U.S. Tariffs Under Trump Could Surpass Brazil’s and Threaten Trade

The United States may end up imposing tariffs on Brazilian imports that exceed the average rates Brazil applies to American goods if they seek to offset the Latin American country’s regulatory barriers, warns BTG Pactual.

The weighted average tariff applied by Brazil to U.S. imports is about 5.8%, compared to around 1.3% that the U.S. imposes on Brazilian goods, according to BTG. When it comes to non-tariff barriers, the gap is even larger: 86.4% of products entering Brazil face some kind of regulatory restriction, compared to 77% in the U.S. and 72% globally on average, according to BTG’s analysis of 75 countries using data from the World Integrated Trade Solution (WITS), a World Bank platform.

“Brazilian protectionism stems primarily from the use of non-tariff barriers rather than tariffs,” said BTG Pactual economists Iana Ferrão and Pedro Oliveira in a report. In Latin America, they note that only Argentina has a more restrictive regime regarding non-tariff barriers than Brazil.

Non-tariff barriers are trade restrictions that do not involve direct taxes on products. They include import quotas, licensing requirements, technical regulations, sanitary and phytosanitary measures, complex customs procedures, and subsidies.

According to Ferrão and Oliveira, most products imported into Brazil face restrictions such as prior licensing requirements, strict sanitary inspections, technical standards set by agencies like Inmetro and Anvisa, quotas, or quantitative restrictions. “Several domestic sectors are protected by regulations and requirements that significantly hinder foreign competition, even when tariff levels are not very high,” they say.

Non-tariff barriers are a “hidden cost” for those looking to sell to Brazil, according to Ferrão and Oliveira. They cite studies suggesting that Brazil’s sanitary and phytosanitary barriers alone could be equivalent to 20% to 40% tariffs, depending on the sector. “In recent decades, while tariffs have been reduced globally, Brazil has remained relatively closed through non-tariff barriers. Studies indicate that after the trade liberalization of the 1990s, non-tariff protection in Brazil has grown again over the past 15 years,” they state.

The problem is that the U.S. government has emphasized that its decision to impose additional tariffs will consider not just direct tariffs but also other trade barriers, note Ferrão and Oliveira. “President Donald Trump himself called for an investigation into tariff and non-tariff barriers. We don’t know if this will happen—there is significant uncertainty about Trump’s trade policy—but given that they are investigating, there is a risk that tariffs could be even higher,” says Ferrão.

The economists say that when combining the tariffs applied to U.S. goods with the coverage of non-tariff barriers, Brazil is one of the countries imposing the highest barriers on American products. This profile could reinforce Trump’s perception that Brazil engages in protectionist practices that limit U.S. market access, potentially justifying retaliatory measures under his previously announced “tariff reciprocity” approach.

“This also suggests that any future trade negotiations with the U.S. will need to consider the gradual reduction of some barriers as a possible bargaining tool to mitigate negative impacts on certain sectors and Brazil’s trade balance,” they argue. However, they say Brazil could adopt a strategic negotiation approach, offering concessions in less sensitive sectors to avoid retaliation in more critical areas.

“Direct impact on the trade balance is limited, but the sectoral impact is significant” – Iana Ferrão

If, as part of trade negotiations with the U.S., Brazil is forced to reduce non-tariff barriers, sectors that rely heavily on basic inputs—such as metallurgy—as well as those related to apparel, machinery, and semi-manufactured products would be under the most pressure, note Ferrão and Oliveira. Metals (including steel and iron products) account for about 21% of all non-tariff barriers in Brazil, the economists highlight. In certain segments, such as non-electric engines, machinery, and aircraft, virtually all imports face some requirement or restriction.

If the U.S. imposed an average tariff of 5.8% on Brazilian imports—the same rate that Brazil applies to the U.S.—several Brazilian products currently exempt or subject to minimal tariffs would face what BTG considers a “moderate” trade barrier in the American market. In this case, BTG economists estimate that Brazilian exports to the U.S. could decrease by about $2 billion in 2025 and $3 billion in 2026, compared to BTG’s current forecast, which already considers the impact of the 25% tariff on U.S. steel imports.

However, if the U.S. were to raise the average tariff on Brazilian imports to 25%—in an attempt to simulate equivalence with Brazil’s non-tariff barriers—several currently competitive exports would become commercially unviable in the American market unless Brazilian exporters significantly lowered their prices, say Ferrão and Oliveira.

The “equivalent tariff” measures how high an import tariff would have the same effect as a non-tariff barrier in reducing trade. Ferrão and Oliveira acknowledge that a 25% tariff would be an “extreme scenario.” They say studies suggest that the average tariff equivalent of U.S. non-tariff barriers is between 10% and 15%, indicating that under a reciprocity-based approach, the U.S. tariff on Brazilian goods could be lower than the assumed 25%.

However, the economists’ goal with the simulation was to illustrate a severe trade retaliation scenario—one in line with tariffs the U.S. has previously imposed on trade partners like Mexico and Canada, Ferrão and Oliveira remind.

In this case, the impact could reduce Brazil’s trade surplus by R$10 billion in 2025 and R$13 billion in 2026, they estimate. “The direct impact of U.S. tariffs on Brazil’s trade balance and economic activity tends to be limited, given that Brazil is a relatively closed economy. However, the sectoral impacts could be significant, as several industries rely heavily on the American market. And the high level of non-tariff barriers could require negotiation,” says Ferrão.

Source: Valor

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