Brazilian Stocks Plummet as Embraer Leads Decline Following Trump's Tariff Threat

Embraer's stock dropped 7% after-hours following a 4.1% decline in regular trading after President Trump threatened to impose 50% tariffs on Brazilian goods, escalating a dispute between the two countries.

Embraer's stock dropped 7% after-hours following a 4.1% decline in regular trading on Wednesday, as President Donald Trump threatened to impose a 50% tariff on Brazilian goods. The announcement, made via Trump's Truth Social platform, escalated the ongoing dispute between the U.S. and Brazil, with Trump citing "insidious attacks on Free Elections, and the fundamental Free Speech Rights of Americans" as the rationale for the tariff increase [2].

The Brazilian real fell nearly 3% against the U.S. dollar following the announcement, while the $5.35 billion iShares MSCI Brazil ETF (EWZ) slid 1.9% in Wednesday's trading. Among other Brazilian stocks after-hours, Gerdau (GGB) fell 2.3%, Itau Unobanco (ITUB) dropped 2.3%, Petrobras (PBR) lost 1.3%, Banco Santander Brazil (BSBR) declined 0.9%, and Vale (VALE) fell 0.8% [3].

Felipe Arslan, CEO at Morada Capital, noted that steel products, transportation equipment (mainly aircraft and aircraft parts), specialized machinery, and non-metallic minerals account for a significant portion of Brazilian exports to the U.S. Embraer, a leading manufacturer of commercial and military aircraft, is particularly affected by this tariff threat, as it is heavily reliant on the U.S. market [2].

Trump's tariff threat comes amidst a broader escalation of tensions with Brazil, including a dispute over the alleged coup attempt against former president Jair Bolsonaro. The U.S. leader reiterated his call for Brazilian authorities to drop charges against Bolsonaro, stating that the trial is a "Witch Hunt that should end IMMEDIATELY!" [2].

The Brazilian government, however, has maintained a defiant stance, with Vice President Geraldo Alckmin asserting that any tariff increase targeting Brazil would be unfair and would harm the U.S. economy. Brazil has not changed its tone in negotiations over steel tariffs and other levies [2].

The financial markets seem to be taking a wait-and-see approach to Trump's tariff threats. Despite the escalation, markets are not pricing in a significant impact on inflation, and expectations for Fed rate cuts remain steady. The CME's FedWatch tool shows expectations for two 25 basis point rate cuts this year, with the first to come through in September [1].

References:
[1] https://finance.yahoo.com/news/trumps-tariff-threat-fails-move-105352185.html
[2] https://www.union-bulletin.com/news/national/trump-hikes-brazil-tariff-rate-to-50-sending-assets-reeling/article_03f0b588-01a9-5419-8910-3d3da2eb70e9.html
[3] https://seekingalpha.com/news/4466311-embraer-leads-brazil-stocks-lower-after-hours-as-trump-threatens-50-percent-tariff