skip navigation
Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

MARKETS
10 July 2025

Brazil in the Crosshairs

By Paulo Clini, Robert O. Abad

Stay up to date on timely topics and market events. Subscribe to our Blog now.

On July 9, US President Donald Trump set his sights on Brazil, threatening to impose a steep 50% tariff on US imports from the country—five times the 10% levy introduced in April. The new tariffs are scheduled to take effect on August 1.

Markets initially recoiled: the Ibovespa Index dropped 1%, local rates fell by 25 basis points and the Brazilian real weakened by 1.5%. However, markets have since stabilized, reflecting a growing perception that—even if the tariffs remain in place—the impact on Brazil’s growth and inflation will be modest. Of course, the situation remains fluid, and further market moves will depend on how events unfold. In the absence of immediate retaliatory measures from Brazil (our base case), we expect volatility to subside from the initial spike.

From a macroeconomic perspective, Trump’s move appears to be more bark than bite. Brazil’s trade balance with the US is nearly even, and most of its $40 billion in annual exports to America are commodities—oil (20%), coffee, meat, wood and petrochemicals (another 20%). These goods are largely inelastic to tariffs, meaning demand is unlikely to shift significantly. The real casualties are likely to be steel (already subject to tariffs) and aircraft (6.5% of exports), which could take a hit. Even so, the overall impact on Brazil’s economy should remain limited.

The true motivation behind Trump’s tariff threat appears to be political rather than economic. The timing coincides with the Trump administration’s efforts to pressure Brazil’s Supreme Court as it prosecutes former President Bolsonaro for his alleged coup attempt. Ironically, this heavy-handed approach may backfire—handing President Lula a convenient external adversary and potentially boosting his re-election prospects. Meanwhile, the Supreme Court is likely to close ranks and expedite its ruling on Bolsonaro, making a conviction more likely.

Tensions have also been heightened by a recent Supreme Court decision in Brazil that holds tech giants like Google and TikTok liable for user content—a hot-button issue that pits “freedom of expression” (the rallying cry of big tech and Bolsonaro’s allies) against the Lula administration’s campaign against “fake news.” While not the main trigger for Trump’s move, it certainly added fuel to the fire.

In response, Brazil’s government has prepared three possible retaliatory measures:

  • Imposing reciprocal tariffs
  • Taxing intellectual property rights (as permitted by the WTO) and
  • Establishing new tariffs on environmental grounds
President Lula has threatened tit-for-tat tariffs, but we believe that taxing intellectual property is the most likely response—reciprocal tariffs would risk stoking domestic inflation and hurting Lula’s approval ratings. On the tech front, expect Brazil’s Supreme Court to double down, accelerating efforts to hold social media platforms accountable for content.

In short, our view is that Trump’s tariff gambit is more about political theater than economic substance—and it may end up strengthening Lula’s hand rather than weakening it.

© Western Asset Management Company, LLC 2025. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").
Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.
These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.
Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.
Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.
Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.
These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.
Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Ltda. is regulated by Comissão de Valores Mobiliários; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.