Pendal’s emerging markets team remains bullish on Brazil despite latest tariffs

Despite ongoing tariff uncertainty, Pendal’s Global Emerging Markets Opportunities team remains positive on the outlook for Brazil

• Brazil hits by steep US tariffs
• Pendal’s EM team remains positive despite the headlines
• Find out about Pendal Global Emerging Markets Opportunities fund

IN EARLY August the US imposed sweeping new tariffs on dozens of countries.

Brazil received a special mention from President Trump, with an additional 40 per cent tariff taking the total to 50 per cent for most Brazilian imports.

The new measures were far above the initial 10 per cent tariff level imposed in April under the “Liberation Day” framework.

The sudden escalation surprised financial markets and raised concerns about broader geopolitical motives.

These tariffs are not about trade imbalances.

The US has run a trade surplus with Brazil for 18 consecutive years, including $US6.8 billion in 2024 – its fourth biggest bilateral surplus.

The real trigger is political. Brazil’s former president Jair Bolsonaro is under house arrest and faces charges of leading a coup attempt to overturn his 2022 election loss.

President Trump has publicly condemned the trial as a “witch hunt” and tied the tariff hike directly to Bolsonaro’s legal troubles, describing it as retaliation against political persecution.

Limited impact

Despite the headline figure, some sizeable exemptions will limit the impact on Brazil’s exports.

Civil aircraft, fertilisers, pig iron and orange juice are excluded from the full 50 per cent rate. Mining exports, which make up a large share of Brazil’s trade with the US, are also largely protected.

Analysts estimate the effective tariff rate will be closer to 30 per cent.

Brazil’s commodity-heavy export profile also affords some protection.

Key exports such as food, hydrocarbon fuels and other raw materials can generally be redirected to other end markets, while demand and pricing remain strong.

This reduces the risk of lasting economic disruption from US tariffs.

The Brazilian government research agency IPEA projects only a 0.01% decline in GDP and a 0.03% drop in total exports from the tariffs.

Meanwhile, Brazil president Luiz Inacio Lula da Silva this week unveiled an aid package for tariff-affected companies, including credit lines for exporters and government subsidies.

Good news for China

Geopolitically, China stands to benefit from the fallout.

China has been Brazil’s largest trading partner since 2009 and has invested more than $US73 billion in its infrastructure, energy, and agribusiness.

The recent announcement of a Brazilian tax advisory office in Beijing – one of only five globally – signals a deepening strategic relationship.

As US ties fray, Brazil’s pivot to China opens new opportunities for trade, investment, and institutional cooperation.

Lula in a strong position

Domestically, the tariffs have strengthened Lula’s political position.

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A recent poll shows him leading all likely opponents in the 2026 presidential election, including Bolsonaro and his wife Michelle, who might stand.

Close ties between the Bolsonaros and President Trump are increasingly seen as liabilities in Brazil, especially amid allegations of collusion to provoke the tariff hike.

Lula has framed the tariffs as an attack on Brazilian sovereignty, reinforcing his narrative of independence and national resilience.

What it means for investors

We remain positive on the outlook for Brazil and Brazilian equities.

With a relatively strong economy, attractive valuations and the support of a weaker US dollar, Brazilian equities and the Brazilian real have both performed well this year.

We see the conditions for this to continue, irrespective of challenging headlines regarding trade tariffs.

About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne and Ada Chan are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
 
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