Trump signs decree making 50% tariffs on Brazil official. What now?

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There have been three weeks of tension between business leaders, industry associations, and the government since U.S. President Donald Trump announced on July 9th that Brazilian exports would be taxed at 50%—which would virtually make the sale of a large portion of domestic products impossible. It was a period of talks, negotiations, lobbying, and promises—all in an attempt to mitigate the effects of the tax on business in Brazil as much as possible. This Wednesday, the 30th, the official announcement from the U.S. government came, generating a mix of relief among the sectors that were left out and great apprehension among those that were not able to escape.

It's a long list of exceptions—694 items. Among them are some important products on Brazil's export list, such as orange juice, pulp, and Embraer aircraft. On the other hand, some heavyweight products, such as coffee, meat, and fruit, will now have an additional 40% tax rate—in addition to the 10% currently in effect, bringing the total to 50%. The measure will take effect within seven days.

A preliminary estimate from Leme Consultores estimates that exemptions to the tariff hike affect more than 40% of Brazilian exports to the United States. From January to June of this year, Brazil exported US$20 billion to the United States. Of this total, US$8.2 billion (41%) are products on Trump's list of exemptions, while US$11.81 billion are products that were affected (59%).

Even with the exceptions, the impact of Trump's tariffs on Brazil will be"very significant," according to former Secretary of Foreign Trade Welber Barral."A 50% rate is very high indeed. Brazil's situation is much worse than that of Europe and Japan, for example, which were taxed at 15%. It will greatly affect the country, including products in which Brazil competes with others, such as meat."

According to National Treasury Secretary Rogério Ceron, a preliminary assessment of the measure, conducted shortly after its announcement, indicated that the impact scenario of the US tariff hike was not"the worst possible." "It appears that, from an economic perspective, it is smaller than the previous scenario," he stated, emphasizing that he could not react hastily without first understanding the measure in detail, including the exceptions to the US tariff hike."The tariff hike scenario not being the worst does not mean there are no impacts."

The sectors left out, of course, celebrated. Among them were orange juice exporters. Ibiapaba Netto, executive director of the CitrusBR association, which represents the sector's major companies, said he received the news"with relief and responsibility."

However, even though it is lower than expected, the tax rate is still extremely high for many sectors, which is likely to cause serious problems for many companies, likely even leading to unit closures and layoffs.

José Velloso, executive president of the Brazilian Machinery Association (Abimaq), noted that the sector was not included in the list of exceptions. His view is that Trump only benefited products that will impact the American economy, and in the case of machinery, Brazil is seen as a competitor. He said, however, that there was at least the good news that products already in transit to the US will not be subject to tariffs.

With this scenario in mind, shortly after the announcement, President Luiz Inácio Lula da Silva met with a group of ministers to discuss next steps. Those present included Finance Minister Fernando Haddad; Attorney General Jorge Messias; Social Communications Secretary Sidônio Palmeira; Institutional Relations Secretary Gleisi Hoffmann; and Vice President and Minister of Development, Industry, Commerce, and Services Geraldo Alckmin.

Political tone

The text of the executive order signed by Trump (read the full text here) to justify the taxation of Brazil had a much more political than economic tone. It attacks the Brazilian government and Minister Alexandre de Moraes of the Federal Supreme Court (STF), and defends former President Jair Bolsonaro and “thousands of his supporters” as targets of “human rights violations that undermined the rule of law in Brazil.”

In the text, the White House reports: “Today, President Donald J. Trump signed an Executive Order implementing an additional 40% tariff on Brazil, bringing the total tariff rate to 50%, to address recent policies, practices, and actions of the Brazilian government that constitute an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.”

The order declares a new national emergency, “utilizing the President’s authority under the International Emergency Economic Powers Act of 1977 (IEEPA) and establishes an additional 40% tariff to address the unusual and extraordinary policies and actions of the Government of Brazil that harm American businesses, the free speech rights of American citizens, U.S. foreign policy, and the U.S. economy.”

This political tone permeated all discussions surrounding the tariff hike from the outset. When he announced the tax on July 9, Trump justified the measure by saying there was a"witch hunt in Brazil," referring to Jair Bolsonaro's trial in the Supreme Court. The economic issue took a back seat in these discussions, especially since the United States has had a trade surplus with Brazil for many years.