Lula’s Defiance Pays Off as Trump Blinks on Brazil Tariffs
Story written by Simone Iglesias, Martha Beck and Rachel Gamarski
(Bloomberg) -- Brazil President Luiz Inacio Lula da Silva’s defiant response to Donald Trump’s 50% tariff threat was validated Wednesday — at least in the short term — with markets and businesses breathing a collective sigh of relief at the long list of exemptions to the levies.
Some of Brazil’s biggest exports to the US, from civilian aircrafts to orange juice, won’t face increases beyond the 10% rate previously imposed, softening the blow of tariffs Trump now plans to implement next week instead of Friday.
It came as a shock to a Brazilian administration that had limited contact with the White House in recent weeks, instead relying on a cadre of business leaders, including the head of plane-maker Embraer SA, to plead Brazil’s case in Washington.
The leftist Lula had also held firm against US pressure to interfere in the judicial system and halt the prosecution of right-wing former President Jair Bolsonaro. Lula has no power over the top court and his decision to defend it seemed to turn the tariff hikes into an inevitability.
Instead, Trump blinked, announcing for the first time that his 50% tariff didn’t mean 50% on everything.
The clash with Trump has given Lula a popularity boost significant enough to tip the scales in his favor: just over 50% of Brazilians now approve of him, up from 49.7% two weeks earlier, according to LatAm Pulse, a survey conducted by AtlasIntel for Bloomberg News and published Thursday.
Now, Lula’s challenge is to turn the reprieve into a longer-lasting détente with his nation’s second-largest trading partner. Bolsonaro’s upcoming trial on charges he attempted a coup threaten to further inflame Trump, who could easily remove exemptions.
Brazilian officials worry that the US’s move to sanction Supreme Court Justice Alexandre de Moraes — announced mere hours before the tariff order was published — could lead to punitive measures against other public officials.
Plus, key sectors that weren’t exempted from the 50% tariff, including coffee and beef, may need economic assistance to help Lula buy time and goodwill among Brazilians as he keeps holding his ground against the much larger economy to his north.
Brazil’s central bank held interest rates steady on Wednesday, with policymakers planning to keep the benchmark Selic on hold in the face of above-target inflation and the looming threat of levies.
Still, Lula declared a cautious victory.
“Today,” he declared during an event at the presidential palace, “is a sacred day for sovereignty.”
Another Surprise
In the days after Trump’s initial tariff threats, Brazilian government officials had resigned themselves to their fate.
Finance Minister Fernando Haddad and Vice President Geraldo Alckmin became exasperated by US demands: They argued repeatedly that Brazil runs a deficit in trade with the US, unlike most other nations facing Trump’s levies. And it seemed obvious to Lula, who seized on the dispute to paint himself as Brazil’s defender from foreign intervention, that Trump was dead set on picking a fight over Bolsonaro, and had little interest in talking trade.
President Trump Holds Joint Press Conference With Brazilian President Bolsonaro
© Donald Trump and Jair Bolsonaro upon his arrival to the White House in 2019. (Photographer: Mark Wilson/Getty Images)
Even as the White House prepared to publish the list of exemptions, Brazil remained largely in the dark.
Foreign Minister Mauro Vieira met Secretary of State Marco Rubio in Washington on Wednesday afternoon, and expressed regret that the US had politicized the 200-year-old relationship between the nations. He reiterated Lula’s message that Brazil would negotiate over tariffs but not its sovereignty, he told reporters.
Back in Brasilia, Lula learned of the new order from Brazil’s embassy in Washington and immediately summoned Alckmin and other officials for an emergency meeting, according to two officials familiar with the proceedings.
The government had been working on plans to help businesses and key sectors mitigate the impact of higher tariffs, which Bloomberg Economics estimated could deliver a 1% hit to Brazil’s economy. But its sense now was that while it remained at risk, the threat was no longer so dire, the people said. The government has put the release of the plans on hold while it revises them and pursues new talks with the US, one of the officials said.
In Lula’s eyes, Trump’s decision has brought at least some trade rationality back to the discussions, even if he still regards the dispute as primarily political in nature, one Brazilian official familiar with the situation said.
Haddad doesn’t expect a quick resolution, according to a person familiar with his thinking, who like the others requested anonymity to discuss internal matters. He still hasn’t talked directly with Treasury Secretary Scott Bessent, and he expects negotiations to ultimately drag on for the next two-to-three months like they have with other countries, the person said.
Still, Lula’s government now believes it may be able to win exemptions for additional goods the US doesn’t produce, including beef and coffee, according to one of the officials.
Both would represent significant victories for Brazil, the world’s largest exporter of the two products.
‘Chief Tariff Officer’
Brazilian companies that had expected to face the brunt of the tariffs also expressed optimism. For weeks, major firms with a significant US presence had warned the Trump administration that such high tariffs would hit the American economy hard.
Among them was Embraer, the world’s third-largest plane-maker, which boasts more than 2,000 US employees and has pushed for an exemption similar to the one Trump had granted the European Union.
In recent days, Embraer CEO Francisco Gomes Neto has been so involved in negotiations that he has jokingly referred to himself as the company’s “CTO” — or Chief Tariff Officer — in private conversations, according to multiple people familiar with the situation.
“The news confirms the positive impact and strategic importance of Embraer’s activities for the Brazilian and US economies,” it said in a statement. The company’s shares rose 11%.
Travelers Ahead Of Independence Day Holiday
Travelers Ahead Of Independence Day Holiday
© Photographer: Al Drago/Bloomberg
The exemptions will cover 75% of Brazilian mineral exports to the US, according to Ibram, the country’s mining institute. State-run oil giant Petroleo Brasileiro SA and mining behemoth Vale SA will benefit from exceptions for crude oil and iron ore. Pulpmaker Suzano SA escaped massive tariff hikes after wood pulp was excluded.
Trump’s order even caught markets that had largely shrugged off the economic effects of the tariffs by surprise. Itau now estimates that Brazilian goods will face an effective tariff rate of about 30%, Fernando Goncalves, the bank’s head economic research, said in an interview.
The bank had been working with an effective tariff rate 10 percentage points higher, and didn’t expect such a large number of exceptions. The Trump changes, Goncalves said, also make it less likely that Lula’s government will retaliate with trade restrictions of its own, further diluting the economic impact.
Bolsonaro Trial Looms
The wild card, of course, is Bolsonaro. Already barred from seeking office in the upcoming election, the former president is set to face trial on coup attempt charges later this year. He is widely expected to face conviction that will lead to his arrest.
Trump and the US have repeatedly weighed in on the case in recent weeks, and the leveling of Magnitsky Act sanctions against Judge Moraes Alexandre de Moraes was yet another escalation of its efforts to target the crusading judge who has previously clashed with US social media platforms like Trump Media & Technology Group, Rumble Inc. and Elon Musk’s X.
For now, even that move seems more like an attempt to appease Bolsonaro and his supporters given that Moraes has no assets or money in the US, according to the Supreme Court.
“The delay and long exemption list suggests that Trump wanted the sanctions to be ‘symbolic,’ only,” said Thierry Wizman, a macro strategist at Macquarie Group in New York. “To send a signal that persuasion, rather than punishment, is his goal.”
--With assistance from Daniel Carvalho, Giovanna Bellotti Azevedo, Mariana Durao and Felipe Saturnino.
(Updates with AtlasIntel poll showing Lula’s popularity rising in sixth paragraph.)
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