Apr 10 / Guilhermo Marques

The economic impacts of the tariffs imposed by the US and Brazil's role in this framework.

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The economic impacts of the tariffs imposed by the US and Brazil's role in this framework.

"The market is still cautious, as the movements of realizations and sudden gains are not related to fundamentalist aspects, but rather to expectations about the effects of a possible recession, not to mention the indecision about what the final values and deadlines of the tariffs imposed by Donal Trump will be, and really when they will start to apply."
  • Over the past week, the global financial market has seen significant impacts from the recent tariffs imposed by the United States.

  • Brazil saw a negative foreign exchange flow of US$ 1.317 billion, with the outflow of dollars consisting of more than US$ 1 billion in financial operations together with a deficit of US$ 221 million in the trade balance.

  • The most active iron ore contract in China (Dalian Iron Ore) fell sharply last week on fears of recession in the Chinese market in the face of US tariffs.

  • Global markets have accumulated devaluations and losses of around $10 trillion since the so-called "D-Day" imposed by President Donald Trump until April 9th .

  • On April 9th, at around 2:15 p.m. (Brasília time, or 1:15 p.m. in New York), the stock markets reversed their losses following Donald Trump's announcement to apply a minimum tariff of 10% to countries that have not retaliated against the United States after 90 days, except for China, which had its tariff raised from 104% to 125%.

Introduction

On April 2, 2025, US President Donald Trump announced new trade tariffs on the global market as part of a policy of "readjustment" in response to tariffs imposed by other countries. These new measures were called reciprocal tariffs.

In a week in which there was a whirlwind of facts and news, the real experienced initial resistance against the other currencies, appreciating by 0.7% against the dollar, reaching its lowest level since October 2024. This was because analysts believed that the 10% tariffs on Brazil were more lenient, and that the country could benefit in comparison to other economies, such as China and Europe, which suffered steeper tariffs.

However, this movement did not prevail for long, as retaliations from Europe and especially China began to be announced, leading to greater fears of a more energetic trade war. The Real closed the week of April 4th with a devaluation of more than 4% in 5.84.

An April 9, after intense reflections on the speeches and decisions between the United States and China, with tariffs raised to 125% on Chinese products, Donald Trump announced that he would relax tariffs on countries that did not retaliate against the United States for 90 days, which immediately made the market return. In addition, he openly recommended on his official social network that it would be a "great time to buy", indicating that stock values were already reaching their lows after the recent realization and sell-out, which spurred a recovery in the market, easing fears of recession. Despite the position of the current US president, the international scenario remains uncertain and highly volatile, requiring an extra dose of caution.

Image 1: Inversion of the American and Brazilian markets on April 9, 2025.

Source: LSEG, Hedgepoint

Exchange rate

After experiencing initial resistance against the other currencies in the previous week the announcement of the first tariffs , with an appreciation of 0.7% against the dollar, the Real experienced high volatility on April 9th. After trading at around R$6.10 in the morning, the dollar followed the sudden optimism of the stock market and closed the session of the same day quoted at R$5.84. A fall of 4.26% during the same trading session, making it clear volatility will be present in the coming weeks.

Image 2: Performance of the Dollar versus the Real and the Dollar versus the currencies of developed countries (DXY);

Source: LSEG, Hedgepoint

Interest Rates

DIs interest rates continue to rise, in line with the recent devaluation of the real against the dollar and the continued rise in Treasuries with longer maturities. This sequence of events took place after the United States confirmed a new tariff on China.

Last Wednesday, President Donald Trump announced a 34% tax on Chinese products, generating worldwide tension and consequent reciprocal action by China with an additional 34% on US products.

Still during these announcements, Trump announced to the world that he would add 50% on Chinese imports if they didn't back down from his latest decision on additional tariffs on US products. As expected, China didn't back down from its decision and the US slapped a 104% tariff on Chinese products, two days after the original announcement. In the same wave of negotiations and retaliation, tariffs on China were raised to 125%.

Fundamentals contribute to a positive outcome for Brazil in the medium term, but we are still watching the unfolding of the United States' negotiations with the world.

The market is still cautious, as the movements of realizations and sudden gains are not related to fundamentalist aspects, but rather to expectations about the effects of a possible recession, not to mention the indecision about what the final values and deadlines of the tariffs imposed by Donald Trump will be, and really when they will start to apply.

The big issue, although the additional tariffs represent a global challenge, is that Brazil can benefit from being in a strategic position vis-à-vis the other economies, since the demand for products of alternative origin to the United States and China, mainly commodities - where the country is a leading exporter - could increase considerably.

Brazil's role in this reordering of global supply chains could be positive in the medium term, attracting investment flows to the country and a possible appreciation of the Real in the second half of the year and , but there are still many points to be observed as the United States' negotiations with the world unfold.

The European Union's responses to Trump's tariffs could be announced as early as next week, according to a spokesperson. The European Commission has been working on structuring a response to the tariffs, mainly on cars and other US goods. Thus, as discussed above, there are still uncertainties that should add volatility to the international market, making risk management essential.

Summary

The tariffs imposed by the US are reshaping global trade relations, provoking retaliation and increasing economic tensions.
Although Brazil faces specific challenges, the global economy is feeling the effects of these protectionist policies, with risks of economic slowdown and rising inflation in several regions.

Brazil can benefit when all the points are clarified, as an alternative route for supplying commodities and products to China and Europe.

The real effects of the tariffs are expected to be felt within two months, since companies are still working with existing stocks to meet immediate demand. Once supplies are needed, they will have to be priced in line with the new tariffs imposed by the US government. This could add inflationary pressure in the US as well as popular pressure if Americans' purchasing power is impacted.

We could see an even greater fall in the BRL against the USD for the first half of the year, and an opportunity for the second half. Even so, we continue to observe whether the global fear of recession will not make all investors focus on USD as a base currency, even with its recent devaluation against European currencies and the Yen, while it has gained strength in emerging markets such as Latin America. for all European currencies, the Yen and gaining strength only in emerging markets (Latin America mainly).
Written by Guilhermo Marques
guilhermo.marques@hedgepointglobal.com
Reviewed by Livea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

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