Trump (Probably) Just Did Lula a Massive Favour With His 50% Tariff Threat Against Brazil

This has little to do with trade — in fact, the US had a $6.8 billion annual trade surplus with Brazil last year — and everything to do with geopolitics.

On Wednesday, Brazil became the latest in a growing list of countries to receive a threatening letter from Donald J Trump. Brazil, the letter warned, will face 50% tariffs on all its exports to the US as of August 1 due to its government’s “witch hunt” against former President Jair Bolsanaro over his attempted coup in January, 2023.

In other words, this has little to do with trade — in fact, the US had a $6.8 billion annual trade surplus with Brazil last year, which Trump is now putting in jeopardy. Instead, this is partly about meddling in another country’s domestic politics, though there are also geopolitical factors at work (more on those later). As Bloomberg reports, Trump’s latest levy “shows the world that nothing is off limits”:

According to Stephen Olson, visiting senior fellow at ISEAS–Yusof Ishak Institute, it’s unprecedented for the US to add a tariff onto a foreign country to stop a judicial proceeding, and “it signals to US trade partners that any and all issues that catch Trump’s attention could become a problematic part of the trade agenda”.

Of course, as NC reader aerrty notes in the comments below, that is not to say that the US hasn’t used other means, whether diplomatic, covert or military, to stop judicial proceedings in other countries.

The tariff threat also reaffirms the impression that the US under Trump is a grossly unreliable partner. Lula, for his part, described the threat as a direct attack on Brazilian sovereignty. He also said he will seek to resolve the matter through negotiations, adding that, if necessary, he will not hesitate to impose retaliatory tariffs on US exports to Brazil by 50%, which Trump in turn has vowed to respond to by further hiking US tariffs on Brazilian products.

In Lula’s own words (machine translated):

 In the face of US President Donald Trump’s public statement, it is important to emphasize: Brazil is a sovereign country with independent institutions that will not accept outside meddling; legal proceedings against those who planned the coup d’état are the exclusive competence of the Brazilian courts and are therefore not subject to any type of interference or threat that violates the independence of national institutions.

Lula also called for a united BRICS response to Trump’s latest tariff escalation, which is hard to see happening:

Saving Bolsonaro’s Skin?

During his presidency (2018-22), Jair Bolsonaro enjoyed close ties with Trump while maintaining Brazil’s BRICS commitments and expanding trade with China. But he was unable to secure a second term in what ended up being a closely fought, polarising election. As readers may recall, when Lula was declared winner hundreds of Bolsonaro supporters stormed Brazil’s three most important government buildings — the Congress, presidential palace and supreme court building — as the security forces watched on.

Bolsonaro himself was in Florida at the time, from where he refused to accept Lula’s victory. It took him almost three months to return to Brazil, and when he did he found himself the subject of a criminal investigation. If found guilty of crimes including involvement in an attempted coup and an armed criminal association and the violent abolition of the rule of law, he could face up to 43 years imprisonment.

Bolsonaro and his family are trying everything they can to prevent that. In recent months, Bolsonaro’s son, Eduardo, together with Paulo Figueired — a businessman, journalist and grandson of João Figueiredo, who led Brazil’s military dictatorship from 1979 to 1985 — have been in Washington lobbying US lawmakers to sanction Brazilian Supreme Court justices who are overseeing the trial against Bolsonaro.

They include Alexandre de Moraes, the former justice minister who spearheaded Brazil’s efforts to regulate tech platforms. As president of the Superior Electoral Court during the campaign for the 2023 elections, Moraes ordered the removal of hundreds of fake news stories and the blocking of accounts on social networks, mainly of Bolsonarists, who accused him of seeking to censor them.

Moraes’ actions have earned him praise from the left and opprobrium from the far right. It has also placed him squarely in the sights of the Trump administration. In May, US Secretary of State Marco Rubio announced a visa restriction for foreign officials who “censor” US citizens. Although the statement did not mention De Moraes specifically, Rubio himself acknowledged in a congressional hearing that the Supreme Court judge would probably be sanctioned.

But now the Trump White House has gone from sanctioning a judge to sanctioning an entire economy — and what’s more, one with which the US has a trade surplus. In his letter Trump, with his trademark “language intensity“, accuses Brazil’s Supreme Court of issuing “hundreds of SECRET and UNLAWFUL Censorship Orders to US Social Media Platforms, threatening them with Millions of Dollars in Fines and Eviction from the Brazilian social media platform.”

The Trump administration probably wants to keep Bolsonaro out of jail so that he can rerun for president next year, probably in the hopes that a new President Bolsonaro would sabotage the BRICS from within. However, this is highly unlikely given that Bolsonaro has already been disqualified from running by the Supreme Court.

There are other reasons for Trump’s latest tariff threat, including two of which that are geopolitical. On Monday, Brazil and China signed an MoU to begin technical studies for a bioceanic railway project that will connect the Brazilian Atlantic coast with the port of Chancay, on Peru’s Pacific coast. The agreement was signed between Brazil’s state-owned company Infra SA, under the Ministry of Transport, and the China Railway Planning and Research Institute.

Admittedly, this project has been in the works for a long time, and there are no guarantees that it will ever be completed, especially if a politician of Bolsonaro’s ilk were to win the elections next year in Brazil. However, the fact that Chancay is already operational (though not fully built) gives the proposed rail project a lot more weight. And if it were completed, there can be no denying that it would further diminish US influence in South America.

Another point of contention is the US dollar. During his post-summit press conference, Lula threw caution to the wind in saying that the dollar would cease to be the global reserve currency that has allowed the US to finance itself at low interest rates despite its delicate fiscal position. But this process will take time, Lula said. The Brazilian leader also underscored the role that BRICS central banks have been playing in the development of “cross-border, instant and secure” payment systems that do not include the dollar.

Despite these pronouncements, the BRICS’ commitments appear to be characteristically timid on issues of global finance. For example, rather than looking to replace the IMF and the World Bank — the Bretton Woods institutions that have helped preserve Western dominance and exploitation of Global South economies — the BRICS have called for reform of the IMF, including a new share of voting rights and an end to the tradition of European management of the fund.

As for dedollarisation, it is likely to be a long, drawn out process that may well be accelerated by four years of Trump 2.0. There is currently no viable replacement for the dollar nor is there likely to be one for years to come. Despite all the hype of recent years, the BRICS is not even close to developing an alternative currency regime. From Yves’ preamble to the May 11, 2023 post, “NY Times Is Wrong on Dedollarization: Economist Michael Hudson Debunks Paul Krugman’s Dollar Defense”:

I have to confess to not being at all keen about the discussion of dedollarization. It seems most commentators are adopting one of two positions, either defending the dollar or eagerly predicting a quick demise.

This is not how this kind of transition happens. As we stressed, it took two world wars and the Great Depression to dethrone sterling. The fact that countries are succeeding in reducing their attack surface to US sanctions by engaging in more bilateral trade does reduce the perception of US power (keep in mind sanctions never worked as well as the PR would have you believe).

The fact is that trade-related foreign exchange flows are a tiny fraction of investment-related foreign exchange trading. The level ebbs and flows, but a Bank of International Settlements study put it at 60x the level of trade flows. I have not seen more current work.

Trump’s Dollar Fears

However, while the dollar’s days may not be as numbered as some, including Lula himself, suggest, Trump is taking the threat of dedollarisation very seriously. He knows that the USD is one of the most important, if not the most important, pillar on which the US’ global power rests, and on the campaign trail he even compared the potential loss of the dollar’s reserve currency status to losing a world war.

In recent months Trump has described the BRICS as an “anti-Western” forum and went so far as to threaten a 100% tariff on its members if they challenge the hegemony of the dollar. On Tuesday, Trump pledged to impose an additional 10% tariff on the BRICS, claiming the bloc was created to replace the US dollar as the dominant currency for international trade.

But the more Trump huffs and puffs, the weaker the dollar grows, which may be good news for US exports in the short term but is also a clear sign of waning confidence in the US economy. As NBC reports, the dollar has declined more than 10% compared with a basket of currencies over the past six months — something it has not done since 1973. At the same time, demand for gold, particularly among central banks, is at historic highs.

One of the main reasons for the gradual move away from the dollar in recent years is the US’ flagrant abuse of its dollar hegemony. As Michael Hudson wrote in March 2022, “the confiscation of the gold and foreign reserves of Venezuela, Afghanistan and now Russia, along with the targeted grabbing of bank accounts of wealthy foreigners has torpedoed the idea that dollar holdings or those in its sterling and euro NATO satellites are a safe investment haven when world economic conditions become shaky.”

No More USD Reserve Currency = No More US Sanctions

In a widely circulated video in February, Marco Rubio showed he was acutely aware of this risk. But his biggest concern about the US dollar’s progressive loss of standing was the concurrent loss of Washington’s ability to bully other countries through the threat or imposition of economic sanctions (emphasis my own):

Brazil, the largest country in the Western Hemisphere south of us, just cut a trade deal with China. From now on they are going to do trade in their own currencies and get right around the dollar. They’re creating a secondary economy in the world totally independent of the United States. We won’t have to talk about sanctions in five years because they will be so many countries transacting in currencies other the dollar that we won’t have the ability to sanction them.

What is now clear, if it wasn’t already, is that Trump’s tariffs are essentially sanctions by other means, and in many cases they are being imposed for reasons that have nothing to do with trade. As Yves has documented in recent months, Trump’s tariffs appear to be doing as much harm to the US economy as they are to many of their intended targets, much as how Brussels’ endless rounds of Russian sanctions have boomeranged against the EU economy.

Trump’s tariff tantrums and other threats are also doing harm to the US’ already tarnished image around the world, even among broadly US-aligned nations. Brazil, like India, is keen to deepen its relations with its BRICS partners while at the same time maintaining close economic ties to the US and Europe. But Trump’s threat to slap 10% tariffs “on any country that aligns itself with the BRICS’ anti-American policies” suggests that may not be possible.

What Trump appears to be trying to establish here is the economic equivalent of GW Bush’s “you’re with us or against us” ultimatum. As such, Trump’s threats are not just aimed at Brazil; they are aimed at what the BRICS broadly represents — a more multilateral, or South-South, approach to global development — or what Chinese leaders often call “South-South cooperation”. And that is what the US cannot abide.

However, if Trump wants to weaken Lula’s position both domestically and internationally, and by extension strengthen Bolsonaro’s hand, or that of his political allies, imposing 50% tariffs on Brazilian goods at the behest of the Bolsonarists is the worst possible way of going about it.

It could even turn around Lula’s prospects in next year’s general election, assuming he runs, which given his age is by no means guaranteed. Those prospects were looking pretty grim just a few months ago as public support for Lula, who finished his second term on an impressive 80% approval rating, hit record lows. In a poll published in mid-February by the Datafolha institute, 24% of respondents rated Lula’s government as “good” or “very good” while 41% rated it “bad” or “very bad”.

Since then, Lula has campaigned to raise taxes on the super rich, “so that money from education and health does not have to be cut,” which appears to have resonated with many voters (who woulda thunk it?). In fact, yesterday saw the following meme doing the rounds on social media contrasting Lula and Bolsonaro’s differing approaches to taxation (the text reads: “Lula wants to tax the ultra-rich. Bolsonaro wants to tax Brazil [via Trump]”):

According to a recent Latam Pulse survey by AtlasIntel in collaboration with Bloomberg, Lula’s approval rating increased by 2% compared to May and, at 47.3%, is at its highest level in the past year.

If the presidential elections were held today with the same candidates as in 2022, Bolsonaro (PL) would place marginally ahead of Lula. However, Bolsonaro’s 1.6% lead is within the poll’s margin of error. More important still, Bolsonaro has been disqualified from running in the 2026 election by the Supreme Court. Even if he weren’t, Trump’s threat to impose tariffs on Brazilian goods at the request of Bolsonaro’s family would probably put paid to his electoral hopes.

The reason is simple: many conservative voters in Brazil will baulk at supporting a candidate that calls for the US government to wage economic war against Brazil on his behalf.

We have already seen how Trump’s threats of annexing Canada and imposing crippling tariffs on the US’ northern neighbour, in direct violation of the USMCA agreement, essentially made Mark Carney’s turnaround victory possible. A former economic advisor to the deeply unpopular Justin Trudeau and , Carney, the globalists’ candidate, rode a tsunami of popular fear and anger at the threat Trump posed not only to Canada’s economy but its sovereignty.

A scathing editorial on Thursday in O Estado de S. Paulo, a newspaper with a right-wing, conservative editorial stance, suggests that something similar could happen in Brazil, a country where the public holds broadly favourable views towards the US. As in Canada, Trump’s threats could end up tipping the balance not only against his own preferred candidate but against the US in general. From Brasil 247:

Entitled “Mafiosi Thing”, the editorial lambasts the White House’s attempt to interfere in Brazil’s internal affairs and calls for a firm and sovereign reaction from the Brazilian government and society.

The editorial states that “Trump uses the threat of imposing trade tariffs on Brazil to force the country to surrender to his absurd demands”, classifying the manoeuvre as a “mishmash” motivated by political and ideological reasons – among them, the ongoing legal proceedings against Jair Bolsonaro and the actions of the Supreme Court against American digital platforms used to disseminate coup speeches.

The newspaper also dismantles Trump’s main argument, which accuses Brazil of maintaining a trade surplus with the United States. According to the editorial, “the U.S. has a robust trade surplus with Brazil,” which reveals that the U.S. president “blatantly lied in the letter to justify the drastic measure.”

The offensive by Trump — who is seeking reelection and had already shown signs of retaliation against Brazil after Bolsonaro’s conviction — is seen by the newspaper as an “outrageous” violation of national sovereignty. The text points out that Trump “does not have the slightest respect for the liturgies and rituals of relations between states” and that, even by his standards, “the letter addressed to the Brazilian government crossed all limits.”

Here’s the money quote from the editorial:

“Wearing Trump’s cap today means aligning oneself with a troglodyte that can cause immense damage to the Brazilian economy.”

And, of course, the US economy.

 

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8 comments

  1. aertty

    According to Stephen Olson, visiting senior fellow at ISEAS–Yusof Ishak Institute, it’s unprecedented for the US to add a tariff onto a foreign country to stop a judicial proceeding,
    The statement is no doubt true but the implication that the US hasn’t used military or diplomatic pressure to stop proceedings would be false

    Reply
  2. OnceWere

    If the point were to actually strong-arm Brazil into releasing Bolsonaro then you would expect it to be done, as it has probably been done in the past, behind closed doors. It certainly seems likely that they’d have a better chance of having their demands met if they did it that way. A personal hunger for public acts of abject submission from foreign inferiors appears to be more important to Trump than actually achieving a favourable deal.

    Reply
  3. Carolinian

    Maybe, as Lambert used to suggest, Trump sees the whole thing as a wrestling match and can’t decide if he’s the heel or the face. However

    Entitled “Mafiosi Thing”

    seems to be an increasingly popular take on our New Yorker president. Nice little country you have there….be a shame if anything were to happen to it. Trump also seems to have a Sicilian love of feuds and getting even.

    This all seemed to be a joke at first but it’s not so funny now.

    Reply
  4. tyaresun

    While another article on NC downplayed the recent BRICS summit, I think Lula’s response cited above is a results of that summit. The other positive BRICS outcome was the joint statement criticizing the Iran attacks and Gaza genocide.

    BRICS meetings are more like The Mice in Council:
    https://en.wikipedia.org/wiki/Belling_the_Cat

    Reply
  5. The Rev Kev

    I’m not sure but I think that I have heard that at 50% tariffs, that trade between those two countries are effectively over. And if Lula goes ahead with his reciprocal tariffs, then Trump has said that it will be increased to 100% tariffs. Brazil will take a hard hit until it can reorientate it’s foreign export market but I do think that they will do it sooner or later. But here is the thing. Think of all the other countries that trade with the US who will now be rethinking that trade relationship and downgrading it. There comes a point for more than a few countries where they conclude that trading with the US is simply not worth it. It’s too risky, too unpredictable, too prone to the risk of Trump lobbing on some tariff for petty reasons. Probably the same with giving contracts to American companies in your country where overnight they may be forced to leave the country due to some policy change coming out of Washington. What a time to be alive. /sarc

    Reply
  6. ISL

    Bi-Oceanic Corridor

    “South American production has always been focused on the ports of the Atlantic Ocean, but the market is increasingly focused on the Pacific Ocean, mainly on Asia because of China’s large consumer market. The main objective of the Bi-Oceanic corridor is to facilitate the transportation of cattle and soybean production to these importers.”

    President Xi promised in 2015 $25 billion per year for S American Infrastructure. So funds are available, and Trump is certainly doing his part to encourage Chinese infrastructure that diversifies markets for South American nations away from sole reliance on the US

    https://atlas-report.com/how-the-mega-bi-oceanic-corridor-can-revolutionize-transportation-and-trade-in-south-america/

    https://www.railway-technology.com/features/the-bi-oceanic-corridor-a-new-railroad-to-rival-maritime-freight/

    Reply

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