Understand Trump's tariff war and its consequences for Brazil.

Brazil Agency - The move by the United States (US) government to impose tariffs on all trading partners on Wednesday (2) represents an attempt by the world's largest power to regain the position that the country's industry once had, as well as trying to combat trade deficits in goods that amount to around US$1 trillion a year.

This assessment is made by several analysts, including the chief economist of Banco Master, Paulo Gala, consulted by Agência Brasil. However, the professor of economics at the Getúlio Vargas Foundation in São Paulo (FGV-SP) believes that tariffs alone cannot reverse the loss of competitiveness of the US economy, especially in relation to Asia.

"Asia has been very efficient in designing policies to develop its industry over the last 20 to 30 years. The governments of Vietnam, Malaysia, Thailand, Indonesia, China, and even India, have managed to design innovation and industrial policies with subsidies for technological development," he commented.

The expert argues that the tariff hike represents "a brutal shock" to the world economy, the biggest since the 1930s. Furthermore, he says that these are not reciprocal tariffs, as promised by the Trump administration, and that there will be an impact on the Brazilian economy, especially on some sectors and companies, such as Embraer.

On average, the tariffs imposed by Trump were 10% for Latin American countries, 20% for Europe, and 30% for Asia, showing that the biggest problem is on the Asian continent. 

"Today, Asia must have almost 25% of the world car market, not to mention China with BYD, which is almost killing Tesla in world markets," commented Paulo.

Tesla is the car manufacturer owned by billionaire Elon Musk, owner of the X platform and an ally of President Trump.

In 2023, U.S. industrial production as a share of global industrial production was 17,4%, well below the 28,4% of 2001, according to White House data. "Large and persistent annual trade deficits in U.S. goods have led to the depletion of our manufacturing base; it has inhibited our domestic manufacturing capacity," Trump justified. 

Paulo Gala says that tariffs cannot reverse the cost of production in the US.

"The problem is that the cost of production in the US today is 5 to 6 times higher than in Asia. While the average salary in the US is $5, in Asia it is $1," he said.

Brutal shock

These measures are generating uncertainty in the global market, causing stock markets to plummet worldwide, and are expected to paralyze business decisions. A multinational company that produces in Vietnam, China, Taiwan, or Europe will now think twice about what to do, assesses Paulo Gala.

"It's the biggest tariff shock since the 1930s, a brutal tariff shock, and the market is reacting with great concern. There will be a dramatic disruption of trade, investment, and the productive fabric," he added.

According to him, the tariffs will put pressure on domestic inflation in the US. "All Asian products will become 30% more expensive. Equipment, machinery, tractors, computers, chips, all of that," he warned.

Reciprocal tariffs?

One of the White House's main arguments for this week's tariff hike is that trading partners have been imposing tariffs on US products that are higher than those the US applies to its imports, citing the case of Brazil.

“Large and persistent annual trade deficits in U.S. goods are caused in substantial part by a lack of reciprocity in our bilateral trade relations, which makes it difficult for U.S. manufacturers to sell products in foreign markets. Brazil (18%) and Indonesia (30%) impose a higher tariff on ethanol than the United States (2,5%),” Trump stated in the Executive Order published yesterday.

According to economist Paulo Gala, the measures did not respect any principle of reciprocity. "It wasn't a reciprocal tariff. The idea is that if one country imposes a 30% tariff on the US, the US will then impose a 30% tariff in return. That's a reciprocal tariff. But that's not what was done," he stated.

According to Paulo Gala, the Trump administration simply took the large trade deficits that the US has and placed a tariff on top of them.

"It was a rather clumsy response. In reality, it's a tariff imposed on countries and products that cause a deficit in the United States," he added.

Brazil

Brazil received the lowest tariff among those announced, with a 10% tax on all exports to the United States. The government promises to try to reverse the situation and even appeal to the World Trade Organization (WTO), which, due to the paralysis promoted by the US, has had its activity limited in recent years. 

The overall effect that the tariff war will cause, with likely retaliation around the world, should bring additional problems to international trade in Brazil, not directly related to the taxation on Brazilian imports.

"Brazil ended up with the 'cheapest' rate of 10%. Of course, this is a benefit, but Brazil will suffer because of this global earthquake that is happening. A fear of crisis driving down interest rates and the dollar, and a recession, obviously, would affect Brazil as well," stated the chief economist of Banco Master.

The National Confederation of Industry (CNI) pointed out that the US is the main destination for Brazilian industrial exports, especially for products with higher technological intensity, in addition to leading trade in services and bilateral investments. 

Paulo Gala believes that the Brazilian aircraft manufacturer Embraer will be one of the most affected companies. "Perhaps Embraer will be the most impacted company. Our dependence on the US is not very high. Beyond the direct effects on some Brazilian companies, it shouldn't have such a dramatic impact," he added.

Opportunities for Brazil

Experts have also highlighted that the crisis triggered by the tariff war opens up opportunities that can be exploited by Brazilian exports. 

"If Brazil knows how to take advantage of this moment, it can expand its exports, especially since the tariffs on American products may lead importers to seek alternatives," according to Volnei Eyng, CEO of the asset management firm Multiplike.