Tariff Reduction Exposes Brazil's Weakness in Negotiations with the US

President Donald Trump's announcement of a 50% tariff on Brazilian exports to the United States, effective August 1st, has raised alarm bells in Brazil's diplomacy and economy. Far from being an isolated incident, Trump's tariff hike reveals a complex web of challenges that place the country in a vulnerable position, with few complex solutions.

The central thesis, according to analysts, is that Brazil finds itself in a dilemma that requires pragmatism and skill, given the limitations of its influence in Washington, the lack of "carte blanche" for unilateral retaliation, and a strategic retreat by the government after a period of harsher rhetoric, complemented by parliamentary initiatives that seek direct dialogue.

The Absence of Strategic Allies: The Diplomatic Void in Washington

One of the pillars of Brazil's current vulnerability lies in its notorious lack of influential allies and direct, robust negotiation channels in Washington. In a scenario where political proximity and lobbying networks can shape trade decisions, Brazil appears to be operating at a disadvantage.

Oliver Stuenkel, a professor at the School of International Relations at the Getulio Vargas Foundation (FGV), is adamant in stating that Brazil "does not have a super operation in Washington that can be activated in the short term."

More than that, the absence of "American senators who are friends of Brazil and who can call Trump and negotiate" is a stark contrast to the reality of countries like Israel or Mexico, which have this prerogative.

Brazil has low commercial importance for the United States

The lack of high-level political interlocutors is compounded by the perception of Brazil's low commercial importance to the United States. According to William Castro Alves, chief strategist at the international investment platform Avenue, Brazil is only the 15th largest trading partner of the United States, which drastically reduces the impact of tariff measures on its economy.

"Brazil's importance to the United States is quite limited. That's the truth. The impact on the American economy is very low," Alves analyzes. This means that the "tariff hike" did not generate significant repercussions in the American market, nor did it exert enough pressure on the White House to force direct and prioritized negotiations with the Brazilian government.

Diplomatic vacuum: American industry could favor negotiations

Faced with this official diplomatic vacuum, Brazilian hope, paradoxically, lies with the American private sector. The emerging strategy is to mobilize US companies and state governments that will be directly affected by the rise in the prices of Brazilian products.

Oliver Stuenkel emphasizes that "mobilization of the American private sector will be crucial" and that Brazilian diplomacy must act to coordinate this movement in search of alternatives to tariffs. States like Florida, Georgia, Michigan, Ohio, and Texas, where the construction, manufacturing, and food and beverage sectors depend on Brazilian inputs, are already showing signs of mobilization.

Coffee producers and buyers have stepped forward to find solutions to Trump's tariff hike

Specific sectors, such as coffee, are already moving forward. The Brazilian Coffee Exporters Council (Cecafé) and the National Coffee Association (NCA), a North American organization representing roasters and retailers, are seeking a negotiated solution.

The goal is to include coffee in a list of tariff exemptions, arguing that the product is not produced in the United States, the world's largest buyer of the commodity. In the first half of this year, coffee sales to the US totaled US$1.2 billion, one-sixth of all agribusiness foreign trade with the country.

Stuenkel reiterates that a complete reversal of tariffs is a misguided approach; American industry tends to negotiate specific exemptions or quotas, not a comprehensive repeal. This reliance on domestic U.S. pressure highlights Brazil's limited direct channels and its relatively weak position at the negotiating table.

Lula without "carte blanche": the constraints of the Reciprocity Law and the rules of Mercosur

Despite the initial confrontational stance, President Luiz Inácio Lula da Silva (PT) does not have "carte blanche" to retaliate against the United States with the publication of the decree regulating the Economic Reciprocity Law.

Although the law provides for the adoption of retaliatory measures in commercial disputes, its regulations impose objective criteria and processes that mitigate any impulsive unilateral action.

Roberta Portella, a professor at the Getulio Vargas Foundation (FGV), says that the decree establishes "prior technical, legal and diplomatic mechanisms", such as "attempted negotiation, consultation with the affected sector and, if necessary, the opening of a panel at the World Trade Organization (WTO)."

This means that, contrary to what it might seem, the path to retaliation is paved with requirements for technical justification and respect for multilateral procedures.

The adoption of provisional or definitive measures, such as the suspension of tariff concessions, restrictions on foreign investment or the withdrawal of obligations relating to intellectual property rights, must always occur within the limits established by the international system.

Committee will deliberate on countermeasures

The regulation also created the Interministerial Committee for Economic and Trade Negotiations and Countermeasures, responsible for deliberating and monitoring the negotiations.

Although tax specialist Leandro Roesler states that the regulation "streamlines the adoption of countermeasures," allowing the direct approval of provisional responses by the committee, and lawyer Marco Antônio Ruzene says that the decree authorizes the Executive to adopt countermeasures "almost immediately," internal safeguards and international rules still impose a brake.

The main limitation on retaliation comes from Mercosur's trade rules. Renata Emery, co-head of the tax practice at TozziniFreire Advogados, is categorical in stating that the Brazilian government "could not even adopt such a measure" of reciprocal tariffs due to the bloc's rules.

Brazil, as a member of Mercosur, must follow the approval procedures of the bloc's members to increase import taxes, including for exceptions to the common external tariff. "For this reason, Brazil does not have the flexibility to unilaterally change import tax rates," explains Emery.

Furthermore, Import Tax (II) and other taxes, such as the Tax on Industrialized Products (IPI), are applied uniformly by product, without discriminating against any country. This undermines Lula's initial threat to "charge them 50%" if Trump charged us 50%, and exposes Brazil's lack of autonomy for a direct and aggressive tariff response.

Retaliation to Trump's tariff hike could cost Brazil dearly

Beyond the legal constraints, the economic viability of retaliation itself is questioned. Luís Garcia, a partner at Tax Group and MLD Advogados Associados, warns that a strategy of breaking patents or software, for example, could raise "concerns about legal certainty and the predictability of the business environment in Brazil."

Investors seek stability and asset protection; abrupt or non-transparent measures could "discourage foreign investment, increasing the climate of uncertainty and legal instability."

According to William Castro Alves of Avenue, international experience shows that countries that adopted tariff retaliation "merely escalated" the dispute, without being able to effectively reverse it.

"It became clear that seeking reciprocity or even imposing tariffs on the US was not a smart strategy for those who attempted this," Alves states. This analysis reinforces the thesis that Lula does not have "carte blanche" because the retaliatory options are limited, complex, and, in many cases, counterproductive, making Brazil more vulnerable to escalating economic damage.

The strategic retreat: from "bravado" to the search for dialogue and negotiation

The Brazilian government's initial stance toward Trump's "tariff hike" was marked by confrontational rhetoric, which quickly gave way to a more conciliatory and pragmatic tone. The day after the announcement, President Lula, in an interview with TV Record , stated that "if he charges us 50%, we'll charge them 50%," a clear sign of bravado and confrontation.

The government even signaled possible retaliation in the area of intellectual property, considering breaking patents and software. However, this aggressive stance was quickly replaced by an active search for negotiations.

Vice President Geraldo Alckmin demonstrated this change of course when he held a meeting with business sector representatives on Tuesday (15), stating that the government is working to reverse the tariffs. Maintaining the tariff hike as it is could generate losses of US$23 billion, according to estimates from XP Investimentos.

"What we heard here was negotiation, that is, a commitment to review, which coincides with the proposal of the Brazilian government and President Lula. It was stated that the deadline is short. The deadline is short. That we should work to extend it," said Alckmin, signaling a willingness to dialogue and recognition of the urgency.

Agribusiness and industry pushed for negotiations and more time to discuss Trump's tariff hike

This strategic retreat came in the wake of intense pressure from Brazilian industry and agribusiness. The National Confederation of Industry (CNI), for example, asked the government to intercede with the United States to obtain a minimum 90-day delay in the application of the tariffs. The request was formalized in a virtual meeting attended by the Secretary of Foreign Trade of the Ministry of Development, Tatiana Lacerda Prazeres, and presidents of industrial federations from across the country.

This union of the productive sector around the negotiation reinforced the perception that retaliation would be "counterproductive" and a "backfire," harming Brazil itself more than the American tariffs.

Government sends letter seeking to negotiate with the US

Confirming the new tone, the Lula government sent a letter to the American government this Wednesday (16), through the Brazilian embassy, signed by Alckmin and the Minister of Foreign Affairs, Mauro Vieira.

The letter, addressed to Howard Lutnick, head of the Department of Commerce, and Ambassador Jamieson Greer, U.S. Trade Representative (USTr), proposes the resumption of dialogue and technical rounds of bilateral negotiations. This move is a clear admission that the most viable, and perhaps the only, path is diplomacy and negotiation, abandoning the idea of a forceful response.

Alckmin also signaled that the government is counting on pressure from national economic sectors, encouraging Brazilian businesspeople to seek out their counterparts in the United States to work together to reverse the tariffs.

The support of American businesses, such as the United States Chamber of Commerce (US Chamber) and the American Chamber of Commerce in Brazil (Amcham Brasil), which issued a joint statement calling for "high-level engagement" from governments, is seen as a fundamental pillar in mitigating the damage.

This scenario of a government that initially cried foul, but is now seeking dialogue and relying on pressure from the private sector, illustrates Brazil's limited range of options and its necessary adaptation to the reality of vulnerability.

The Parliamentary "Caravans": A Diplomatic Gesture in Search of Solutions to Trump's Tariff Hike

In parallel with the Executive's shift in stance, the Chamber of Deputies and the Federal Senate are planning to send "caravans" of congressmen to the United States to discuss the 50% tariff. This parliamentary initiative is yet another reflection of the search for channels of dialogue and a "mature" and "pragmatic" foreign policy, according to the justification presented by the project's creators.

In the Senate, the Foreign Relations Committee is leading the "caravan" coordination, which is at a more advanced stage than that of the House. The movement is the result of a recommendation from Gabriel Escobar, chargé d'affaires at the U.S. Embassy in Brazil, who met with São Paulo Governor Tarcísio de Freitas.

The purpose of the trip is for the delegation members to find solutions to the tariff crisis with authorities in Washington, although the mission is only expected to materialize in September, after the tariffs are implemented on August 1st. The delay in the materialization of these missions underscores the reactive nature of the mission and the difficulty of faster proactive and preventive action.

In the Chamber of Deputies, the initiative is led by Representative Ronaldo Nogueira (Republicans-RS), chairman of the Agriculture, Livestock, Supply, and Rural Development Committee. He filed a request to create an "external committee" to work with the Trump administration and the U.S. Congress, seeking a reassessment of the presidential decision. The proposed group would be composed of eight members.

Nogueira's justification for the initiative is quite revealing of Brazil's perceived vulnerability: "In times of globalization and interdependence, Brazil needs a mature foreign policy, centered on principles and not on polarizations."