Tariff war could open opportunities for Brazil

A broad increase in U.S. import tariffs on Chinese products could open opportunities for Brazilian exports. Such additional duties could create more room for Brazil to expand its share in the American market for a set of 2,863 products that overlap in the export portfolios of Brazil and China to the U.S.

These products account for $457.2 billion in Chinese exports to the U.S. This figure highlights the scale of potential opportunities that could arise if Chinese products lose competitiveness in the American market due to a possible tariff hike. This represents 91% of China’s total exports to the U.S. For Brazil, these products make up 68% of its exports to the U.S., totaling $25.4 billion.

The findings come from the Institute for Industrial Development Studies (IEDI), based on 2023 data, the latest available from TradeMap.

“It might be too strong to say the study points to a potential market, but it does indicate a market that would be open to competition if Chinese production were to lose competitiveness in the U.S. market. More than the values involved, what stands out is the diversity of overlapping products. There would be significant room for action,” said Rafael Cagnin, chief economist at IEDI.

“Obviously, we won’t be able to take full advantage of this because China would not be completely displaced from these markets. It’s also important to note that just because our products gain competitiveness due to tariffs on Chinese goods doesn’t mean we will automatically be able to capture this market,” he added.

The chart below reveals Brazil’s top ten most exported products in containers from Brazil to China in 2024, according to Datamar data.

Containerized Exports to China | Brazil | 2024 | TEUs

Source: DataLiner (click here to request a demo)

The data, he said, should not give the impression that this shift would happen automatically. “To integrate into supply chains, it is necessary to meet specific conditions, such as delivering a certain volume of production at a given price with consistent regularity. This all requires careful planning and a market penetration strategy.”

Two scenarios

There is still significant uncertainty, Mr. Cagnin noted, about the actual direction of U.S. tariff policy under President Donald Trump. For this reason, the study considers several scenarios. The first assumes that tariff increases would apply only to Chinese products, leaving Brazilian exports unaffected.

The second scenario considers that the additional tariff could erode the competitiveness of Chinese products compared to Brazilian ones. In practice, Mr. Cagnin said, China could remain more competitive than Brazil even with higher tariffs on its exports to the U.S. “It all depends on the tariff rate that may be applied to China. Depending on that, the Chinese may still maintain a competitive edge over us, even with the additional U.S. tariffs.”

“The study assumes that the goods Brazil already exports to the U.S. indicate that Brazilian products are competitive enough compared to those from other countries,” Mr. Cagnin explained. In this case, tariffs on Chinese goods would create a real opportunity for Brazil, he said.

However, he pointed out that an additional U.S. import tariff on “made in China” products could also harm Brazilian exports. This could happen if Brazil exports raw materials to China, which are then processed and shipped to the U.S. “There are indirect effects that are not captured in the study,” he noted.

The study, he observed, is an exercise based on the assumption that Mr. Trump’s tariff measures would primarily target China. “But we cannot rule out the possibility of broader protectionist actions that cover a larger number of countries or even that tariffs are applied based on specific products,” he said. Steel and wood, for example, have already been targeted by Mr. Trump’s executive orders and could affect multiple sources, including Brazil.

Broad impact

Mr. Cagnin also noted that President Trump’s tariffs could impact the Brazilian economy through non-trade-related channels. Higher tariffs are expected to have an inflationary effect in the U.S., which could lead to a slower easing of U.S. monetary policy. This, in turn, could cause the Brazilian real to depreciate against the dollar, adding inflationary pressure in Brazil and keeping interest rates at higher levels.

The study, he emphasized, was strictly focused on trade effects. “We analyzed which products China exports that Brazil also exports.” He explained that the study used a high level of specificity, considering product classifications at the six-digit level. To illustrate, the Foreign Trade Secretariat (SECEX/MDIC) website allows searches for product imports at two, four, six, and eight-digit levels—the higher the number of digits, the more specific the product classification.

Mr. Cagnin pointed out that manufactured goods continue to have major differences beyond international trade classifications. “We know that design is not the same, after-sales service is not the same. We also know that exports may benefit from financing mechanisms that one country has and another does not. Quality may vary, and long-term contractual conditions can differ.” There are, therefore, asymmetries even among products within the same classification.

“There are all these caveats, but the overlap in export portfolios is still significant. At the detailed product level used in the study, we identified just over 2,800 products. That’s a considerable amount,” he said.

The study also examined products from sectors in which Brazil exports the most to the United States. “In other words, among the overlapping products, we looked at those that are most significant in Brazil’s export portfolio to the U.S. We considered that Brazil’s stronger export position in some of these products indicates a level of competitiveness in the American market, which helps mitigate some of the qualitative factors that differentiate one manufactured product from another,” the study noted.

IEDI’s study identified nine sectors among the overlapping products that are most relevant to Brazilian exports to the U.S. These sectors encompass 1,104 products and account for 30% of Brazil’s total exports to the American market.

High-tech industries

The study highlights that two of the nine sectors are high-tech industries: aircraft and spacecraft, along with their parts, and optical, photographic, cinematographic, and measuring equipment. Organic chemicals make up the third sector, positioned between high and medium technology industries.

The aircraft and parts category includes 13 products for which Chinese exports totaled $676.2 million in 2023. According to the study, this is the only sector where Brazil exports more to the U.S. than China does. In 2023, Brazilian exports in this category to the U.S. reached $1.97 billion—nearly three times the value shipped by China—accounting for 5.3% of Brazil’s total exports to the U.S.

Aviation, Mr. Cagnin noted, is one of the few high-tech sectors in which Brazil has an established presence. “Embraer has been in this market for a long time. From this perspective, what matters most is maintaining that position. We’ve seen China build up its production and technological capacity in aviation relatively quickly. The trend is for Chinese manufacturers to gain increasing market share internationally. When China sets its sights on something, it moves fast. In this sector, the key is to consolidate and capture as much market space as possible to make it harder for China to enter in the future,” he said.

For José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), IEDI’s study should be considered when formulating industrial policy and defining strategies. “There are challenges in securing a foothold in the U.S. market.” In 2024, according to SECEX data, Brazil exported $40.4 billion to the U.S., while exports to China, Brazil’s main trading partner, totaled $94.4 billion.

Mr. Castro stressed that entrepreneurs need to perceive the prospect of greater export opportunities as real. Otherwise, he noted, there will be no investment in production and exports. “At this moment, uncertainty about how Trump’s policies might affect Brazil only increases overall uncertainty,” he said.

For Welber Barral, partner at BMJ and former Foreign Trade secretary, the data gathered by IEDI is interesting, but it is also important to consider that China, in order to maintain its market share, could significantly lower prices, as some Chinese industries operate outside a market economy framework.

The cost of production in Brazil is much higher than in China, Mr. Castro said. Even if they face additional tariffs, he noted, Chinese producers will still be able to offer prices much lower than those of Brazilian exporters.

Mr. Barral believes that within the potential outcomes of Mr. Trump’s protectionist policies, Brazil could find more opportunities through retaliatory measures that Canada and China might impose against the United States. This could be particularly beneficial for products Brazil already exports, such as agricultural commodities.

The IEDI study also identified four other sectors categorized as medium technology: electrical machinery and equipment; nuclear reactors, boilers, and mechanical appliances; inorganic products; and vehicles.

Unlike the aircraft sector, the study shows that in the electrical machinery and equipment sector, Brazil exports far less than China. “The overlapping products we export in this sector represent only 1% of China’s shipments to the U.S. In other words, there is significant room to expand if China starts exporting fewer of these goods,” the study noted.

The study also highlighted, within low-technology intensity sectors, iron and steel products. It further identified the wood and wood products sector, which includes goods that are labor- and natural resource-intensive.

Source: Valor International

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