Impact of Trump’s Tariffs on Brazil: Delayed Economic Concerns

Economists believe that Trump’s tariffs on China, Canada, and Mexico will have delayed effects on Brazil’s trade. There are concerns about inflation and economic stagnation in the U.S. possibly leading to global repercussions, with Brazil also facing challenges from currency depreciation. Despite limited immediate effects, Brazil should strengthen its economy to prepare for future uncertainties from the tariff conflict.

Economists assert that while the tariffs imposed by Donald Trump on nations such as China, Canada, and Mexico may affect Brazil’s trade, the impact will not be immediate. Their primary concern centers on the potential long-term repercussions of the tariff conflict, which include soaring inflation coupled with sluggish economic growth in the United States, high U.S. interest rates, and an appreciating dollar on the global stage. This scenario emerges as Brazil’s Central Bank strives to manage domestic inflation effectively.

Sergio Vale, chief economist at MB Associados, remarked, “The aggressive set of tariff increases in the U.S. could push the American economy toward potential stagflation.” He emphasized that the ramifications of such actions could resonate worldwide. Furthermore, should other countries retaliate against Trump’s tariffs, the U.S. GDP could potentially decrease by over one percentage point. Vale noted, “The result will be slower global growth or even a recession.”

The situation is exacerbated for Brazil due to adverse currency fluctuations and anticipated economic deceleration linked to high interest rates. Vale cautioned that trade measures from the U.S. could worsen Brazil’s economic challenges, potentially leading to stagflation domestically as well.

According to Nicola Tingas, chief economist at ACREFI, while the immediate effects on Brazil from the tariff disputes may be limited, the longer-term consequences will depend heavily on the evolution of the trade war. He pointed out that nations directly engaged in the dispute with the United States will feel more significant impacts than Brazil, which has managed a balanced relationship with the U.S.

Despite Brazil’s relative insulation in the short term, it remains vulnerable to fluctuations in U.S. interest rates and the strength of the dollar. Tingas stated that Brazil must prioritize domestic economic stability to better weather any global economic downturn that may arise.

The Brazilian government is taking a cautious approach, anticipating a discussion between Vice President Geraldo Alckmin and U.S. Commerce Secretary Howard Lutnick. Although a scheduled phone call was postponed, sources suggest it may occur next week, which could provide clarity in trade relations.

Brazilian exporters are closely observing an executive order from the U.S. concerning an investigation into potential increases in tariffs on wood products. Livio Ribeiro, a partner at BRCG, explained that the justification for such measures mirrors the approach taken with steel and aluminum tariffs. Although wood products do not constitute Brazil’s top exports, the U.S. is a vital market for Brazilian furniture and wood industries.

Depending on the investigation’s outcome, this could result in additional tariffs or quotas adversely affecting the competitiveness of Brazilian goods in the U.S. market. Welber Barral, a former Brazilian foreign trade secretary, cautioned that tariffs could hinder market access, complicating the search for alternative buyers amid a slowing global economy.

Vale indicated that given the escalating tariff situation, new tariffs are likely, and alternatives for Brazilian exporters will not be easily found, complicating trade and economic prospects for Brazil.

In summary, while Brazil may not experience immediate impacts from the current U.S. tariff situation, the long-term effects could be significant, particularly due to potential economic challenges such as stagflation and currency depreciation. Brazilian policymakers and exporters must remain vigilant to navigate the complexities of the evolving trade environment and focus on strengthening the domestic economy to position themselves favorably amidst upcoming challenges.

Original Source: valorinternational.globo.com