Lula's government is considering reducing import tariffs on ethanol in order to negotiate with the US.

247 - Under pressure from the threat of reciprocal tariffs promised by Donald Trump during his campaign in the United States, the government of President Luiz Inácio Lula da Silva (PT) is considering reducing the import tax on ethanol, which is currently at 18%. This measure could facilitate the entry of American biofuel, produced from corn, into the Brazilian market and serve as a trump card in trade negotiations with Washington.

According to CNN BrazilThe possibility of reducing the tariff to zero — or a value close to it — has been discussed within the government as a solution capable of achieving two objectives simultaneously. "Killing two birds with one stone," stated a government official interviewed for this report. On one hand, the change could be used as a bargaining chip with the US, instead of a unilateral concession. On the other hand, the increased supply of corn ethanol could put downward pressure on prices in the domestic market, including gasoline, at a time when the Lula government is experiencing low popularity due to rising fuel and food prices.

However, the measure faces political resistance, especially among sugar mill owners. The discussion also takes place in a context of structural changes in the sector. During Jair Bolsonaro's (PL) government, the import tariff was temporarily reduced to zero to try to contain fuel inflation during the 2022 elections. The percentage returned to 18% at the beginning of 2023, already under Lula's administration.

Now, the assessment within the Planalto Palace is that the sugar-energy sector is better prepared to deal with the competition. The Northeast, where the cost of production is higher, has seen significant growth in new ventures in recent years. In Piauí, for example, large projects focused on the production of ethanol from cereals, such as corn and sorghum, have moved from the planning stage to implementation.

Furthermore, Brazil is already discussing increasing the ethanol blend in gasoline from 27% to 30%. This change was authorized by the Future Fuel Law, enacted in 2024, and is currently being tested by automakers, who are expected to present the results in the coming months. If no negative impacts on engines are identified, the decision could be implemented in the first half of the year. Increasing the blend would create an additional demand of 1,2 billion to 1,4 billion liters of anhydrous ethanol per year, which would help to mitigate the impacts of opening the market to American ethanol.

The potential reduction in ethanol tariffs comes at a time when the United States is imposing new trade barriers on Brazil. The Trump administration announced tariffs of 25% on steel and aluminum imports, directly affecting Brazilian exports, which total almost US$3 billion annually.

In an attempt to resolve the issue, the vice-president and Minister of Development, Industry, Trade and Services (MDIC), Geraldo Alckmin, has a conversation scheduled for this Thursday (6) with the United States Secretary of Commerce, Howard Lutnick. The MDIC sees the reduction of the ethanol tariff as a negotiation opportunity to ease restrictions on Brazilian steel and aluminum.

At the Ministry of Agriculture, the expectation is that the easing of tariffs on American biofuels could secure concessions in the agricultural sector. Among Brazil's priority demands are expanding access for Brazilian sugar to the American market—currently limited by strict quotas—and reopening the market for lemons, which has been closed for over two decades.

Behind the scenes in the government, according to the report, the assessment is that the ethanol tariff could have a significant impact on the American elections. The Corn Belt, the main ethanol-producing region in the United States, is a Trump stronghold. Five of the six states that make up this region voted for the Republican in the last elections: Iowa, Nebraska, Missouri, Indiana, and Kansas. Only Illinois went to the Democrats.