Armínio Fraga: US tariff hikes against Brazil were the result of an 'explicit political channel'

247 - Economist Armínio Fraga, former president of the Central Bank, assessed that the 50% tax imposed by US President Donald Trump on Brazilian products, even with a list of exceptions, represents a politically motivated attack on national democracy. "Brazil entered this story through a different channel, clearly an explicitly political one," Fraga stated in an interview with the newspaper. The State of S. Paul.

According to Fraga, the measure is an unacceptable external interference in Brazil's internal affairs. "I am Brazilian; why do they have to interfere in the functioning of our democracy? It is imperfect, like all democracy's, but it works," he pointed out. For him, the American economic retaliation reveals the Trump administration's discomfort with decisions of the Supreme Federal Court and other institutions in the country, but it will have no effect: "In the political arena, he will not have his wishes fulfilled in any way."

Although the list of exceptions to the 50% tariff has prevented more drastic immediate consequences, Fraga believes that the economic impact is still significant. "Everyone is breathing a little easier, but it's still a very big problem," he assessed.

The economist highlighted that the international moment — marked by turbulence such as the pandemic, the war in Ukraine, and protectionist movements — has been aggravated by initiatives like that of the American president. "Then Trump comes along and drops this protectionist bomb, with ideas that are still not very clear," he criticized.

Fraga's main concern, however, lies in the political aspect of Trump's decision. For him, the application of the Magnitsky Act—used by the American government to justify the sanctions—in circumstances like the current one sets a dangerous precedent. "You may or may not agree with what is happening in the Brazilian Supreme Court, in the actions of Minister Alexandre de Moraes, but that's our problem. I fear an excessively activist Supreme Court, but the debate is ours," he said.

In the interview, Fraga argued that Brazil should take advantage of the crisis to confront old trade barriers that inhibit growth. For him, the moment can be transformed into an opportunity: “We should make lemonade out of lemons. Sit down, calm things down, and seize the opportunity to do something that will make us a less protectionist country.”

Citing a study by the Center for Public Policy Debates (CDPP), coordinated by Daniel Gleizer, Fraga reiterated his support for Brazil's unilateral trade liberalization. He also praised the advancement of solutions like Pix, which he considers an innovation with global potential. "I think Pix is ​​a wonderful modernizing threat. The Americans themselves, at some point, will say: I want that too."

Regarding the Brazilian government's actions, the former president of the Central Bank stated that patience is necessary for negotiation, but criticized the conduct of foreign policy under President Luiz Inácio Lula da Silva. “Brazil's foreign policy has also been somewhat exotic, and this isn't new. And that of the PT [Workers' Party], especially—with a surprising affinity for dictators in numerous countries. I think our path is different. The good path, the more natural one for us, is the more Western path.”

Fraga acknowledges that there are areas where Trump's demands coincide with proposals he himself supports. "Interestingly, I sincerely share some of [Trump's] desires, because I think Brazil is a very closed economy. So, if this leads to a rational opening of the country [...] it will be good for us."

When asked about the impact of the tariff increase on the Brazilian economy, Fraga replied that it is still too early to have a precise assessment. "The economic aspect is still being processed, many people are doing the calculations." According to him, the direct effect on inflation is unclear and may depend on exchange rate fluctuations. "The rest, I think, may not be so relevant," he added.

Despite the uncertainties, he warns of the risk of a domestic economic slowdown: "The economy tends to slow down a bit now, for internal cyclical reasons." Among the factors, he highlights high interest rates and the Central Bank's overburdened situation in the face of a fragile fiscal environment. Regarding emergency measures to protect sectors affected by the tariffs, the economist preferred to adopt a cautious approach. "It's still too early to say," he emphasized.