"Liberation Day: How Trump's Tariffs Could Reshape Global Trade – And Impact Brazil"

On Wednesday (April 2), U.S. President Donald Trump will unveil the most extensive trade tariff package in a century. Dubbed "Liberation Day," the initiative aims to impose reciprocal tariffs on countries that, according to the U.S. government, maintain disproportionate trade barriers against American products.

This move marks a sharp departure from the multilateral trade system upheld by the World Trade Organization (WTO), which ensures equal treatment among nations. Instead, the U.S. will now retaliate on a case-by-case basis, matching the tariffs imposed by other countries on American goods. Here’s what we know so far and how it could impact Brazil and the global economy.

How Will These Tariffs Work?

The concept of "reciprocal tariffs" is based on the idea of equalizing trade charges: if Country A imposes a 15% tariff on a U.S. product, the U.S. will levy the same 15% tariff on equivalent products from that country. However, this approach overlooks the complexities of international trade agreements and WTO commitments, raising concerns among analysts about its potential to fuel trade disputes.

Trump has stated that these tariffs will target not only direct tariff mismatches but also non-tariff barriers, excessive trade surpluses, and specific product-related fees. Since February 13, U.S. trade officials have been working to implement his directive to promote "fair and reciprocal trade."

Which Countries Are Most Exposed?

The list of potential targets includes China, the European Union, Mexico, Canada, Brazil, Japan, and South Korea. China has already faced broad tariffs, while Mexico and Canada have been hit with levies on steel, aluminum, and automobiles. Countries with higher average import tariffs, such as Brazil, are at greater risk of retaliation. Trump has explicitly cited Brazil as imposing "unfair" tariffs, and U.S. trade reports have identified the country as a concern.

What Is the Expected Global Impact?

Economists have struggled to quantify the impact of such an ambiguous policy. According to Bloomberg Economics, an aggressive implementation could raise average U.S. tariffs by 28 percentage points, potentially reducing U.S. GDP by 4% and increasing consumer prices by 2.5% over the next two to three years.

The American Chamber of Commerce for the EU (AmCham EU) estimates that trade conflicts now put $9.5 trillion at risk, exceeding last year’s $8.7 trillion.

Countries like China, the EU, and India, while resilient, could face severe export disruptions. Meanwhile, Canada and Southeast Asian economies are expected to experience broader economic fallout.

How Will Brazil Be Affected?

Directly, Brazil’s trade exposure to these tariffs appears limited in the short term. According to Bradesco Bank and former IMF official Otaviano Canuto, Brazil’s most vulnerable sectors—such as aircraft, steel, and oil—are not immediate targets. However, if the U.S. decides to penalize countries with high average import tariffs, Brazil could be at risk. Data from Bradesco shows that Brazil imposes an 11.3% average tariff on U.S. goods (as of 2022), compared to the U.S.’s 2.2% on Brazilian products.

Why Is the Financial Channel More Critical for Brazil?

The biggest risk for Brazil lies in financial markets. Higher U.S. tariffs are expected to fuel inflation, potentially prompting the Federal Reserve (Fed) to keep interest rates higher for longer. This would weaken the Brazilian real, increase borrowing costs, and limit room for interest rate cuts domestically.

Canuto warns that the Fed is already navigating a delicate balance between inflation and growth, and the tariff escalation could further complicate this equation.

Which Brazilian Sectors Are Most Exposed?

In 2024, the U.S. accounted for 12% of Brazil’s exports, with key sectors including oil, steel, aircraft, coffee, and cellulose. Brazil also heavily relies on U.S. imports of engines, machinery, aircraft, and fuel. A Bradesco study indicates that Brazil primarily exports intermediate goods and fuels to the U.S., which could be severely impacted if tariffs rise.

What If a Worst-Case Scenario Unfolds?

Bradesco has outlined three potential scenarios:

1. Simple Reciprocity: The U.S. matches Brazil’s tariffs (raising them from 2.2% to 11.3%), reducing Brazilian exports by $2 billion.

2. 25% Tariff on Brazilian Goods: A drop of $6.5 billion in exports, requiring a 4% depreciation of the real and causing up to a 0.25 percentage point increase in inflation.

3. Brazil Retaliates with a 25% Tariff on U.S. Goods: A $4.5 billion decline in imports and a 0.3 percentage point rise in Brazil’s inflation index (IPCA).

What About Non-Tariff Barriers?

The U.S. is also scrutinizing non-tariff barriers. According to BTG Pactual, 86% of Brazilian imports face some form of regulatory restriction, such as sanitary, technical, or compliance measures, which could be used to justify additional tariffs.

Can Brazil Retaliate?

Brazil’s ability to retaliate is limited. The country maintains a relatively balanced trade relationship with the U.S. and has little fiscal room for maneuvering. Vice President Geraldo Alckmin has advocated for a diplomatic approach, advising Brazil to wait for details of the tariff package before making any countermeasures.

Other nations have responded differently. China has applied limited countermeasures, while the EU and Canada immediately retaliated against previous U.S. metal tariffs. Vietnam, seeking to avoid conflict, has pledged to purchase more U.S. goods and lower tariffs on select products.

How Are Markets Reacting?

U.S. businesses are warning of rising costs and shrinking profit margins. Some international companies are considering relocating production to the U.S. to circumvent tariffs.

In the financial markets, U.S. stocks had their worst quarter since 2023, while global markets showed gains. U.S. Treasury yields climbed nearly 3% on concerns over slowing growth. Gold prices hit record highs, while the U.S. dollar weakened. Some investors believe the pessimism is overstated and expect future trade negotiations to ease tensions.

Is There a Heightened Risk of Global Recession?

Yes. Goldman Sachs has raised its U.S. recession probability to 35%, citing declining consumer confidence, persistent inflation, and escalating trade tensions. The risk of stagflation—a combination of stagnation and inflation—is rising. For Brazil, this means a more volatile global environment, weaker demand, a stronger dollar, and higher financing costs.

The “Liberation Day” tariff package is set to reshape global trade dynamics, with far-reaching consequences for Brazil and beyond. While Brazil may not face immediate direct impacts, financial and economic repercussions could be significant. As markets brace for volatility, all eyes are on Washington to see how this new trade war unfolds.