By Jamie McGeever
Few countries have been hardened by the recent rise of dollar and treasuries income than Brazil.
But the country has an advantage: as US President Donald Trump is preparing to impose punitive tariffs on many of the top US business partners, Brazil is unlikely to be in its protectionist fire line.
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Brazil has not been commercial surplus with the US since 2007. However, with its economy and markets at a delicate time, the country cannot be complacent.
Financial conditions are the most rigorous since 2016, according to Goldman Sachs, the real income of titles over 10% are the highest in over 15 years, and Real has never been so weak.
The Central Bank has sought to support the real, raising the Selic rate to 1 percentage point last month and promising 2 more points in the future. Brazil’s primary tax balance is healthy, but increased interest load is a weight for public accounts.
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BC also intervened heavily in the exchange market to support the real, selling a total of $ 32.6 billion in December, considering line operations and currency sales operations without repurchase commitment.
Special case
Will Trump’s return to the White House put more wood in the fire?
On the one hand, Brazil’s position among the large emerging countries is unique. The 20 US Main Partnership Partners in 2023 included nine emerging economies, of which Brazil was the only one that exported no more than it mattered, according to US government data.
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Although Brazil registered last year a robust commercial surplus of $ 74.6 billion, the second largest ever recorded, its bilateral trade balance with the US was stable. In fact, until last year, Brazil has had a commercial deficit with the US every year since 2007.
Therefore, Trump cannot claim that Brazil is “taking advantage” from the US or treating it “unfair”, accusations he has made to many other countries, including Germany, Canada, China, Mexico and other emerging economies who have large Commercial surpluses with the US.
Collateral damage
However, there is room for tension in several areas.
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First, Trump and President Luiz Inacio Lula da Silva could not be more distant ideologically, and there is a deep friction between Brasilia and Elon Musk, Trump’s tsar of efficiency, about control of social networks.
Brazil is also already a target of Trump’s public attacks, although indirectly, when he aimed at the BRICS group in November for allegedly plans to move away or replace the “powerful” dollar.
Perhaps the most worrying is the fact that Brazil may suffer collateral damage if Trump fulfills its threats from disturbing global trade.
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Like TS Lombard Elizabeth Johnson, he points out, if tariffs destabilize the global economy – and especially if they slow down the activity in Brazil’s largest commercial partner, China – “almost certainly” there will be difficulties for Brazil next year.
History lesson
Brazil’s experience with Trump’s first term offers reasons for both hope and anxiety this time.
In Trump’s first presidency, “eye for eye” tariffs led Beijing to take permanent measures to reduce their dependence on US agricultural products, which was an advantage for Brazil.
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In 2016, China bought 40% of its US imported soy. In the first 11 months of last year, this number dropped more than half to 18%. Meanwhile, Brazil’s participation grew from 46% to 74%, according to data from the Chinese customs.
On the other hand, China could give in to Trump, agreeing to increase US agricultural imports in exchange for lower rates. This would have an indirect effect on Brazilian exporters, just as Brasilia expects to increase exports due to a weak exchange rate, it is the main source of growth this year.
There is also the risk that Lula responds to Trump’s movements with populist and protectionist measures. The US economy – and especially its markets – are probably strong enough to resist a period of disturbance led by Trump. Unfortunately for Lula, it is almost certain that Brazil is not.
(The opinions expressed here are the responsibility of the author, Reuters columnist)
