Brazil Adopts Two-Track Strategy as U.S. Tariff Deadline Nears
With a potential U.S. tariff deadline on August 1st, Brazil has launched a two-pronged strategy to respond, according to Thiago de Aragão, CEO of Arko Advice, as reported by Jefferies.
De Aragão, who also serves as a senior researcher at CSIS and a board member of FightCancer Global, shared key insights during a recent Jefferies-hosted call, highlighting both political and economic tensions in play.
U.S. Tariff Threat Seen as Political and Economic Pressure
The threat of 50% tariffs by the United States is viewed as a calculated mix of political pressure and economic bargaining, a familiar strategy under President Donald Trump, de Aragão said.
While a letter to Brazilian President Luiz Inácio Lula da Silva included demands tied to political issues—such as legal action against former President Jair Bolsonaro—those were outside Lula’s authority. At the same time, U.S. calls for reduced economic protectionism remained unanswered.
Lula Gains Politically but Faces Economic Risks
President Lula has used the situation to rally domestic support around national sovereignty, particularly as his approval ratings decline in 2025. However, a drawn-out dispute could harm Brazil’s economy and erode any political gains from the crisis.
Government and Private Sector Take Separate Paths
Brazil’s response now unfolds on two tracks: official government negotiations and private sector lobbying. De Aragão noted that Brazil struggles to navigate Trump’s unclear negotiation style, which lacks defined demands.
Some Brazilian companies are attempting to bypass government channels to negotiate direct carve-outs, a strategy that proved successful for Mexico in past trade talks. Yet, this fragmented approach may weaken Brazil’s overall position.
Possible Deal May Come with Trade-Offs
According to de Aragão, the best-case scenario for Brazil would be to limit U.S. tariffs to 10–15%. Reaching that goal, however, may require painful domestic concessions.
Options on the table include reducing subsidies on corn and ethanol or opening up markets to U.S. agricultural and industrial goods. While these steps might protect key industries, they also carry fiscal costs and could alienate pro-Bolsonaro voter blocs.
Lula’s challenge is to strike a balance between economic sacrifice and political messaging—framing any deal as a defense of Brazil’s sovereignty.
Lack of Clarity Drives Worst-Case Scenario Planning
With time running out, Brazilian stakeholders are reportedly preparing for worst-case outcomes, as the lack of clear demands from the U.S. stalls active negotiations.
De Aragão warned that Brazil may retaliate if U.S. tariffs go into effect. Possible countermeasures include breaking pharmaceutical patents or imposing tariffs on U.S. tech and e-commerce sectors, targeting influential American industries.
Outlook: A Standoff That Could Escalate
This trade dispute could worsen before improving. De Aragão compared the situation to the U.S.-China trade war, suggesting that Trump may be waiting for a strong offer from Lula. Until then, tensions are likely to rise, with long-term implications for both economies.
