Trump’s tariffs on Brazil reveal the limits of protectionism and will have a limited impact, says analyst

The imposition of a 25% tariff on Brazilian products, announced by the United States government on Wednesday, July 15, is expected to have a reduced impact, considering the vast list of products excluded from the measure. This analysis is by economist and researcher Monica de Bolle, from the Peterson Institute for International Economics (PIIE), in the USA.

According to the Brazilian expert, the current situation demonstrates the restrictions of protectionism and former president Donald Trump’s reduced ability to maneuver in a globalized context, in contrast to the image of power he projects in his statements.

“Even if the intention seems to be different, the United States has an economy deeply connected to the world stage,” said De Bolle.

“For this reason, the real influence of the United States is significantly less in practice than in speech,” he added.

De Bolle also highlighted the absence of a precise economic justification for Trump’s tariff decisions, characterizing the action against Brazil as “political and coercive”.

The imposition of taxes on Brazil was reported by the Office of the United States Trade Representative (USTR), following an investigation by the agency into Brazilian commercial practices considered unfair. The measure will come into effect on July 22.

If this new round of tariffs is implemented, Brazil will become the country with the biggest increase in American tariffs since Trump’s return to the presidency.

According to Jamieson Greer, US trade representative, the initiative aims to safeguard American economic interests and is fundamental “to combat unfair trade practices and ensure that US workers and companies can compete on an equitable basis.”

Greer also highlighted that negotiations between the two nations over the last year did not resolve differences, but that Washington remains receptive to future dialogues with Brasília.

This same Wednesday, the United States released a revised list of products that will be exempt from tariffs, totaling more than 2,200 items, such as beef, fruit, coffee, minerals, fertilizers and aircraft.

According to Monica de Bolle, in view of the Brazilian government’s difficulties in dialoguing with the USA, it is expected that future discussions will take place predominantly in the private sphere, involving specific companies and sectors.

“This is a balkanization of trade, a scenario that has become inevitable”, explained the economist.

In an official statement, the Brazilian government expressed its rejection of the decision, stating that July 15 “will be recorded in the history of relations between Brazil and the USA as a regrettable event.”

The note added that Brazil will initiate procedures to activate the Reciprocity Law, already approved by the National Congress, and will forward the matter to the World Trade Organization (WTO).

For De Bolle, a possible retaliatory measure could trigger a trade war with the United States, which, in his words, “would not bring benefits to anyone”.

“I cannot predict how the United States would react to retaliation, but I assume it would respond vigorously, despite the limited scope we have already seen in the exemption list itself,” he said.

On the other hand, the economist suggests that the Brazilian government could choose a more restrained retaliation, serving only to demonstrate opposition and firm its position, with a considerably smaller impact.

Analysis of the economic coherence behind the announced tariffs

When analyzing the imposed tariffs, economist Monica de Bolle questions the existence of solid economic foundations. For her, it is more likely that the measures reflected a political dispute than purely economic reasons.

“There is not, it is a clearly political conflict”, replied the economist. She cited as proof Marco Rubio’s immediate statement in X after the announcement, blaming the Lula government for the tariffs, a position that, according to De Bolle, lacks meaning and highlights the political dimension of the action.

This is the first case in which Section 301 has been employed since the Supreme Court in February repealed tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA), which prevented the government from imposing taxes in the same way as before.

Brazil, in this context, functions as a “test case” to verify the effectiveness of other mechanisms that the government has been using to reinstate the tariffs that were in force before the Supreme Court’s decision. Furthermore, the situation also serves to assess the negotiating power of the Trump administration itself.

Real economic impact of new US tariffs

The United States included important Brazilian export products, such as beef and other agricultural items, on the list of exceptions. Given this, De Bolle analyzed the likely effective economic impact of the tariff.

“The exemptions are the most significant aspect of this announcement, surpassing the tariff itself,” commented De Bolle. She estimates that approximately 65%, or even more, of Brazilian exports to the USA will be completely exempt, meaning that the 25% tariff will apply to only a third of exported products. A list of exemptions had already been released in June, and new items have now been added.

All of this clearly exposes the limitations of American action. Although the rhetoric may suggest otherwise, the United States maintains an economy that is deeply integrated with the global stage. Several Brazilian exports are essential to the American economy, and any tariff would have direct consequences not only for consumers, but also for local companies. For this reason, the power of influence of the United States is, in practice, much more restricted than what appears in discourse.

Products of great importance, such as coffee, orange juice, meat and other agricultural items, as well as important manufactured goods such as airplanes and their components, were kept out of taxation. Even pig iron was exempt, as Brazil supplies more than 50% of American demand for this metal.

There was no specific action linked to Pix, which had been cited during the investigation. The list of exceptions makes clear the United States’ restrictions on applying protectionist measures of the magnitude initially announced.

Reduced impact on the daily lives of Brazilians

The question about a limited impact on people’s daily lives was also addressed by the economist.

“Yes, it follows the same trend as the previous year,” confirmed De Bolle, referring to the imposition of 50% tariffs that were reduced to 40%. At that time, many items were not charged and there were no significant effects on the Brazilian economy. The USTR, in fact, reported that negotiations continue, indicating that the list of exemptions could grow in the coming months.

Although there is an impact, it is considered relatively limited and is not expected to generate major consequences. This is due, in part, to efforts by Brazil, and other nations, to diversify their export destinations since last year. Although dependence on the American market persists, a change in the flow of trade from Brazilian states to other nations has already been observed, precisely in response to the protectionist instability of the United States.

The specific case of Brazil also serves as an indication for other nations that are also under investigation by Section 301 of the United States Trade Act of 1974. The Brazilian experience, therefore, exposes for these countries the limits of the scope of North American protectionism.

The economic logic behind US taxation of Brazil

Asked why Brazil is the second country most taxed by the US, behind only China, and whether there is an economic logic to this, De Bolle offers her perspective.

“There isn’t,” replied the economist. She explains that Trump’s own economic argument, which is “not that well founded”, should not be applied to Brazil.

The supposed intention would be to protect the United States from nations with which it has a large trade deficit, but the United States does not have this type of deficit with Brazil. In fact, the American surplus in relation to Brazil has increased recently. For De Bolle, this logic is already flawed in its essence, as “no one implements protectionist measures because of a trade deficit or surplus. It’s crazy.”

Furthermore, the United States wanted Brazil to end preferential tariff relations with countries such as Mexico and India, which are compatible with World Trade Organization standards. In return, they expected Brazil to establish preferential relations with the USA, something that does not align with Brazilian trade legislation, nor with its membership in the Latin American Integration Association (Aladi) and Mercosur.

Given this scenario, Brazil had no concessions to offer the United States in response to the request. The economist points to ethanol as the only sector or product impacted by tariffs in which it is possible to identify some commercial and economic logic.

“This measure is much more similar to coercive political action than anything else. There is no clear economic component in this case,” he concluded.

Possible electoral impact of tariffs in Brazil

Regarding the possibility of tariffs generating an electoral impact in Brazil, De Bolle’s analysis is as follows.

“I believe so,” said the economist. She explained that, although foreign and trade policies generally have little influence on elections, the situation could change due to the positioning of Bolsonaros, Flávio and Eduardo, as allies of Trump. Visits to Washington, conversations on various topics such as Pix, trade and the classification of criminal groups as terrorist organizations can change this scenario.

“It is necessary to observe and question, with some suspicion, the idea that Flávio Bolsonaro is so close to Trump”, warned De Bolle. She considered that, even if Flávio Bolsonaro were elected, the United States does not present itself as a reliable partner at this time. Volatility in relations is high, with Trump alternating between positive gestures and hostility in short periods, which creates great uncertainty in any bilateral relationship.

Flávio Bolsonaro’s alignment with the Trump administration represents an undeniable political burden for his campaign. The implementation of the tariffs, especially after a request from Flávio Bolsonaro himself to postpone the announcement until after the elections, only reinforces this perception.

Change in the Brazilian reaction margin with Section 301

The way the measure was applied, based on Section 301, raises the question of how this affects Brazil’s ability to react.

“The Brazilian government has sought to negotiate, in the best possible way, with an extremely volatile administration that pursues objectives that transcend the economic sphere”, explained De Bolle. She highlighted that Trump has already made clear his intention to make Latin America a scenario of influence for the United States, which connects trade policy to a geopolitical strategy of expanding its zone of influence.

Does Brazil have technical tools to challenge these measures? Yes, it does, however, the central problem is a broader geopolitical issue, which ends up restricting the field of action.

Brazilian retaliation: strengthening or worsening the conflict?

Would the hypothesis of retaliation by Brazil, based on the law of reciprocity, generate a strengthening of the national position or, on the contrary, a worsening of the conflict?

“Brazil finds itself in a delicate situation, as it is difficult to be the target of an attack like this and remain inert”, said De Bolle. She stated that the country would have the right to develop a response if it considered this the best strategy. However, if he opts for retaliatory action, “we could enter a trade war scenario with the United States, which will not benefit anyone.”

“I cannot visualize the United States’ reaction to retaliation, but I assume they would respond vigorously, despite their field of action being limited, as has already been demonstrated in the list of exemptions,” he explained. This scenario, however, creates an environment of great uncertainty in the bilateral relationship, harming companies in both Brazil and the United States.

However, this approach could also not generate major consequences if Brazil opts for retaliation with a more restricted scope. Such a measure would only serve to signal their dissatisfaction and resistance, without this leading to greater economic implications. In this case, the situation of disagreement between the two nations would continue, but without significant escalation.

Brazil’s search for new negotiations and alternative markets

Asked about Brazil’s options for negotiating the reversal of tariffs and finding new markets for the affected products, the economist presented the following considerations.

“Brazil is already in dialogue with several nations”, stated De Bolle. She highlighted the progress of the European Union-Mercosur agreement and other conversations with several countries, including Canada and Asian nations.

The scenario is promising, as many other countries are also seeking to diversify their trading partners, beyond the United States. However, “this whole process takes time”, highlighted De Bolle, indicating that “none of this will bring immediate results”.

Negotiations with the US, on the other hand, are more complex. Since this issue began last year, Brazil has faced major obstacles in establishing contact with the USTR, achieving success only after intense lobbying work by Brazilian companies with operations in the United States and American companies present in Brazil. Despite these efforts, the situation remains unstable.

“Probably, these negotiations will continue to occur less at the governmental level, where they would be ideal, and more between specific sectors, driven by private lobbies,” he predicted. According to her, this “Balkanization of commerce has become inevitable.”

Projections on the durability of the inflation slowdown in the US

The economist was also asked about the recent slowdown in American inflation and whether this movement would be lasting.

“No, it is not lasting,” replied De Bolle. The inflationary slowdown, according to her, was largely attributed to the ceasefire in the conflict with Iran. However, the conflict has resumed and, secondly, the Trump administration is restarting tariff actions that had been temporarily suspended by a Supreme Court ruling. The economist believes that “American inflation should grow again with intensity in the next three months, driven by these two sources of inflationary pressure.”

This rise in inflation will certainly impact Trump’s domestic popularity. One of the factors that led the government to sign the memorandum of understanding with Iran was precisely pressure from its electoral base, concerned about the high cost of living.