/div>\n

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Their general equilibrium model estimates that a proportional retaliation would reduce Brazil\u2019s GDP by 0.17 percentage point, on top of the damage from the U.S. tariffs themselves.<\/p>\n<\/div>\n

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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.<\/p>\n<\/div>\n

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Sugar refining would also suffer a 3.8-point drop, largely due to its reliance on transportation and fuel, both directly affected by tariffs.<\/p>\n<\/div>\n

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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.<\/p>\n<\/div>\n

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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. \u201cIronically, the domestic coal sector\u2014the one most protected by the tariff\u2014would 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,\u201d wrote Mr. Val\u00e9rio and Mr. Menezes.<\/p>\n<\/div>\n

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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\u2014even if not mostly sourced from the U.S.\u2014lack local substitutes.<\/p>\n<\/div>\n

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\u201cThis analysis suggests retaliation would not be a beneficial strategy for Brazil, as it would deepen distortions in the economy,\u201d the economists said.<\/p>\n<\/div>\n

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Redirection of imports<\/strong><\/p>\n<\/div>\n

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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.<\/p>\n<\/div>\n

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For instance, a 10-point across-the-board tariff cut on imports from other countries could raise Brazil\u2019s GDP by 0.12 point, benefiting 57 of the 66 sectors analyzed.<\/p>\n<\/div>\n

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\u201cPetroleum 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,\u201d the economists wrote.<\/p>\n<\/div>\n

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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.<\/p>\n<\/div>\n

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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\u2014\u201creflecting differences in Brazil\u2019s import profile from the U.S. versus other countries,\u201d Mr. Val\u00e9rio and Mr. Menezes said.<\/p>\n<\/div>\n

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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.<\/p>\n<\/div>\n

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\u201cThese simulations show how distortive tariffs can be and suggest that a more beneficial response would be to further open the economy to international trade,\u201d the authors concluded.<\/p>\n

*By\u00a0Ana\u00efs Fernandes\u00a0\u00a0\u2014 S\u00e3o Paulo<\/p>\n

Source: Valor International<\/p>\n

https:\/\/valorinternational.globo.com\/<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/article>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

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