Key Points
- In a July 9 letter sent to his Brazilian counterpart, President Trump vowed to impose a 50% tariff on “any and all Brazilian products” imported into the United States, effective August 1. He also previewed the initiation on July 15 of a U.S. investigation under Section 301 of the Trade Act of 1974 into Brazil’s alleged unfair trade practices.
- Brazilian President Luiz Inácio Lula da Silva responded by indicating Brazil would negotiate with the United States to try to avert the tariff, but would also be ready to impose countermeasures in accordance with Brazil’s recently-approved Economic Reciprocity Act.
- The situation and the resulting uncertainty will have important implications for companies doing business across the U.S. and Brazilian markets. Businesses should consider the short and long-term risks resulting from heightened trade and investment tensions between both countries.
- Sectors and companies potentially affected may benefit from outreach to government officials in both countries. The Brazilian Economic Reciprocity Act in particular includes provisions for private sector input in case Brazil decides to retaliate. The Section 301 investigation launched by the United States into Brazil’s trade practices—which itself may result in additional U.S. tariffs or other retaliatory trade measures—will also provide interested sectors and businesses the opportunity to submit comments or testimony to the U.S. government.
U.S. Tariff Threat
In a July 9 letter sent to his Brazilian counterpart, President Trump vowed to impose a 50% tariff on “any and all Brazilian products” imported into the United States, effective August 1. According to his letter, President Trump decided to take this action in light of recent actions in Brazil undermining “free elections,” as well as decisions by Brazil’s Supreme Court that disadvantage U.S. social media platforms. The letter also directed the U.S. Trade Representative (“USTR”) to initiate a Section 301 investigation into alleged unfair trade practices carried out by Brazil.
Brazilian President Luiz Inácio Lula da Silva responded by denying President Trump’s claims and stating that, while Brazil would continue to pursue negotiations with the United States to avert increased tariffs, the country would also be ready to impose countermeasures in accordance with Brazil’s recently-approved Economic Reciprocity Act. On July 14, President Lula issued a presidential decree implementing the Act, which was the main administrative step needed following the recent passage of the measure to open the door for Brazil to impose retaliatory trade measures in response to the U.S. threat.
This rise in bilateral trade tensions brings to the forefront several long-standing trade irritants between the United States and Brazil, and injects uncertainty into the countries’ bilateral economic partnership. Should tariffs ultimately be imposed by either country, businesses operating in these markets will also be affected.
Context: Brazil’s Supreme Court Decisions
President Trump’s July 9 letter justified his threat of a 50% tariff against Brazil on three grounds: (1) accusations that the ongoing trial of former Brazilian President Jair Bolsonaro is groundless and politically motivated; (2) claims that recent decisions by the Brazilian Supreme Court constitute an attack on freedom of speech and free elections; and (3) allegations that Brazil has adopted various unfair trade measures that disadvantage the United States.
President Trump’s first two claims appear to be those relied on most directly as justifications for imposing tariffs, and both implicate recent decisions by Brazil’s Supreme Court. The first relates to the Court’s initiation of a case against former president Bolsonaro—a Trump ally—for his alleged participation in an attempted coup following his failure to win reelection in 2022, the year President Lula was elected. The second relates to recent decisions by the Court increasing the responsibilities borne by social media platforms with respect to user-posted content. For instance, the Supreme Court actions have increased the mandated removal of social media content by platforms through court orders, including sealed court decisions. Most recently, the Court decided to strike down Brazil’s internet governance safe harbor clause, impose new rules on content moderation, and make media platforms directly liable for user-posted content deemed to be illegal.
Additionally, President Trump also accused Brazil of adopting trade practices that unfairly disadvantage the United States, resulting in a bilateral trade relationship that is “far from reciprocal.” Without accounting for the other stated justifications for the tariff, the letter suggests that U.S. action is necessary to produce a more “level playing field” with respect to bilateral trade between the two countries. The letter also indicates that no tariff will be imposed if Brazil or its companies decide to build or manufacture products in the United States. Separately, however, it announces that President Trump instructed USTR to initiate an investigation into Brazil’s alleged unfair trade practices—including, among others, its policies with respect to digital trade—under Section 301 of the Trade Act of 1974. USTR subsequently initiated that investigation on July 15, which—once concluded—could also result in imposition of additional U.S. tariffs on imports from Brazil.
President Trump’s tariff threat also follows various criticisms he has launched against a number of foreign policy decisions made by President Lula, which could also be driving the U.S. action. Among the initiatives President Trump has vocally opposed is the proposal by the BRICS+ group (of which Brazil is a founding member) to establish a trade currency to provide an alternative to the dominant use of U.S. dollars in settling international trade transactions. This proposal previously prompted President Trump to float a separate 10% tariff on countries that align themselves with so-called “anti-American” BRICS policies. President Trump has also expressed concern about other foreign policy decisions by the Lula administration, including with respect to the conflicts in Ukraine and the Middle East, reacting to some of them in his Truth Social account.
The Unique Nature of President Trump’s Tariff Measures Against Brazil
In the days immediately preceding and following the issuance of his letter to Brazil, President Trump also issued over a dozen letters to other U.S. trading partners vowing to impose higher tariffs on their exports to the United States. While these letters were in some ways similar, the proposed tariff against Brazil is unique in a number of ways.
First, most of the other countries that have received similar letters from President Trump were identified in Annex I of Executive Order (“EO”) 14257, issued by President Trump on April 2 and known as the Reciprocal Tariff EO, and all are countries with which the United States runs bilateral trade in goods deficits. The stated rationale for imposing higher, country-specific tariffs against these other countries was articulated in the Reciprocal Tariff EO as the need to correct persistent U.S. bilateral trade deficits. Brazil, however, was not identified in Annex I of the Reciprocal Tariff EO, nor does the United States run a trade in goods deficit with the country. Should the United States move forward with imposing the threatened tariff of 50% against Brazil, it has not been explicitly confirmed if it will do so under the Reciprocal Tariff EO, which is premised on correcting U.S. trade deficits, or if it will invoke some other legal authority.
Second, the 50% rate is also significantly higher than the vast majority of reciprocal tariffs threatened against other U.S. trading partners, including most Latin American countries.
Finally, the parallel initiation of a Section 301 investigation by USTR in response to President Trump’s instruction could result in imposition of additional U.S. tariffs or trade measures against Brazil. Specifically, if USTR finds that acts, policies, or practices implemented by Brazil are unreasonable or discriminatory and burden or restrict U.S. commerce, it may impose duties or other trade restrictions. Before doing so, however, USTR will collect input from interested stakeholders. Pursuant to USTR’s July 15 initiation announcement, those interested in submitting written comments to USTR must do so by August 18, 2025, and USTR will hold a hearing in connection with this investigation on September 3, 2025, in which stakeholders may also request to participate.
President Lula’s Response
President Lula immediately responded to President Trump’s proposed tariff by stating that Brazil would pursue several parallel courses of action: (1) continued negotiations with the United States to avoid the imposition of the 50% tariff; (2) consideration of potential dispute settlement proceedings at the World Trade Organization (“WTO”); and (3) discussions with the Brazilian private sector on a potential retaliation against the United States.
Regarding the first course of action, in a joint letter sent by Brazil’s foreign affairs and trade ministries to their U.S. counterparts on July 15, Brazil urged U.S. officials to consider a negotiated solution that would avoid tariffs, asserting the Brazil’s prior attempts to engage with the United States have gone unanswered. Concerns persist that the absence of direct discussions between leaders and the limited relationship between senior government officials might diminish prospects of a mutually acceptable solution. Negotiations may also be complicated by the fact that two of President Trump’s three grounds for imposing the tariff stem from decisions made by Brazil’s Supreme Court, which—as a constitutional matter—are unlikely to be able to be reversed in any negotiated outcome.
Brazil could also pursue consultations and dispute settlement proceedings at the WTO to challenge tariffs imposed by the United States. The practicality of doing so, however, is limited, as the WTO’s Appellate Body is currently unable to hear appeals following a refusal by the United States to appoint members to that body. The resulting paralysis of WTO dispute settlement proceedings allows WTO panel decisions to be appealed “into the void,” leaving complainants without a final resolution.
Finally, Brazil could take countermeasures against the United States. In years past, Brazilian law has only permitted the implementation of retaliatory tariffs in cases where it is authorized by the WTO following the conclusion of dispute settlement proceedings. Previously, such actions were also required to be imposed on a most-favored nation (“MFN”) basis—meaning any retaliatory tariffs applied equally to all countries, not just the principal target of the retaliation. In April, however, Brazil’s Congress approved the so-called Economic Reciprocity Act, which allows the Brazilian executive branch to impose countermeasures against imports of goods or services, foreign investment, and intellectual property, in the absence of WTO authorization. It also waives the MFN principle, allowing Brazil to target specific countries and trade blocks. On July 14, President Lula issued a presidential decree implementing the Act. The decree establishes a two-tier system: the first tier allows for provisional countermeasures at any time in response to emergency situations, subject to a subsequent public consultation process, while the second tier allows for ordinary countermeasures to be imposed after a formal process that includes a public consultation.
Sectors Potentially Impacted
A 50% U.S. tariff may impact a range of export sectors in Brazil, from aerospace and auto parts to agricultural and energy goods. Among Brazil’s major exports to the United States are coffee, orange juice, ethanol, and oil. U.S. tariffs could impact Brazilian companies operating in the United States and/or listed on the U.S. stock market, American companies operating in Brazil and exporting to the United States, or other companies reliant on these affected supply chains.
Brazilian countermeasures could also have important implications for U.S. exporters. Responsive Brazilian actions could take the form of an increase in Brazilian tariffs on U.S. goods, or in the form of so-called “cross retaliation” (where sectors other than goods impacted by the U.S. tariffs are the subject of retaliation) with measures potentially targeting U.S. service suppliers, U.S. investment, and/or U.S. intellectual property.
The most recent example of Brazil considering trade actions against the United States occurred in 2010, during the implementation phase of a U.S.-Brazil WTO dispute on cotton subsidies. Having prevailed in the dispute, Brazil considered responses that combined traditional tariffs of 100% for 102 U.S. export goods, while also targeting U.S. intellectual property, such as U.S. patents and copyrights relating to biotechnology, chemicals, films, music, pharmaceuticals, and software. Some of these measures included new special taxes.
Brazil could again pursue similar countermeasures against the United States under the broad authority and options that exist for the Brazilian executive branch to choose from under the Economic Reciprocity Act.
What to Expect
It remains to be seen if the United States will in fact move forward with its intention to impose 50% tariffs against Brazil effective August 1 or whether Brazil will respond in kind. However, it is likely that the situation and the resulting uncertainty will have important implications for companies doing business across the U.S. and Brazilian markets. Businesses should consider how these trade and investment tensions could impact their operations in both the short and long term.
Companies potentially affected by these developments may benefit from outreach to government officials in one or both countries, or may consider participation in public consultation processes implemented under U.S. and Brazilian law. For instance, the Economic Reciprocity Act includes provisions for seeking private sector input, should Brazil move forward with its own countermeasures. In the United States, stakeholders will have the opportunity to submit comments or testimony to USTR as part of the Section 301 investigation into Brazil’s trade practices. Covington can assist companies interested in participating in these processes or otherwise engaging with U.S. or Brazilian government officials
Covington’s diverse team of policy and trade experts—which includes former U.S. and Brazilian government officials and business specialists—is uniquely positioned to provide thoughtful strategic advice to clients seeking to monitor, prepare for, and react to these evolving developments. If you have any questions concerning the materials discussed in this update, please contact the members of our team.
Back
