Since the beginning of his mandate, Donald Trump has taken a controversial approach to foreign relations with Brazil. Allegations of juridical frauds, political persecutions and even a dictatorship were made against Brazil by the United State’s President.
Relations between the United States and Brazil have historically been friendly and mutually beneficial for both sides, but now, Trump is imposing high taxes over Brazilian products.
Here is everything you need to know about this economic battle:
timeline
After the 2020 and 2022 elections, supporters of Trump and Bolsonaro began claiming on social media and during street protests that both elections were fraudulent. After this, on January 8th 2023, after the attempted Coup d’Etat in Brasilia by Bolsonaro’s followers, he started being a suspect over the organization of the event, but Trump stood by his side. Since this happened, Trump has been contrary to Lula’s leftish government and the unwrapping of Bolsonaro’s criminal accusations.
Besides this story between Bolsonaro and Trump, on April 5th, the American president established a 10% tariff over Brazilian products. This tax was based on protecting American industry and market, not evolving any ideological purpose.
But on July 9th, Trump released a letter entitled to Lula, threatening to tax Brazilians products more 40% over its original costs, resulting in a total of 50% in taxes to export to the USA, these taxes had their application starting August 1st. Trump did this due to his disagreement with Bolsonaro’s criminal process, the American president even called his action a witch hunt. After some days, on July 30th, Trump signed an executive order giving a legal background to his taxes.
6 days later, on July 15th, the Brazilian government got in touch with the World Trade Organization to give the United States a retaliatory response. Based on the organization’s principles, every country has the right to reciprocate with others, so Brazil imposed a 50% tax on American products.
On July 30th, Trump signed an executive order confirming the 50% taxes on Brazilian products, but at the same time, he excluded about 700 products from this tax. Petroleum, orange juice and aircraft parts are some of the products with only a 10% tax due to their importance to the American market.
The tariffs came into effect in both countries on August 1st, triggering several immediate consequences. Below are some of the impacts already observed in Brazil, along with predictions from Lucas Ivanov, an economics student and stock market analyst.
What’s gonna happen with the consumer market?
Based on Ivanov’s answer, it’s gonna be initially to benefit the domestic market. Because of the supply and demand laws, at first we are going to see lower prices, due to the higher offer of these products, once they were going to leave the country, but now are here and available to Brazilian consumers. In July, we were able to see a fall on meat prices.
But in the long term, prices may not be as low as they are now. Due to the smaller market, producers are going to adjust their productions only to serve domestic and remaining international markets, reducing their consumers list hugely, and by doing this, the supplies will inevitably stabilize the way they were before the taxes.
I personally believe a lot of Brazilians are going to stock up on products like meat and coffee due to the reduction of prices, but this is only accelerating the process of increasing the prices.
How about the stock market?
“Banks and credit institutions are not going to be directly impacted from the tariffs, but indirectly, yes” said Ivanov.
Some banks in Brazil are historically linked to agriculture, like Banco do Brasil, which the biggest clients of them are in part exporters. So, banks like this are probably going to adopt a more conservative position, giving less loans due to the lack of deposits caused by producers not exporting and Brazilians consuming more. But on the other hand, we could see an appreciation of Real, due to the less Dollars in the Brazilian economy and territory which could lead to a decrease in commodities prices.
The stock market is an extremely volatile section of the economy and it’s also ruled by supply and demand laws. But it’s not just this that controls the market, other things like Brazilian exportions to other countries, SELIC rate, inflation and politics also directly affect the stock market. So, as Ivanov said, there are going to be consequences, but indirectly.
What was the first impact of the tariffs?
“There was a shock,” said Ivanov. He commented how Brazilian producers were surprised by Trump’s letter and how it made them fear about the future. Industries like orange (especially orange juice), oil and aircraft manufactures were afraid of what would happen to them, if the Brazilian government would give some financial aid to help with the imminent crisis. In the end, these sectors of the Brazilian economy were safe due to the ‘TACO’, Trump Always Chickens Out, a pattern we are able to see in the new Trump’s mandate, where he threatens but doesn’t actually impose anything.
Even though we are already able to see some effects from the taxes, there’s a long path ahead of us related to this topic. At this point, it’s important to trust institutions and avoid panic. The economy tends to stabilize itself over time. For more information, check on the Brazilian Government official website and social media.
It’s important to stay informed to stop fake news propagation, especially on social media. The best way to do it is always checking the information before passing it to others. Be the one who spreads the truth, you can never go wrong with that.
The article above was edited by Larissa Buzon.
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