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The 50 per cent tariffs President Donald Trump imposed on Brazil final week are among the many highest he has utilized on any nation to this point in his commerce wars.
The rationale had nothing to do with Brazil’s commerce insurance policies. In actual fact the US runs a surplus with Brazil. As a substitute, Trump is utilizing commerce coverage to make political calls for. He desires Brazilian authorities to drop fees in opposition to former president Jair Bolsonaro, who’s accused of plotting a coup after dropping the 2022 election.
But regardless of the escalating rigidity — with Brazil’s present president Luiz Inácio Lula da Silva accusing Trump of infringing on the nation’s sovereignty — Brazilian belongings are barely flinching. The actual remains to be up almost 13 per cent in opposition to the buck this yr. The nation’s benchmark Ibovespa inventory index, house to grease main Petrobras and mining firm Vale, is hanging on to an 11 per cent acquire.
The muted response underscores the comparatively closed nature of Latin America’s largest economic system. Exports accounted for lower than a fifth of Brazil’s GDP final yr, in accordance with the World Bank. Of this, solely 12 per cent of its exports went to the US, in contrast with the 82 per cent of Mexico’s exports that go to its northern neighbour. Analysts at Capital Economics reckon within the worst-case situation, a blanket 50 per cent levy on all of Brazil’s exports to the US would shave between 0.3 and 0.5 per cent off Brazil’s GDP over three years.
In any case, it seems the tariffs introduced by Trump on Brazil aren’t as dire as they seem. For starters, almost 700 merchandise will probably be exempt from the tariffs. These embody oil merchandise, iron ore, wooden pulp, fertiliser, pure fuel, aeroplanes and plane elements.
Taken collectively, this implies virtually half of Brazil’s exports to the US can be exempted from the brand new tariffs. Because of this, the precise hit to GDP needs to be smaller than what Capital Economics had penned in.
Some sectors will really feel extra ache than others. Other than recent orange juice, most agricultural merchandise aren’t exempt from Trump’s tariffs. However even right here, Brazil isn’t shackled to the US. It may well discover different consumers for key agricultural commodities reminiscent of soyabeans, beef and occasional. Main creating international locations — a bunch that features Brazil, Russia, India, China and South Africa — have been working to make it simpler to commerce with each other in response to Trump’s tariffs.
With the Ibovespa buying and selling at about eight occasions ahead earnings, beneath the 10-year common of 10 occasions, this could possibly be a pretty entry level for buyers on the lookout for other ways to play the “Trump At all times Chickens Out” commerce. Even when he forges forward, tariffs don’t at all times chew.
