In 2025 Trump’s tariffs flooded the world. However, despite the power asymmetry between the United States and Brazil, Lula managed to negotiate, forcing Trump to back off from intervening in domestic affairs and to lower tariffs. But looking below the surface, data shows that Brazil has limited power to bargain, despite its will.
In March Lula and Trump plan to meet to discuss bilateral relations. Among other topics, the Brazilian president will aim to eliminate the remaining tariffs, particularly industrial ones, which are still at 50 per cent.
Brazil’s foreign policy of strengthening multilateralism through pragmatic alliances has created political conditions that prevent it from being entirely subordinate to Trump’s wishes. Nevertheless, Brazil’s remaining economic dependence on the US helps explain its limited autonomy.
Lula’s response to the threats mobilised three different levels, engaging presidential diplomacy, domestic legislative reaction, and corporate lobbying.
Lula’s government is a key player in Latin America and, on the global stage, a leading voice in the Global South. Pushing forward the EU–Mercosur agreement is a geopolitical strategy that transcends trade and helps move away from the false dichotomy of choosing between the US and China.
Policy Implications
Brazil has limited bargaining power when negotiating with the United States. The rise of Trump-aligned right-wing governments in the region could further weaken its position. However, strengthening the diversification of partners beyond traditional trade relations, as in an EU–Mercosur agreement, could benefit both Latin America and Europe.
Brazil at Stake
In April 2026 Brazilian president Luiz Inácio “Lula” da Silva will meet with US president Donald Trump. Lula may seek to establish a positive agenda with Trump, centred on conflict resolution and, ideally, the elimination or reduction of existing tariffs on Brazilian exports. During the first year of Trump’s second term in office, tariffs – used as a weapon to threaten other countries into accepting commercial and political concessions – became the hallmark of his foreign policy. This strategy has reshaped US relations not only with strategic competitors but also with traditional partners, creating high political and economic costs for its allies.
Against this backdrop, Brazil has positioned itself as a voice of the Global South, building connections for a shared positive agenda. Under Lula’s leadership, Brazil has re-emerged on the international stage as a key stakeholder, championing multilateralism and the legitimacy of multilateral institutions (Marques and Guilmo 2024). Despite its asymmetrical relationship with the United States, the country has managed to set limits for the White House by refusing to accept political interference in its internal affairs. Understanding Brazil’s response to Trump’s threats in more depth can help shed light on the complex power network of the world economy.
Political Economy Threats: Tariffs on Brazil
With the issuance of Executive Order 14323 on 30 July 2025, Addressing Threats to the United States by the Government of Brazil, a punitive 50 per cent tariff rate was set for Brazilian exports. The Trump administration used the International Emergency Economic Powers Act (IEEPA) to provide justification for this action. The official communication explained the need for the punitive measure as being due to (i) the forthcoming trial of former president Jair Bolsonaro, which “should not take place,” (ii) censorship orders handed down to US social media platforms, (iii) the “unfair” trade relationship and trade deficits with the United States, and (iv) attacks on digital trade activities of American companies.
Whether it is an unfortunate coincidence or not, the announcement of the punitive US tariffs came a few weeks after the 17th BRICS summit in Rio de Janeiro in early July. This was the last of three key international events overseen by Lula’s leadership in Brazil, alongside the G20 in 2024 and the COP in 2025 (Marques and Guilmo 2024). BRICS is often seen by the United States as competing with US-led institutions; in response, it has positioned itself more as a complementary alternative. Sensitive topics regarding strategy towards the US were discussed at the summit, such as how to strengthen the New Development Bank (NDB) and reduce dollar dependence by adopting alternative payment currencies and systems. The Trump administration might well perceive this as undermining US hegemony.
The first stated reason for the United States’ punitive action belied an outright intention to intervene in Brazilian domestic affairs, as evidenced by the statement on the Bolsonaro trial over his involvement in the coup attempt on 8 January 2023. Bolsonaro’s family, specifically his son Eduardo, have led a campaign in the United States, where Eduardo moved in February 2025, for the absolution of his father. The Bolsonaros have gained the sympathy of the Trump administration because, like Javier Milei in Argentina, they support US government interventions and interests in Latin America.
The second reason provided by the Trump administration for the tariffs refers to the platform X, which clashed with the Supreme Court of Brazil after repeatedly violating the national court decisions. X claimed it disobeyed the court order in support of “freedom of speech”; meanwhile, the court alleged that it was protecting the integrity of an ongoing investigation by demanding that the accounts of a few public figures engaged in apologetics for the coup d’état and disseminating fake news be restricted. Elon Musk’s X was blocked in Brazil for 38 days, returning after proving that it had appointed a legal representative in Brazil, blocked the profiles of nine individuals under investigation by the Supreme Federal Court, and paid BRL 28.6 million in fines for the delay in complying with the court.
The third justification centred on the trade relationship between the two countries, which may very well be “unfair” but is nevertheless beneficial for the United States. Contrary to Trump’s claims, the US has accumulated a trade surplus of USD 96 billion since 2009 (Figure 1), and the punitive tariffs also seem to have had an effect, with exports from Brazil declining by 7 per cent in 2025. Although the Brazilian trade deficit has increased, it is important to note that the trade pattern perpetuates Brazil’s economic dependence on the rest of the world. The country exports commodities whose prices are defined by external markets, and it imports final goods with medium- and high-technology content.
Figure 1. Brazil–US Trade Balance of Goods (2005–2025)
Source: MDIC (2026).
Contemporary global value chains operate through complex and fragmented production networks, in which goods can be produced overseas and then reimported to the company’s home country or exported directly to a third-party consumer market. Ultimately, what matters to the leaders of multinational corporations is how much profit they can make from their overseas investments through the mechanism of value making and taking (Mazzucato 2019); in this matter, the United States is the world’s largest capturer of value in the global economy, while Brazil is among the economies that produce the most value (Rotta 2025).
This brings us to the final aspect, the attacks on US companies’ digital trade activities. More specifically, Trump is referring to PIX, a highly popular Brazilian instant transfer tool operated by the Brazilian Central Bank. It bypasses traditional payment methods to enable free instant transfers and payments between any bank account registered in Brazil. An unintended consequence of this new mechanism is that US companies’ financial services, which dominate the Brazilian market, such as VISA and Mastercard, are being circumvented, potentially reducing their profitability and market share.
US foreign investments represent the majority of stock in the country, reaching almost 30 per cent in both 2021 and 2022. Spain holds less than half of this, while China and Germany held around 5 per cent and 4 per cent, respectively, between 2021 and 2024 (see Figure 2). Most of it is allocated to manufacturing (25%) and financial activities (22%). As shown in Figure 3, these sectors are also responsible for most of the profits generated by US investments in Brazil, indicating that the United States has not only a trade surplus but also a positive net income.
Figure 2. FDI Stock in Brazil by Country, 2014–2024
Source: BCB (2025).
Figure 3. US Net Income from Brazil, 2014–2022
Source: BEA (2026).
In summary, the US could back down and negotiate its claims over Brazil, as it already has an extremely beneficial position in the Brazilian market and generic tariffs would not benefit it. However, the Brazilian market is heavily controlled by US multinational corporations, which are backed by the US government and have the power and will to pursue their interests, in disregard of international law. This restricts Brazil’s bargaining power, despite its desire to support its national interests and sovereignty. The current US strategy nonetheless represents a significant departure from historical Section 301 investigations of the 1980s and 1990s, which were typically driven by specific corporate lobbies and defined industrial grievances. Instead, the 2025 initiative is characterised by its diffuse and non-technical nature, utilising a heterogeneous list of allegations that mask deeper geopolitical objectives. Most notably, the US administration is explicitly using these economic sanctions as a tool of political disciplining.
Brazil’s Political Economy Response
Despite the systemic pressure, Brazil responded on three different levels: presidential diplomacy, legislative reaction, and corporate lobbying. The Brazilian presidency navigated the punitive tariff hikes with relative success by prioritising direct, high-level diplomatic engagement with Donald Trump. This culminated in a pivotal 40-minute phone call in December 2025 after an encounter in October in Malaysia, which Trump characterised as “very productive,” signalling a temporary shift from aggressive unilateralism to a more transactional dialogue. This direct negotiation facilitated the revocation of the tariffs on Brazilian agricultural exports, including beef, coffee, and fruit. It also led to the removal of Brazil’s Supreme Federal Court judge Alexandre de Moraes from the list of sanctions under the Magnitsky Act, an outcome Lula framed as a victory of dialogue and common sense.
The Brazilian Congress played a proactive and strategic role in providing the executive branch with a robust legislative framework with which to defend national interests against unilateral US aggression. In April 2025 Congress and the Senate approved Law No. 15.122, also known as the Economic Reciprocity Law (Lei da Reciprocidade Econômica), which was enacted without any vetoes (Lei No. 15.122, de 11 de Abril de 2025). By establishing criteria for suspending trade concessions, Congress provided the government with a legal mechanism to retaliate against “unfair or abusive” international practices that negatively impact Brazilian competitiveness. Although this institutional shield has never been used, it has allowed President Lula’s direct diplomacy to confront the subsequent escalation of the tariff war with a defined legal framework for reciprocity.
The US and Brazilian business lobbies have primarily functioned as a moderating force. Traditional lobbies associated with agriculture, livestock, logistics, and various industrial segments expressed deep concern, arguing that these barriers would lead to increased input costs and domestic inflationary pressures within the United States. Specific organisations, including the American Chamber of Commerce for Brazil, the National Coffee Association, and the Meat Imports Council of America, explicitly opposed the restrictive measures and advocated for their revision or flexibility to safeguard their supply chains. This internal pressure contributed to maintaining an extensive list of exceptions and ultimately led to the revocation of the 40 per cent surcharges on approximately 200 essential items, such as beef, coffee, and fruit, following direct negotiations.
Table 1. Summary of US Executive Tariff Actions on Brazil and Globally in 2025
Source: Adapted from Burkhart and Hammond (2026).
Note: * indicates that for the UK, EU, South Korea, and Japan, auto and timber rates include most-favoured nation tariffs. UK auto rates include the tariff-rate quota for vehicles.
While approximately 22 per cent of Brazil’s exports to the US – including strategic sectors such as electronics, aircraft parts, and tyres – remain subject to punitive tariffs, Lula’s strategy of rationality and caution has effectively decoupled immediate economic relief from the more inflammatory political demands, eliminating the need to sign an agreement that would harm Brazil’s interests. The Brazilian administration prompted the US president to pivot away from his initial interference in domestic judicial affairs and return his focus to commercial matters.
Brazil has a stable relationship with Iran, does not intend to participate in Trump’s so-called Peace Council, and is a historical defender of sovereignty and self-determination, concepts that have gained renewed relevance in the context of US threats to and actions against Venezuela and Greenland. While Lula’s approach has not compromised the broader principles of Brazilian foreign policy, such as autonomy and strategic partnerships with BRICS countries, it has nevertheless left Trump feeling victorious, as some goods were still subject to punitive tariffs.
The long-term efficacy of this approach remains uncertain, as the US continues to utilise the Section 301 investigation as a geoeconomic “stick” to pressure Brazil on digital trade, the PIX payment system, and its broader strategic alignment in the shadow of the US–China rivalry. Brazil’s refusal to yield to these specific requirements reflects a strategic commitment to maintaining its institutional independence within a fracturing global order.
The Future of Brazil and Multilateralism
The chief advisor to the president of Brazil for foreign policy wrote that “Brazil will continue to work with Europe, China and others committed to multilateral institutions and the primacy of international law. Let us hope that together we will be able to prevent a further descent into violence and anarchy” (Amorin 2026). The quote underscores the Brazilians’ willingness to establish an autonomous position based on diversifying partnerships and institutions, despite the power of the United States to destabilise the existing order.
As Lula’s minister of foreign affairs from 2003 to 2010, Celso Amorim played a pivotal role in shaping Brazilian foreign policy in the early 2000s. His approach to international issues and negotiations, which became known as “active and proud” (ativa e altiva), elevated Brazil to a position of importance in international relations, including leading the United Nations Mission in Haiti, co-founding the IBSA (India, Brazil, and South Africa) bloc, and participating in the negotiations that resulted in the Tehran Declaration on Disarmament and Non-Proliferation of 2010. This policy brought attention to Brazil as a proactive actor and bridge builder, as well as to the state of “nobody’s backyard.”
This political vision was still evident in Lula’s third term, which helps to explain the clash with the Trump administration in 2025. Nevertheless, the combination of Brazil’s desire to be an autonomous, independent, sovereign state and its support for multilateralism does not translate into effective power. Lula’s foreign policy, which prioritises Brazil’s national interest, in combination with the country’s role as a source of economic wealth to the US has provided cover against interventions and punitive measures, along with enabling the pursuit of negotiation.
Under the ongoing reconfiguration of alliances, the Brazilian government is dedicated to building what has been called “feasible regionalism” (regionalismo possível) amid the rise of right-wing governments in Latin America. This idea was reinforced during the Forum Econômico Internacional da América Latina e Caribe, which was held in Panama City from 28 to 30 January 2026. In the face of political turnover in the region, the realism approach of the Brazilian government has focused on building a positive agenda for economic improvement of the region while avoiding ideological clashes. This strategy is less ideological and more pragmatic, based on coalitions that are formed around specific issues and grounded in hybrid and polycentric governance (Gurol et al. 2026).
The strategy is succeeding, at least for now, as Lula’s government has held fruitful bilateral meetings with Bolivia, Peru, and Ecuador. (The Argentine government, however, continues to hinder the development of a regional agenda, the country remaining crucial to Washington’s influence in the region.) Meanwhile, though, the EU–Mercosur agreement seems to be moving forward, which will help to strengthen ties across the Atlantic. In the short term, the agreement will not significantly impact the existing asymmetric commercial relations between the two regions, although it could facilitate a closer political partnership between the blocs, thereby enhancing Mercosur’s legitimacy and helping the EU build an autonomous strategy.
Brazil’s commitment to multilateralism, regional integration and the diversification of political and economic partnerships with the EU and China is rooted in a foreign policy that transcends ideological differences and is guided by reciprocity and respect for sovereignty. In essence, this is a government willing to move away from unipolarity, albeit with limited power to do so.
Sovereignty Under Pressure
In a rapidly changing world, analysing the world economy through the lens of trade alone gives a false picture. Including capital flows, investments, and assessments of geopolitical rivalries can provide a more comprehensive understanding of the political economy, which in turn may reveal the power dynamics of international relations. However, Lula’s response to Trump’s trade policy does spur several important considerations relevant to policymakers:
First, it is important to acknowledge that the current trajectory of United States trade policy signifies a definitive abandonment of the 70-year postwar consensus regarding rule-based liberal leadership. Instead of the predictable framework of diffuse reciprocity, Washington has pivoted towards a power-based, mercantilist doctrine defined by highly politicised and reversible bargains, where excessive concessions do not necessarily secure long-term stability or lasting relief from coercive pressure.
Second, sovereign governments should prioritise the strengthening of domestic legislative and legal frameworks that facilitate calibrated reciprocity. This institutional enhancement serves not merely as a tool for retaliation but as a strategic mechanism to bolster bargaining credibility and establish defensive constraints against the routine exploitation of structural assets by a hegemonic actor. The Brazilian case demonstrates that retaliation, rather than convincing Trump of anything, primarily serves as fuel for corporate lobbies to operate inside and outside the White House.
Third, while sustained high-level diplomacy remains a prerequisite for managing these tensions, it must be integrated into a comprehensive strategy that mobilises domestic economic actors and strategically leverages market interdependence. Such a posture allows states to frame their resistance in pragmatic political-economy terms rather than ideological ones, reflecting the reality that trade has been reconfigured as a principal coercive weapon of foreign policy. In short, it is possible that business diplomacy will often be able to speak much more forcefully than official diplomacy.
Fourth, central to ensuring long-term economic security is the proactive diversification of trade, investment, and political partnerships. While Trump sees diversification as a threat, sovereign governments should understand diversification as the solution. By actively reducing their structural dependency on the US market and the dominance of the dollar, states can mitigate their vulnerability (not without resistance from the US) to the weaponisation of asymmetric interdependence that currently characterises the world order.
Fifth, states must concurrently defend their institutional autonomy and coordinate with like-minded partners to reconstruct collective mechanisms capable of restraining the unilateral weaponisation of trade. This collaborative approach recognises that isolated national responses, whether conciliatory or confrontational, are inherently disadvantaged in a fragmented international political economy where power-based transactions and “America First” mercantilism have superseded multilateral institutional governance.
The Brazilian government played its hand well, as it had some advantages that enabled it to stand up for its sovereignty against US threats. Brazil’s experience is therefore not merely case-specific but analytically revealing. By combining presidential diplomacy, legislative action, and the strategic use of business interdependence, Brasília has demonstrated that it is possible to secure partial economic relief while refusing to trade away domestic judicial integrity and foreign-policy autonomy and diversification.
Nevertheless, Lula will face challenging elections in October 2026 amid a right-wing takeover in the region backed by Trump. Although it is still unclear who the pro-Washington candidate will be, the outcome of the forthcoming Lula–Trump meeting in April will serve as an indicator of the state of the relationship between the two countries and be crucial for the future stability of Latin America and the Caribbean. This may also have repercussions for the EU–Mercosur agreement, weakening the rapprochement between the two regions and strengthening US unipolarity.
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