MercoPress. South Atlantic News Agency

Trump's 25% tariffs: Lula's gov't favors negotiation over retaliation

Lula's orders were to negotiate, Haddad explained

The Brazilian government criticized US President Donald Trump's decision to impose a 25% tariff on steel and aluminum imports. The protectionist move is foreseen to cause the South American country around US$ 1.5 billion loss in exports, primarily affecting semi-finished products. Despite its potential impact on the steel sector, minimal effects on Brazil's GDP and total exports are projected. The Government of President Luiz Inácio Lula da Silva favors negotiation over retaliation.

Among other possible courses of action, the Lula administration announced Wednesday that it would evaluate going to the World Trade Organization (WTO), a multilateral institution whose function is to regulate international trade, negotiate rules, manage trade agreements, and resolve disputes. Brazil and the United States are two of the 166 member countries of the WTO, which covers 98% of world trade.

The taxation defined by Trump is a form of protectionism for American steel companies, which will now compete at an advantage with imported products that will be more expensive in the United States.

Brazil is one of the main affected countries, for being a great exporter of metal to the Americans. According to Brazil's National Confederation of Industry (CNI), the United States is the destination of 54% of Brazilian iron and steel exports.

In a joint note published by the Ministries of Foreign Affairs and of Development, Industry, Commerce, and Services on Wednesday afternoon, the Brazilian government regrets the decision. “Such measures will have a significant impact on Brazilian exports of steel and aluminum to the USA, which, in 2024, were in the order of US$ 3.2 billion.”

The Brazilian government shows support for the multilateral trading system and considers the imposition of unilateral barriers “unjustifiable and wrong.”

The note highlights the history of cooperation and economic integration between the two countries and uses data from the American government itself to show that Washington has a positive trade balance with Brazil. “The US maintains a long-standing trade surplus with Brazil, which was, in 2024, of the order of US$ 7 billion, only in goods,” it was explained.

The text highlights the relationship of “mutually beneficial complementarity” between Brazil and the United States, citing the fact the South American country is the third largest importer of US steel coil (US$ 1.2 billion) and the largest exporter of semi-finished steel to the US (US$ 2.2 billion, 60% of total US imports), an essential input for the American steel industry itself. The statement ends by announcing that the government will seek, in coordination with the private sector, to defend the interests of national producers together with the US government.

Finance Minister Fernando Haddad said that the government's order was to negotiate and not to retaliate against exports coming from the United States.

“President Lula said 'very calm at this time. ' We have already negotiated other times in conditions even much more unfavorable than this one,” he pointed out after meeting with industry leaders, who came up with a report containing arguments for the negotiation.

According to Haddad, a technical note on the proposals of the Brazilian steel companies will be drafted to be sent to Vice-President and Minister of Development, Industry, Commerce and Services, Geraldo Alckmin.

Statements by the Brazilian Steel Institute (Instituto Aço Brasil - IAB) and the National Industry Confederation (Confederação Nacional da Indústria - CNI) insisted that efforts to reach an agreement with Trump's administration through negotiations need to be undertaken.

Meanwhile, the Applied Economic Research Institute (Instituto de Pesquisa Econômica Aplicada - Ipea) issued a report Wednesday foreseeing that the 25% tariffs “could have an important impact on the ferrous metals sector in Brazil,” with a 2.19% drop in production, an 11.27% contraction in exports and a 1.09% reduction in imports forecast.

”The North American market directly affects more than 10% of the sector's supply. And the dependence on this market is even greater in the case of semi-finished products (plates and ingots), given that close to 90% of Brazilian sales to the USA are concentrated in these products,“ the document pointed out.

The United States is the main foreign market for Brazilian steel, and, despite the superlative numbers and percentages of exports, the Ipea projection sees a low impact on other sectors. In the economy as a whole, ”the impact on Brazil would be insignificant.“ According to Ipea, the effect could be of ”0.01% of GDP and 0.03% of total exports.“

Although it foresees minor effects, Ipea recommends dialogue and consideration in Brazil's reaction. ”Negotiating is, with certainty, the best option, even because Brazil can use the argument that the US registers surplus in trade with Brazil.“

”Regarding an eventual retaliation, in the form of a restriction on U.S. imports, it is necessary to be very cautious and carefully evaluate its impacts,” Ipea also warned.

The US products with the highest volume imported by Brazil are fertilizers and nitrogen compounds. Hence, higher tariffs on these products could increase production costs for Brazil's agriculture and for the steel industry itself.

(Source: Agencia Brasil)