Trump's tariffs on steel and aluminum are expected to have a limited impact on Brazil's GDP, according to Ipea.

By Rodrigo Viga Gaier 

RIO DE JANEIRO (Reuters) - The 25% tariff on steel and aluminum imports, which the United States began applying this Wednesday, is expected to have a 0,01% impact on Brazil's GDP, according to an estimate by the Institute for Applied Economic Research (Ipea).

The tariff will also reduce Brazilian exports by 0,03%, according to Ipea estimates.

However, the study points to a significant impact on the Ferrous Metals segment in Brazil, with a 2,19% drop in production and an 11,27% reduction in exports.

According to calculations by Ipea, the US tariff would result in a loss of exports equivalent to US$1,5 billion and 1,6 million tons.

"Considering that almost all of the reduction will occur in sales to the United States, exports to this country would fall by 36,2%. In macroeconomic terms, the impact on Brazil would be insignificant, with a 0,01% drop in GDP and a 0,03% decrease in total exports," says the Ipea study.

The US import tariff will directly affect more than 10% of the steel industry's revenue in Brazil. "And the dependence on this market is even greater in the case of semi-finished products (slabs and ingots), since about 90% of Brazilian sales to the US are concentrated in these products," the document highlights.

During his first term, US President Donald Trump also adopted measures to tax imported steel from other countries, but Brazil managed, after negotiations, to enter into an export quota system.

In an interview with Reuters, the president of the Brazilian Steel Institute, which represents companies such as Gerdau and Usiminas, Marco Polo de Mello Lopes, stated that he hopes a new special regime, like the quota system that has been in effect since 2018, will be adopted for Brazil.

The executive argues that Brazilian steel mills mostly export steel slabs that are rolled and processed by mills in the North American market.

"We remain hopeful, given that channels have been opened at a very high level between the two governments, that we can try to reestablish the quota system agreement," said the president of Aço Brasil.

"We showed that our exports to them are complementary; they are steel plates that will be rolled by the American industry itself. Brazil exports to their industry, so everything suggests that we will re-establish the quota agreement," added Lopes.

The executive has been meeting with members of the federal government, including the Finance Minister, Fernando Haddad, to discuss US tariffs and to draw attention to other concerns that may arise as a result of the Trump administration's measures.

Lopes warned that US protectionism will affect other steel exporters, especially China, which will increasingly try to find new markets for its steel products.

"This is the reality, and the Brazilian government is aware of and understands our situation," stated the president of Aço Brasil.

The Ipea survey also addressed the impacts of the new tariff on the US economy. The estimate is that imports of ferrous metals will fall by 39,2%, while domestic production will increase by 8,95%.

"But there will be significant effects on other sectors, for example, with a drop in production of machinery and equipment, metal products, electrical equipment, and vehicles and parts, reflecting the increased costs generated by the tariffs," says Ipea.

"Exports from these sectors will also be affected. Among other countries, Canada and Mexico will be the most affected, with reductions in ferrous metal exports of 31,4% and 21,3%, respectively, and declines in domestic production of 13,8% and 6,2%," the document adds.