Donald Trump threatened to impose a 50% tariff on Brazilian goods, causing the Brazilian currency to plumper as the dispute between the US leader and Luiz Inacio Lula da Silva, the largest country and left-wing leader in Latin America, escalated sharply.
In a letter posted on his social media account, Trump mentioned Jair Bolsonaro, the right-wing former president and a rival of Lula, who is facing trial for attempting a coup after his defeat in the 2022 election.
Trump directly linked this to politics, saying that he made this change “partly because of Brazil’s insidious attack on free elections and the basic right to freedom of speech of Americans.”
Bolsonaro imitated Trump’s political style during his tenure as president. The charges against him this time stem from an investigation into the post-election riots in the Brazilian capital, which were compared to the rebellion attempt in Washington on January 6, 2021.
As the legal predicament intensified, Bolsonaro repeatedly asked Trump for help.
Affected by this news, the Brazilian real depreciated by nearly 3% against the US dollar, while the iShares MSCI Brazil ETF (the largest exchange-traded fund listed in the United States tracking Brazilian stocks) dropped by nearly 2% in after-hours trading.
According to the so-called “reciprocal” tariffs initially announced by Trump in April this year, Brazil will face a minimum tariff of 10%.
This letter is the latest of more than 20 letters issued by Trump in recent days and marks the first significant increase in the previously announced tax rate. Although the letter borrowed the terms of “reciprocity” from other countries, Brazil was the first recipient country to have no trade surplus in goods with the United States – which implies that Trump was particularly frustrated about this.
According to two people familiar with the matter, shortly after the announcement, Lula summoned senior cabinet members – including Finance Minister Fernando Adad, Foreign Minister Mauro Vieira and Vice President Gerardo Alkemin (who also serves as Brazil’s Minister of Industry and Trade) – to the presidential palace for a meeting.
Lula said on social media later on Wednesday that Brazil would not accept any “guidance” from anyone and added that the case against the coup plotters was entirely within the jurisdiction of the Brazilian judicial system and “would not be interfered with or threatened”.
Lula wrote: “Any unilateral interest rate hike will be responded to by Brazil’s economic reciprocity law.” Sovereignty, respect and firm defense of the interests of the Brazilian people are the guiding principles of our relations with the world.
The United States is Brazil’s second-largest trading partner, second only to China. Such high tariffs may cause significant damage to some industries in this South American country.
Felipe Alslan, the CEO of Morada Capital, said, “Steel products, transportation equipment (mainly aircraft and aircraft components), specialized machinery (such as civil engineering equipment), and non-metallic minerals account for a significant portion of Brazil’s exports to the United States.”
Influenced by this news, the American Depositary Receipts (ADRs) of aircraft manufacturer Embraer plunged 9% in after-hours trading.
In addition to the economic impact, analysts are also concerned about the political consequences of tariffs. The United States and Brazil have been long-standing partners. Even under the leadership of presidents with ideological differences, the relationship between the two countries has remained solid. However, Trump’s statement may endanger this relationship.
Solang Slur, the head of Brazil’s macroeconomics at UBS Global Wealth Management, said: “This is not just a matter of bilateral trade.” These tariffs indicate that the overall relationship between our two countries, institutionally speaking, has deteriorated and been damaged. A 50% tariff, in many cases, will prevent exports from taking place.
A few days before Trump announced this decision, he had threatened to impose tariffs on the BRICS countries (emerging market countries), citing their so-called “anti-American policies”. This week, when Lula met with the leaders of the BRICS countries in Rio de Janeiro, he criticized in an official statement the tariff policies that distort trade and the military strike against Iran. Although the leaders of the BRICS countries avoided directly challenging the United States, these measures still diverge from Trump’s.
Trump rarely mentioned Brazil in the first few months of his tenure, but on Monday he hurriedly defended Bolsonaro, accusing the South American country of politically persecuting the former president.
