'We will discuss, at BRICS, how to improve relations between all affected countries,' says Lula

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BRASÍLIA — One week after the tariff increase imposed by the United States on Brazilian products came into effect , the Lula government announced this Wednesday, the 13th, the measures of the so-called “contingency plan”, in order to mitigate the effects of the surcharge and help the affected companies.

The proposals include a R$30 billion credit line for affected companies, contributions to guarantee funds, increased government purchases, tax deferrals, and reform of the Export Guarantee Fund (FGE). However, the proposals still need to be regulated with the details of each measure.

During the plan's presentation, President Luiz Inácio Lula da Silva (Workers' Party) signed a provisional measure (MP) with the package's general guidelines. Lula said the government was"passing the buck" to Congress. The Speakers of the House, Hugo Motta (Republicans-PB) and Davi Alcolumbre (União-AP), participated in the ceremony."The faster they vote, the faster those affected will benefit," the president urged.

"It's important to say that we can't be scared, nervous, or overly excited when there's a crisis. The crisis exists for us to create new things. What's unfortunate is that there are no justified reasons to impose tariffs on Brazil," the president stated.

The government named the plan “Sovereign Brazil,” a motto adopted in response to President Donald Trump's attempt to interfere in the trial of former President Jair Bolsonaro for attempted coup d'état.

Lula stated that Brazil has no intention, at this time, of implementing tariff reciprocity measures."My negotiating team is here. We are not announcing reciprocity; we don't want to do anything that would justify worsening our relationship," he said.

Refund of tax credits

According to Vice President Geraldo Alckmin, who is also Minister of Development, Industry, Commerce, and Services (MDIC), the government will increase Reintegra—a program that refunds part of the taxes paid by exporters—for large companies exporting to the United States, granting a 3% tax credit, and increasing the percentage to 6% for small businesses. Furthermore, the so-called drawback, in which imported products used as inputs for export generate tax credits, will be extended for one year.

"President Lula has outlined a series of measures, but he would highlight Reintegra, an important measure for industry. It had already been implemented for small businesses, and micro and small businesses already had it, returning 3% of the value of their exports. This boosts exports; Reintegra is being extended to all companies that export to the US," said Alckmin.

"Small businesses will now have 3% + 3%, totaling 6%. The others will have 3%. The other is a drawback: when I export, I don't pay tax when I import. But if I get frustrated, I have to pay. The government is extending it for another year."

The vice president also spoke about government purchases and tax deferrals.

"There are credit measures, with a guarantee fund, government purchases. Municipalities, states, and the federal government are also helping, tax deferrals, a set of measures aimed at serving the productive sector. And market opening," said Alckmin.

Finance Minister Fernando Haddad said that two of the government's focuses are credit with lower interest rates, guaranteed by the Export Guarantee Fund (FGE), and also improving the conditions for granting export insurance.

"First, a structural measure: a credit system geared toward exporters. The Export Guarantee Fund will now have resources available to finance sectors affected by the tariff hike at low cost," said Haddad."The second is insurance. Without insurance, you can't maintain exports," he added.

Haddad also said that government purchases will be made more flexible.

"Government procurement is being made more flexible, allowing the federal government to acquire products that would otherwise be destined for other purposes and are now being used for public policies. We will be able to acquire perishable products for school meals, not just fish, but any product, and include them in the programs," the minister said.

R$9.5 billion outside the target

On Tuesday, Haddad had said that — that is, they will be outside the framework's spending limit — but will be accounted for in the calculation of the fiscal target.

In Wednesday's announcement, however, there was a change of understanding and the government stated that it will ask Congress for authorization to exclude R$9.5 billion from the fiscal target. This will be R$5 billion from Reintegra (money that the government will no longer receive) and another R$4.5 billion from guarantee funds.

Measures announced:

• 3% reintegration for all companies that export to the US, increase from 3% to 6% for small businesses
• Drawback with a one-year term (the time the exporter must sell abroad to maintain the tax exemption on imported inputs)
• Government purchases of products that are not exported to the US, mainly perishables, by the federal, state and municipal governments
• Deferral (postponement) of tax payments for two months, with subsequent payment in installments
• Credit lines worth R$30 billion, with lower interest rates, but with the counterpart of entrepreneurs not to lay off employees.
• Export insurance
• Incentive for opening new markets

The package announcement did not reveal a number of details that still require regulation. In a press conference following the signing of the provisional measure, economic team officials stated that regulations will need to be enacted in the coming days and weeks.

Only with these regulations will it be possible to know what the interest rates on loans will be, the repayment terms, how companies will be eligible, and the requirements for maintaining jobs.

"The provisional measure provides for a set of complementary acts, including conditions for financing lines with the National Monetary Council (CMN), acts of the Treasury, MDIC, and criteria for products to be purchased. But the first step is the signing of the provisional measure, without which none of the subsequent acts would have a legal basis," explained the Secretary of Economic Policy, Guilherme Mello.

50% tariff

The 50% tariff on Brazilian products imposed by US President Donald Trump came into effect on Wednesday, the 6th. The American leader imposed an additional 40% tariff on the country, which was in addition to the previously announced reciprocal 10% tariff.

The Brazilian government argues that this level does not make sense from an economic point of view, since trade between Brazil and the US has been favorable to the Americans since 2009 — that is, since then, the country has imported more from the US than it exports to it.

The White House decree with the decision, published on the 30th, made clear the political motivation of the surcharge, alleging that former president Jair Bolsonaro (PL), defendant in the Supreme Federal Court (STF) in a trial that investigates an attempted coup d'état , is being persecuted by the Brazilian justice system — in addition to criticizing the actions of the Court's minister Alexandre de Moraes.

However, along with the officialization of the tariff hike, the US government released a list of 694 items that escaped the additional 40% surcharge , including relevant products on the Brazilian export agenda to the US, such as Embraer aircraft, oil and orange juice.

According to preliminary calculations by the Ministry of Development, Industry, Commerce and Services (MDIC), 45% of Brazilian sales to the American market (US$18 billion in 2024) escaped the additional tariff.

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According to the MDIC, the 50% rate will apply to 35.9% of Brazilian exports to the United States, which corresponded to US$14.5 billion in 2024.

Furthermore, 19.5% of Brazilian exports to the US were subject to specific tariffs, applied to all countries — corresponding to US$7.9 billion in 2024.

These tariffs were adopted based on national security (Section 232), and the additional 50% tariff does not apply to these products. In the case of auto parts, for example, the rate is 25%, applicable to all origins. For steel, the specific tariff is 50%.

Impact on states and municipalities

The State of São Paulo led Brazilian exports to the USA in 2024. Of the approximately US$ 40.3 billion that Brazil sold to the country, the State accounted for a third of the total, according to a survey by the American Chamber of Commerce for Brazil (Amcham Brasil).

The six states that sold the most to the US in 2024 were:

• São Paulo — US$13.5 billion (33.6% of the total)
• Rio de Janeiro — US$7.2 billion (17.9%)
• Minas Gerais — US$4.6 billion (11.4%)
• Espírito Santo — US$3.1 billion (7.6%)
• Rio Grande do Sul — US$1.8 billion (4.5%)
• Santa Catarina — US$1.7 billion (4.3%)

Under pressure from companies that were unable to escape the tariff hike, some governors anticipated the Union and announced relief measures to mitigate the effects of the surcharge , such as subsidized financing and the release of ICMS credits.

In the municipal segment, 906 municipalities that sell to Americans did not escape the additional tariff imposed by Trump, according to a survey by Estadão.

The most affected companies are in the Southeast and South regions of the country, the two regions that export the most to the United States. São Paulo, for example, is home to the main meat producers. In Minas Gerais, coffee exporters will be impacted.