What Pythagoras’ theorem can teach us about the Fed

On 01 August 2025, the US imposed an additional 40% tariff on top of the 10% announced on Liberation Day on products imported from Brazil. This brought the stated tariff on US imports from Brazil to 50%, the highest among all US trading partners, see Chart 1.

Chart 1 – US tariff rate on selected trading partners (%)

Source: Bloomberg and EFGAM. Data as of 01 August 2025.

However, the tariffs on Brazilian goods are not related to trade imbalances, immigration issues, drug trafficking or aimed at tackling an economic threat to the US. The US had a small trade surplus, close to USD 3 billion as of 2023, with Brazil. Brazilian migrants are unlikely to represent a large share of US illegal workers, nor are they responsible for traffic of fentanyl across the US borders. 

In this case, according to the Executive Order issued by President Trump, the additional tariffs are a reaction to:¹ 

• actions from the Brazilian Government and the Supreme Court of Justice to regulate US social media platform accounts and censor content from accounts which was deemed illegal by Brazilian authorities.²
• actions from Brazilian authorities to persecute former President Jair Bolsonaro, a close friend of Donald Trump. The former Brazilian President is facing trial over an alleged coup attempt after losing the 2022 Presidential election.

Although the tariff rate seems elevated, the Executive Order issued on 30 July includes a comprehensive list of over 690 products which are excluded from these tariffs and will continue to face either zero or the 10% baseline duty announced on 2 April. These represent close to 45% of total Brazilian exports to the US and include minerals, energy products, basic metals, orange juice, nuts, fertilizers, wood pulp and paper, some chemicals and civil-aviation goods. 

Other goods such as steel, aluminum, automobile and parts, and copper will continue to face the 25% duty or respective quotas under Section 232 of the US Trade Expansion Act, since 2018.

Thus, the new tariffs will affect only about one third of Brazil’s exports to the US, including coffee, meat and sugar, among others.

Table 1 – List of Brazil exports to the US affected by tariffs

Source: White House, Baker McKenzie, HSBC and EFGAM. Data as of 06 August 2025.

Brazil’s top five exports to the US, which include crude petroleum, iron and steel, aircrafts and parts and wood pulp and paper, represent around 50% of its goods trade with the US. These products are exempt from the latest tariff update and that was seen positively by investors and the corporate sector in Brazil. 

Brazilian markets fell 8% following the announcement of 10% tariffs on 02 April, with the Brazilian real losing close to 6% against the US dollar, see Chart 2. Following Trump’s letter to President Lula Da Silva on 9 July, announcing the 40% additional tariffs seeking justice for his friend Bolsonaro, equities sold off by 5%, while the real depreciated by 3% against the dollar. 

However, Brazilian markets recovered after the scope of the new tariffs was clarified. Brazilian equities rose by 2% and the real appreciated against the dollar by about 2%. This signals that investors do not expect a large negative impact on the Brazilian economy from the increased import duties or that a political agreement solution could be reached to moderate them significantly.

Chart 2 – Brazilian assets reaction to Trump’s tariff announcements

Source: LSEG Data & Analytics and EFGAM. Data as of 06 August 2025. Past performance is not indicative of future results

Nevertheless, the additional tariffs could potentially become a headwind to economic growth if they were extended to other products. Although these are not trade related, their apparently subjective nature means it is unclear what would help convince President Trump to reduce them. Brazilian authorities have announced they will not allow foreign governments to interfere in their judicial system.

Minutes from the last meeting of Monetary Policy Committee of the Brazilian Central Bank (BCB) reflect it believes tariffs will have “significant sectoral impacts”.³  However, the aggregate effects on economic growth will depend on the negotiations outcome. For the time being, the BCB decided to leave the Selic rate unchanged at 15% as inflation remains elevated. 

To conclude, the recent announcement of a 50% tariff on US imports from Brazil represent an important change in trade policy between the two countries. However, they will only affect a third of Brazilian exports to the US and their impact is expected to be muted. Although the nature of these tariffs is merely political, which raises the prospects of a negotiated solution, the possibility of this issue becoming an ideological problem that drags over time cannot be ruled out either.

Overall, tariffs will hurt Brazilian GDP growth in the medium term, if only moderately, unless an agreement is reached, or Brazil increases trade with other countries. This was the case following US tariffs on steel and aluminum during the first Trump Administration. Back then, Brazil increased trade with other partners, including China, to offset the reduced demand from the US. A similar path could follow this time too.

¹ https://www.whitehouse.gov/presidential-actions/2025/07/addressing-threats-to-the-us/
² The move from the Brazilian authorities aiming to regulate the use of social media and the spread of illegal content through various platforms has been positively received by international organisations such as Reporters Without Borders. https://rsf.org/en/brazil-supreme-court-increases-social-media-platforms-responsibility-welcome-decision
³ https://www.bcb.gov.br/en/publications/copomminutes