Commerzbank’s Michael Pfister argues that Brazil is a relative winner from US tariff changes, as its previously high nominal tariffs are likely to fall and exemptions already mitigate effective rates. However, complex exemptions and shifting trade flows limit the macro impact. He expects Brazilian exports in smaller categories to rise, but sees only slight benefits for the Brazilian Real.

Complex tariff structure tempers BRL gains

"This is hardly surprising, given that Brazil had the highest nominal tariffs (10% reciprocal tariffs plus 40 percentage points in punitive tariffs) following the trade deal between India and the US. This tariff rate is likely to fall significantly, even if the US president follows through on his announcement of general tariffs of 15%."

"According to our calculations, roughly 60% of Brazilian imports to the US were likely exempt from the 50% tariff, and the White House fact sheet suggests these exemptions will remain in place. Further exemptions limited the tariff rate to between 10% and 50% for parts of the remaining 40%."

"Consequently, these categories are likely to benefit less from tariff developments. The most interesting developments are likely to be seen in the many smaller categories on the right-hand side. These categories can now expect lower tariffs in the short term."

"This may lead to a significant increase in exports of these goods to the US in the coming months."

"We therefore assume that the BRL will benefit only slightly from the new developments."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)