US global tariff measures will reorder bilateral trade and alter export-import dynamics more broadly
Saudi Arabia is targeting inward foreign direct investment (FDI) to diversify its economy as demand for oil peaks, but FDI last year failed to accelerate as planned The price of Brent crude has fallen from around USD75 per barrel to just over USD60 per barrel in the aftermath of US global tariff moves. The impact on fiscal revenue has prompted the government and Public Investment Fund (PIF, the country’s sovereign wealth fund) to tap debt markets heavily.
What’s next
Subsidiary Impacts
- Higher US tariffs on most countries could benefit Brazilian agribusiness.
- The auto sector will face high risks if investments and exports from third countries are diverted in response to tariffs.
- The impact of tariffs on Brazilian inflation and the exchange rate is highly uncertain.
Analysis
Although China has been Brazil’s leading trade partner since 2009, Brazilian exports to the United States are dominated by more value-added products — with manufactured goods accounting for over 78% of shipments to the world’s largest economy. Last year, Brazilian exports to the United States totalled USD40.4bn, amounting to 12% of total exports. Imports, meanwhile, reached some USD40.7bn — resulting in a broadly balanced trade relationship.
This is in stark contrast with Brazilian exports to China, which are concentrated in agricultural and mineral commodities (see BRAZIL: Trade surplus will be squeezed this year – March 12, 2025).
Direct exporters
In principle, higher tariffs will likely dampen US demand for imported goods provided by exporters across various sectors — with those for which the United States is a large market more affected than others.
Some important Brazilian shipments to the United States had already been hit before President Donald Trump announced ‘reciprocal’ tariffs on April 2 (see INT: Tariff turmoil hits GDP and raises crisis risks – April 8, 2025) — notably the 25% tariffs on steel and aluminium and auto parts. Last year, Brazil was the second-largest exporter of steel to the United States.
However, even in these cases, the impact may not be straightforward. For example, Brazilian steel exports to the United States are concentrated in semi-finished products used by the US steel industry, which lacks self-sufficiency in this area.
Hence, in the absence of a recession that dampens US domestic demand, Brazilian steel exporters could see limited impact, with most of the cost faced by US importers and final consumers.
Industrial ‘complementarity’ could help Brazil negotiate steel and other tariffs with the United States.
Brazil hopes to leverage this complementary industrial relationship, as well as its imports of US metallurgical coal, to negotiate exemptions or quotas from the tariffs on steel, aluminium and auto parts.
In some cases, higher tariffs faced by other — mainly Chinese — competitors may benefit Brazilian exports to the United States.
A case in point is Embraer, the world’s third-largest civil aircraft manufacturer. Embraer specialises in regional and executive jets, in which its main competitors, after Canada’s Bombardier, are the state-owned Aviation Industry Corporation of China (AVIC) and Commercial Aircraft Corporation of China (OMAC).
Increased competition at home
Brazilian companies may also face increased competition at home as third countries divert exports away from the United States.
This risk is especially acute in the case of imports from China. However, it is also relevant in the case of trade with other partners, such as the EU, especially if Washington reimposes the heavy ‘reciprocal’ tariffs now temporarily suspended.
High US tariffs on other countries could result in a ‘flooding’ of the Brazilian market in products from tyres to solar panels, threatening the long-struggling domestic manufacturing sector (see BRAZIL: New industrial plan will face uncertainties – February 27, 2024).
The National Association of Motor Vehicle Manufacturers (Anfavea) has expressed the additional concern that multinational carmakers may divert to the United States investments currently planned for their Brazilian factories (see BRAZIL: Mover seeks to drive automotive modernisation – August 28, 2024).
In particular, Anfavea fears a surge in imports from Mexico, which has lower costs and whose light-vehicle sales to Brazil are protected by a sector-specific free trade deal (subject to a 40% regional content requirement).
Agribusiness gains?
Brazilian agricultural exports facing competition from US farmers stand to lose from higher tariffs. For example, exporters of orange juice will find themselves at a significant disadvantage vis-a-vis their US competitors.
Coffee producers, on the other hand, might be less impacted, as US domestic production is limited (see COLOMBIA: US tariffs will unsettle coffee sector – April 15, 2025).
Furthermore, given that the United States is also a large exporter of many agricultural products in which it competes with Brazil, retaliations against Washington — especially from China — may prove a boon for Brazilian agricultural producers.
Some agribusiness experts argue that Brazilian exporters should build on their existing prowess to target production on specific niches in more demanding foreign markets, such as the ‘premium’ meat segment in Japan.
Going global?
Additional US protectionism may also prompt Brazilian exporters — especially larger companies — from different sectors to open new regional offices or eventually even invest in production plants abroad.
‘Going global’ may work as an insurance policy for large Brazilian companies.
Such a strategy might help Brazilian companies access new markets and circumvent tariffs, as well as providing ‘insurance’ against future protectionist measures.
Inflation
US tariffs could have an indirect positive impact on the Brazilian economy by lowering inflation. This could happen as more Brazilian exporters increase their focus on the domestic market — at least initially. Such a move would boost local supply of the relevant goods, leading to lower prices. At the same time, higher US tariffs could lead to goods produced in third countries being diverted to non-US markets, including Brazil, which could also serve to lower domestic prices.
Lower prices caused by external factors would be welcomed by the Central Bank, which has struggled to bring inflation down into the target range of 1.5-4.5% — the year-on-year consumer inflation rate reached 5.48% in March.
Inflationary pressure has led the Central Bank to maintain the benchmark interest rate at extremely high levels — currently 14.25% — hitting growth and increasing the debt burden facing households and businesses (see BRAZIL: Strong growth is set to slow this year – March 18, 2025).
Uncertainties
However, global turmoil caused by US protectionism could also have the opposite effect, pushing up domestic prices in Brazil.
Notably, it is far from certain how the real exchange rate against the dollar would behave if US tariffs remained significantly high on all or most other countries in the longer term.
Since Trump’s announcement of ‘reciprocal’ tariffs, the Brazilian real has reacted as a typical emerging-market currency in an international crisis — it has weakened against the US dollar, even though US policy has created the problem and its own currency has depreciated against other major currencies.
A weaker real will put upward pressure on import prices, as well as on commodity prices denominated in US dollars — benefiting Brazilian commodity exporters selling to countries other than the more protectionist United States, but increasing the prices of imports of final consumer goods and inputs into domestic production.
However, even that effect is uncertain: investors could decide to direct more funds to Brazil given high local interest rates and a less attractive US market, strengthening the real.
