Despite higher US tariffs: Brazil remains robust

• James Syme
  Senior Fund Manager
  J O Hambro

This is far above the 10% tariff level imposed in April under the “Liberation Day” framework. The sudden escalation surprised financial markets and raised concerns about broader geopolitical motives.

These tariffs are not about trade imbalances. The US has run a trade surplus with Brazil for 18 consecutive years, including a USD 6.8 billion surplus in 2024, the fourth largest bilateral surplus that the US enjoys. The real trigger is political: former President Jair Bolsonaro is under house arrest and facing charges of leading a coup attempt to overturn his 2022 election loss. President Trump has publicly condemned the trial as a “witch hunt” and tied the tariff hike directly to Bolsonaro’s legal troubles, describing it as retaliation against political persecution.

Limited Impact from US Tariffs

Despite the headline figure, some sizeable exemptions will limit the impact on Brazil’s exports. Civil aircraft, fertilizers, pig iron, and orange juice are excluded from the full 50% rate, and mining exports, which make up a large share of Brazil’s trade with the US, are also largely protected. Analysts estimate that the effective tariff rate will be around 30%, far from the full 50%.

Brazil’s commodity-heavy export profile will also protect it. Key exports like foodstuffs, hydrocarbon fuels and other raw materials can generally be redirected to other end markets, and both demand and pricing remain strong. This reduces the risk of lasting economic disruption from US tariffs. The Brazilian government research agency IPEA projects only a 0.01% decline in GDP and a 0.03% drop in total exports from the tariffs.

Tariffs bolster Lula’s position and deepen Brazil’s partnership with China

Geopolitically, China stands to benefit from the fallout. China has been Brazil’s largest trading partner since 2009 and has invested over USD 73 billion in Brazilian infrastructure, energy, and agribusiness. The recent announcement of a Brazilian tax advisory office in Beijing, one of only five globally, signals a deepening strategic relationship. As US ties fray, Brazil’s pivot to China opens new opportunities for trade, investment and institutional cooperation.

Domestically, the tariffs have strengthened President Lula’s political position. A recent poll shows him leading all likely opponents in the 2026 presidential election, including Jair Bolsonaro and his wife Michelle, who might stand. The Bolsonaros’ close ties to President Trump are increasingly seen as liabilities in Brazil, especially amid allegations of collusion to provoke the tariff hike. Lula has framed the tariffs as an attack on Brazilian sovereignty, reinforcing his narrative of independence and national resilience.

We remain positive on the outlook for Brazil and Brazilian equities. With a relatively strong economy, attractive valuations and the support of a weaker US dollar, both Brazilian equities and the Brazilian real have performed well this year. We see the conditions for this to continue, irrespective of challenging headlines regarding trade tariffs.