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The 50 percent rates that President Donald Trump imposed on Brazil last week are among the highest he has applied so far in his country in his trade wars.
The reason had nothing to do with the trade policy of Brazil. In fact the US runs a surplus With Brazil. Instead, Trump uses trade policy to set political requirements. He wants Brazilian authorities to drop charges against former President Jair Bolsonaro, accused of planning a coup after losing the 2022 elections.
But despite the escalating tension – with current President Luiz Inácio Lula da Silva of Brazil, who accuses Trump of infringing the sovereignty of the country – Brazilian assets hardly recover his. The real one is still almost 13 percent against the Greenback this year. The Benchmark iBovespa -Share Share Index of the Land, the home base of Oil -Major Petrobras and Mijnbouwbedrijf Vale, is attached to a win of 11 percent.
The muted response underlines the relatively closed nature of the largest economy of Latin -America. Exports was good for less than a fifth of GDP of Brazil last year, according to the World bank. Of these, only 12 percent of exports went to the US, compared to the 82 percent of Mexico exports that go to the northern neighbor. Analysts at Capital Economics calculated in the worst-case scenario, a blanket 50 percent levy on all exports from Brazil to the US would shave between 0.3 and 0.5 percent of BDP from Brazil from Brazil in three years.
In any case, it appears that the rates announced by Trump on Brazil are not as terrible as they appear. To start with, almost 700 products will be exempt from the rates. These include oil products, iron ore, wooden pulp, fertilizer, natural gas, planes and aircraft parts.
All in all, this means that almost half of the export from Brazil to the US would be exempt from the new rates. As a result, the actual hit for GDP should be smaller than what capital economy had registered.
Some sectors will feel more pain than others. Apart from fresh orange juice, most agricultural products are not exempt from Trump’s rates. But even here Brazil is not linked to the US. It can find other buyers for important agricultural products such as soy, beef and coffee. Large developing countries – a group with Brazil, Russia, India, China and South Africa – have worked to make it easier to exchange in response to Trump’s rates.
With the iBovespa trade with about eight times forward income, below the average of 10 years of 10 times, this can be an attractive access point for investors looking for different ways to always play the “Trump out” trade. Even if he forges ahead, rates do not always bite.
