Navigating the Tariff Terrain: How Brazilian Equities Fare in the U.S. Trade Shake-Up

The U.S. tariff regime of 2025 has reshaped global trade dynamics, with Brazil facing both challenges and opportunities as it navigates heightened protectionism. While the threat of 100% tariffs on BRICS nations looms, the immediate impact of sector-specific levies—particularly on automobiles and steel—has cast a shadow over Brazilian equities. Yet, the story is far from one-sided. Here’s how investors should parse the risks and rewards.

The Auto Sector: Between Tariff Headwinds and Structural Vulnerabilities

The U.S. Section 232 tariffs, which impose 25% duties on automobiles and parts, have struck hardest at Brazil’s automotive industry.

. Companies like Embraer (ERJ) and automakers reliant on U.S.-sourced parts now face higher input costs, while Mexican competitors—shielded by USMCA exemptions—threaten to flood Brazil’s market with cheaper vehicles.

The National Association of Motor Vehicle Manufacturers (Anfavea) warns of a 40% surge in redirected Mexican exports, which could depress local prices and erode profit margins. Meanwhile, the 10% baseline tariff on Brazilian exports has added further pressure, though it remains milder than the 20–34% rates imposed on other U.S. trade partners.

reveals investor caution: shares have dipped 12% amid uncertainty over how tariffs will affect its U.S. sales of aircraft components.

Steel and Commodities: Quota Exemptions vs. Inflationary Pressures

Brazil’s steel sector, a critical export earner, has weathered the storm better than expected. The 2018 Section 232 regime already imposed a 25% tariff, but Brazil secured quota exemptions for semi-finished steel (e.g., slabs), which are critical to U.S. manufacturers. The April 2025 10% “reciprocal” tariff added only marginal costs to non-exempt products like pig iron.

However, the broader economy faces inflationary headwinds. With the Central Bank’s benchmark rate at 14.25%—a decade-high—Brazil’s 5.48% inflation in March (exceeding its 1.5–4.5% target) has dampened consumer demand. This hurts auto sales, where a 40.6% export surge in early 2025 may not offset domestic sluggishness.

Agriculture and Energy: Winners in the Tariff Shuffle?

While manufacturing grapples with tariffs, Brazil’s agricultural and energy sectors have found pockets of resilience. The U.S. 10% tariff on non-Section 232 goods has had minimal impact on exports of coffee (4.7% of total U.S. imports) and orange juice, which lack immediate substitutes. Meanwhile, crude oil exports remain tariff-free, ensuring stable revenue flows.

Petrobras (PBR) and Vale (VALE) have also benefited from global commodity demand, though the weakening Brazilian real—up 3% against the dollar in April—has tempered gains.

The BRICS Threat: A Sword of Damocles

The threat of 100% tariffs on all BRICS products, delayed until July 2025, adds a layer of uncertainty. While Brazil’s exclusion from the initial rollout has buoyed equities, a reinstatement of higher rates post-July could derail recovery efforts.

shows Brazil’s benchmark index rising 5% in April, outperforming the S&P 500’s 2% dip, reflecting investor optimism about its relatively favorable tariff status compared to China and the EU.

Risks Ahead: Trade Diversion and Policy Uncertainty

The flood of displaced exports—such as Chinese goods rerouted to Brazil—could depress prices for domestic manufacturers. Meanwhile, high interest rates and a potential global recession (projected to shave 0.4% off GDP in 2025) weigh on corporate earnings.

Analysts at Goldman Sachs note that Brazil’s 12% export reliance on the U.S. limits direct damage but highlights vulnerability to broader trade wars.

Conclusion: A Divided Landscape

Brazilian equities are caught in a tension between sector-specific risks and strategic advantages. The auto sector faces immediate headwinds, with companies like Embraer navigating a maze of tariff calculations and supply chain costs. However, the 10% tariff rate’s moderation compared to BRICS peers, coupled with exemptions for key exports, has shielded Brazil from the worst-case scenario.

Investors should focus on diversified plays:
1. Commodities (VALE, PBR) benefit from global demand and tariff exemptions.
2. Agriculture (e.g., JBS, BRF) retains pricing power in niche U.S. markets.
3. Tariff-resistant sectors like renewables (Neoenergia) may gain as Brazil attracts green investments amid U.S. protectionism.

Yet, the BRICS tariff threat remains the wildcard. If reinstated, it could erase gains and force a reevaluation of Brazil’s trade strategy. For now, equities are balancing between cautious optimism and preparedness for turbulence—a reflection of Brazil’s role in the new global trade order.

Data as of April 2025. Past performance does not guarantee future results.