Brazil’s economy remains on a growth path despite US tariffs

Trump’s tariffs have unsettled markets – but the real losers are not necessarily those countries directly affected. While the US faces growth headwinds, a weaker dollar, and rising uncertainty, emerging markets could in fact emerge stronger. Brazil demonstrates that high tariffs are not automatically detrimental to an economy – and can even create new opportunities for investors.

The effects of the new tariff policy vary greatly from region to region. Although Brazil and India were hit hardest, with tariffs of 50 per cent imposed on both countries, it’s worth taking a closer look, as the headlines alone do not tell the full story.

The US administration justified the measures on the grounds of alleged unfair trade practices and political differences. Yet, Brazil is a relatively closed economy: Exports account for less than 20 per cent of GDP – compared with 41 per cent for Germany – and only around 12 per cent of its exports go to the US. Crucially, oil and aircraft – two of its key exports – were excluded from the tariffs. The actual economic impact is therefore far less severe than the numbers suggest.

Chart: Brazilian exports by destination

^{Source: Bradesco, data as at 2024}

Chart: Brazilian exports to the US by product

^{Source: Bradesco, data as at 2024}

 

Currency and credit spreads reflect relaxed investor attitude

At the corporate level, the direct burden is equally manageable. Aircraft manufacturer Embraer, for example, with its high exposure to the US, has been granted an exemption – reflecting the global shortage of aircraft. Markets have reacted calmly: the Brazilian real has already regained lost ground and credit spreads on corporate bonds have remained stable.

Irrespective of the tariff issue, Brazilian corporates, more broadly, exhibit solid fundamentals and benefit from professional management. High-yield names are particularly attractive, offering average yields of 7.6 per cent.

Promising opportunities can be found among ethanol producers, oil service providers, and metals and mining companies. For local steelmakers, tighter protectionist measures – particularly against Chinese imports – could prove supportive. Financials also appeared more appealing, as spreads in this sector had widened in response to political tensions with the US.

Across the spectrum, Brazil offers a wide range of issuers worthy of investor attention. However, rigorous credit analysis and active management remain key to identifying the most rewarding opportunities.

Political outlook: Hopes for a change in government

Political uncertainty is rising in the run-up to the 2026 presidential elections. The sentencing of former president Jair Bolsonaro in September to 27 years in prison for an attempted coup has heightened tensions. US involvement in the process has actually boosted the popularity of incumbent President Lula. From a market perspective, however, Lula’s potential re-election is viewed with concern due to fears of unsustainable public debt. By contrast, São Paulo Governor Tarcisio de Freitas – seen as a market-friendly contender – is regarded as a potential catalyst for fresh investment momentum.

Room for rate cuts as a potential driver of growth

Brazil remains one of the world’s high-yield markets, with a key policy rate currently at 15 per cent. If inflation continues to stabilise, the central bank may begin to ease, a move that would support economic activity. A moderate cooling down could therefore actually benefit Brazil.

Conclusion: Brazil remains attractive

Trump’s tariff policy ultimately hurts the US more than many emerging markets. Brazil shows that even steep tariffs need not have dramatic consequences: The economy’s limited exposure, monetary policy flexibility, and the resilience of its corporates underpin its appeal. Against this backdrop, Brazil remains an attractive destination for investors.