Brazil is resigned to the shock of new US tariffs as President Donald Trump gears up for what he has called Liberation Day (April 2), when widespread tariffs will be applied to several products and countries.

In the past few days, Brazil has intensified diplomatic efforts with the US in a bid to mitigate potential damage from the expected new tariffs, Valor reported, with steel and other metals very much in the minds of the diplomats who were in the talks with US officials.

Last week, a delegation led by the Secretary of Economic and Financial Affairs at the Foreign Ministry, Maurício Carvalho Lyrio, completed a three-day visit to Washington for meetings with US government officials, lawmakers and business representatives.

In a last-minute effort to avert full-scale tariffs on April 2, Brazil’s Foreign Minister Mauro Vieira is scheduled to speak with US Trade Representative Jamieson Greer by telephone on March 31, their second conversation ahead of Trump's tariff announcement, sources familiar with the matter said.

Brazil is particularly concerned about potential impacts on steel exports, which already face a 25% blanket tariff imposed earlier this month.

Brazilian officials have pushed to reinstate quotas like those established during Trump's first administration, which allowed 3.5mn tonnes of semi-finished products and 600,000 tonnes of finished steel to enter the US market annually.

Brazilian representatives stressed that the country maintains a trade deficit with the US and that the effective tariff rate on US products entering Brazil is just 2.7%, with many facing zero duties.

However, US officials have reportedly fixated on Brazil's 18% import tariff on ethanol, compared to the US rate of 2.5%.

When Trump announced his executive order preparing retaliatory tariffs, he specifically mentioned Brazilian ethanol barriers.

Brazil's sugar and ethanol industry association UNICA has resisted negotiations to lower the rate, citing concerns about producers in the Northeast region, which represent only 9% of national production but employ 65% of the sector's workforce.

US officials have indicated that Trump's reciprocity programme would not initially include steel quota exceptions, creating significant uncertainty for Brazilian exporters.

In an opinion piece for Estadao, economic commentator Celso Ming described the current global trade environment as "driving at night in thick fog on a poorly marked road covered in snow," with governments and businesses struggling to plan amid unprecedented uncertainty.

The Brazilian government has shown some confusion in its response strategy, initially suggesting retaliation before President Luiz Inacio Lula da Silva mentioned a potential World Trade Organization (WTO) appeal during his recent Japan visit.

However, over the weekend, Lula was more measured, saying his cabinet would seek to use all negotiating tools possible before considering tariff retaliation, Estadao reported.

"Before we start a fight for reciprocity or a fight at the WTO, we want to use every word in our dictionary to establish free trade with the US," Lula told reporters in Vietnam, noting the countries share an $87bn trade relationship.

Despite criticising Trump for acting like a "world sheriff," Lula said he would not hesitate to call the US president directly, if necessary, regardless of their ideological differences.

Tariffs come amid rising economic woes

Meanwhile, Lula’s cabinet was hoping consumers could feel better off this year after the inflation crisis and, as of late, food inflation which has hit Brazilians’ basic staples hard, putting further pressure on Lula’s already-poor popularity ratings.

According to most analysts, the government will face an uphill battle in 2025 for consumers to feel any improvement in their finances. In fact, they may feel worse off by December than they feel now, said analysts at Capital Economics earlier in March.

Brazil’s economy is projected to grow at a significantly slower pace over the next three years due to high interest rates, persistent inflation and fiscal concerns, they said.

After GDP expanded just 0.2% in Q4 2024, quarter and quarter, the economy has showed spots of weakness in Q1, with analysts expecting consumer spending to remain subdued in coming quarters as inflation erodes income growth.

Headline inflation could exceed 6% by December, remaining above the central bank's 3% target.

While Brazil's central bank has raised rates to 14.25% since September with further hikes expected, analysts forecast potential easing to 11.25% by end-2026 if inflation moderates and growth remains weak.

Fiscal challenges persist despite some deficit improvement, compounded by external factors including declining commodity prices and weaker Chinese demand.

After four years of growth exceeding 3% – three of them under Lula’s third term – Brazil's economy is now forecast to expand just 1.3-1.8% annually through 2027, below consensus expectations, according to Capital Economics.

Brazil forecasts  (change in % year on year unless stated)
	2023	2024	2025	2026	2027
GDP	3.2	3.4	1.8	1.3	1.5
Unemployment rate (%)	8.0	6.9	7.3	7.8	8.3
Inflation	4.6	4.4	5.5	5.0	4.0
Interest rates (Selic benchmark)	11.75	12.25	14.50	11.25	10.00
Exchange rate BRL/$	4.86	6.18	6.00	6.00	6.20

Source: Capital Economics