Brazil & Southern Cone - August 2026

Brazilian President Luiz Inácio Lula da Silva had hoped a special rapport with his US counterpart would spare the South American giant another damaging tariff barrage from Washington. He was wrong. The administration of US President Donald Trump applied two sets of tariffs in July on thousands of Brazilian products.

The Office of the US Trade Representative (USTR) announced on 15 July the application of 25% tariffs on Brazilian products, including goods such as ethanol, machinery, timber, furniture, and footwear. These tariffs, which took effect on 22 July, came as a response to what the USTR considers unfair, protectionist trade practices implemented by Brazil. On 23 July the USTR announced separate 12.5% tariffs, taking effect the following day, which were imposed on Brazil and dozens of other countries due to the USTR’s claims that these countries failed to effectively enforce bans on goods produced with forced labour.

Estimates of the impact of the new 25% tariff vary between different institutions and organisations, ranging from around US$7bn to US$11bn of goods affected. Indeed, the overall impact could have been much worse. For one, Washington published a long list of exemptions on which the 25% tariff is not applied. That list includes some of Brazil’s main exports, such as beef, fruit, coffee, minerals, fertilisers, and aircraft. The exemptions in part reflect the Trump administration’s attempt to avoid further price increases for US consumers already burdened by increased fuel costs driven by the conflict in the Middle East.

Also, since the first round of US tariffs was announced in 2025, many Brazilian exporters had already begun to redirect sales to other countries. “Brazilian grape exports to the United States had already been losing competitiveness since the previous round of tariffs,” said Margarete Boteon, a researcher at the centre for advanced studies in applied economics (Cepea) which is tied to the Universidade de São Paulo (USP). The government’s economic policy secretariat (SPE) expects only a “modest aggregate impact” of the latest US tariffs on the Brazilian economy, based on the redirection of exports to other markets and a series of measures the government has adopted to mitigate the impact of tariffs on Brazilian businesses. The US accounted for around 11% of Brazil’s total exports in 2025, with an export value equivalent to less than 2% of GDP.

Other sectors, such as the machinery industry, have made only limited progress in finding new markets. Even though the US market share for Brazilian machinery exports last year dropped from 26% to 22% of total exports, it still is the main destination. “Now the tariff is lower, but the concern is the same and the damage is similar,” said José Velloso, head of the machinery and equipment industry association (Abimaq).

Brazil’s footwear manufacturers will now face a 37.5% surcharge on sales to the US, their main export market. “It worsens what was already a bad situation,” the industry association Abicalçados said. It projects the sector’s overall exports will fall 7% this year, and it called on the government to adopt protectionist measures. “It becomes even more urgent to adopt safeguards and other trade defence instruments to protect the domestic market from a significant and harmful surge in imports,” Abicalçados said. In the first half of the year, more than 25m pairs of shoes entered Brazil, a 15.6% increase amid a stagnant domestic market and a contraction of national production.

Political motivations

The 25% tariffs on Brazil emerged from a USTR investigation launched on 15 July 2025. Among the justifications for opening the investigation were claims that Brazil had restricted US companies in the digital economy, with the USTR blasting the Brazilian judiciary for ordering US social media companies to withdraw political content and shut down select accounts. The USTR also claimed that Brazil’s state-backed digital payments system Pix discriminated against private US credit card and payment processing corporations. Other allegations of Brazil’s unfair trade practices included restricting US ethanol imports, failing to combat corruption, not enforcing laws against deforestation, and not protecting intellectual property.

But many Brazilians suspect there were political motives behind Trump’s tariff offensive that went beyond what US Trade Representative Jamieson Greer said was an effort to benefit American workers and producers. According to a Datafolha survey published on 27 July, 52% of voters believe the tariffs are aimed at benefitting Senator Flávio Bolsonaro, the main right-wing candidate to challenge Lula in the October presidential elections. The Bolsonaro family has long enjoyed privileged access to the White House, which last year accused the Lula administration and the Brazilian judiciary of politically persecuting Senator Bolsonaro’s father, former president Jair Bolsonaro (2019-2023), who was convicted last year for plotting a coup after losing the 2022 election.

This time around, Flávio Bolsonaro tried to convince the US not to impose new tariffs. The right-wing senator travelled to Washington in early July to attend a USTR hearing and argued that applying tariffs now would only benefit Lula, as it did when Trump imposed tariffs on Brazil last year. But Bolsonaro’s efforts to avert the new US tariffs failed, and Lula has again sought to ride on the coattails of anti-US sentiment with defiant rhetoric criticising what he considered to be Trump’s imperialistic bullying.

“It is disheartening to see that the regrettable outcome of the [investigations] is part of a scenario orchestrated with the active collaboration of the Bolsonaro family,” the Lula administration said in a statement. It went on to describe the family as “false patriots who devised and publicly championed actions against our country, driven by electoral motives”.

If indeed it was Trump’s intention to influence Brazil’s presidential election this year in Flávio’s favour, it may well have backfired. Days after Washington confirmed the new tariffs, Lula’s popularity jumped four percentage points to 46%, according to a poll by PoderData. At the time of writing, many opinion polls put the 80-year-old former union leader as the frontrunner in the presidential race, in contrast to the polls a few months earlier which showed Lula and Flávio Bolsonaro technically tied on voter intention.

“The date of 15 July 2026 will go down in the history of relations between Brazil and the US as a regrettable milestone,” the Lula administration said in a statement that denied discrimination against US products and cited a US trade surplus. That sentiment was echoed by the country’s leading industry lobby, the Confederação Nacional da Indústria (CNI). “The tariff hike jeopardises a trade relationship built over decades and harms companies in both countries. We are talking about highly integrated supply chains, in which many Brazilian products are essential to the US industry,” said Ricardo Alban, president of CNI.

While Brazil could fall back on the 2025 ‘reciprocity law’ to adopt retaliatory measures, Brazilian business groups have lobbied the government not to do so, as increased prices on imported goods could drive inflation and increase costs of manufacturers. Instead, the Lula administration launched a new credit line of R$18.5bn (US$3.6bn) on 22 July to assist Brazilian companies affected by the US tariffs.

Other trade partners

Amid the increased tensions with the US, the Brazilian government has sought to shore up ties with other trade partners. On 27 July Lula hosted South Korea’s President Lee Jae-Myung in Brasília, where they announced plans to create a working group with the aim of advancing talks for a trade deal between South Korea and the Mercosur regional trade bloc. Lula also held a phone call with China’s President Xi Jinping on 26 July in which he discussed the potential for a trade agreement between China and Mercosur. In late June, during the Mercosur summit in Paraguay, the South American trade bloc also announced the launch of negotiations for an economic partnership agreement with Japan.

Pre-election polls

In July, various polling firms showed a clear lead for President Lula against Flávio Bolsonaro, his main rival in the presidential election due to take place in October. Datafolha carried out a survey from 22-23 July which showed that, in a projected run-off vote, Lula polled on 48% of voter intention, ahead of Flávio on 43%. Meanwhile, AtlasIntel carried out a survey from 22-27 July which showed Lula on 49.2% and Flávio on 42.9% in a head-to-head.