News / Trading tensions with the US may push Brazil closer to China

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Brazil is likely to seek new trading opportunities outside the US, after the US Trade Representative (USTR) yesterday launched an investigation into the South American country’s “unfair trade practices”. 

Some shipments between the two have already been paused, said a forwarder. 

Experts suggest this will push Brazil further into the arms of China, which is now South America’s largest trading partner. 

The Section 301 Investigation is set to look at six issues: digital trade and electronic payments; unfair tariffs; corruption; IP protection; ethanol tariffs; and illegal forestation, which has undermined “the competitiveness of US producers of timber and agricultural products”. 

Tariffs seem to have particularly upset the US – as Brazil has some “preferential trade arrangements” with trade partners. 

“Under these arrangements, Brazil accords lower, preferential tariff treatment only to certain large trading partners in specific sectors, including sectors in which these trading partners are globally competitive. At the same time, Brazil maintains high most-favoured nation (MFN) tariffs that apply to US exports.”

It added that last year, Brazil had a 12.2% simple average MFN applied rate, compared to the US’s 3.3% simple average MFN rate. 

The USTR claims Brazil gives Mexico and India better treatment across hundreds of sectors, including automotive, on which there are no tariffs on Mexican imports. 

The US added: “US exports are denied a level playing field in Brazil’s market. This can suppress US exports and economic output, with negative consequences for employment and domestic production,” – a claim which could be levied by almost any government against the US right now. 

President Trump recently threatened Brazil with 50% tariffs, offering political rather than economic reasons. 

International trade specialist Jackson Campos told The Loadstar: “I believe this investigation is an excuse. It was clear from the beginning that these tariffs are purely political to defend Trump’s associate, [ex-president] Bolsonaro. Brazil is not willing to fight and even though we think that this is unfair, the Brazilian government is trying to negotiate.” 

Mr Campos conceded that Brazil maintained increasingly strong trade relations with Mexico and India. 

“With Mexico, ties have expanded in the automotive, agriculture, and manufacturing sectors. Trade with India has grown substantially, with both countries committing to deepen cooperation and significantly increase bilateral flows.” 

He added that Brazil was “likely to contest the US investigation, especially given the political weight of the accusations”. He said: “Government officials have already signalled a preference for dialogue, but Brazil may also turn to multilateral forums like the WTO to defend its trade policies.” 

However, he added: “A bad trade outcome with the US would not collapse Brazil’s economy, but it could hit key sectors like beef, ethanol, and aviation. Companies reliant on US demand would face uncertainty, and some have already paused shipments. 

“If the investigation concludes that Brazil engaged in unfair practices, the US could impose retaliatory tariffs, restrict services, or even target sectors with high dependence on US technology and logistics.” 

However, other trading partners are waiting in the wings.

Monocle noted this week: “Washington has lost its footing on the continent just as Beijing has been deepening its diplomatic and economic relations here. China is now South America’s largest trading partner and second only to the US in Latin America as a whole. As the White House continues to alienate nations in the region with its approach to immigration, organised crime and tariffs, Beijing has a golden opportunity to push Washington out of what it naively calls its ‘backyard’.”

China has announced a $9bn credit line and infrastructure investment plans to Latin American and Caribbean nations, and has also offered visa-free travel to China for citizens of Brazil, Argentina, Chile, Peru, and Uruguay.

“China deserves to be looked at with more affection and no prejudice,” said President Lula in response. 

Mr Campos said: “This tension may indeed push Brazil closer to China. As trade with the US becomes more politicised and less predictable, China offers both scale and stability, making it an increasingly strategic partner for Brazil’s export agenda.”