Brazilian Assets Fall As Trump's 50% Tariff Threat Roils Outlook

Brazilian assets dropped as President Donald Trump’s threat to impose 50% tariffs on all goods from the South American nation rippled through markets. 

The real fell 0.8% in Sao Paulo, extending Wednesday’s plunge. Stock futures dipped 1.5%. Swap rates surged across the curve, with contracts due in January 2029 rising almost 30 basis points, while the iShares MSCI Brazil ETF — the largest US-listed exchange-traded fund tracking the nation’s equities — declined 3.2% in pre-market trading in New York.

Brazilian markets are likely to see heightened volatility ahead as the country comes into the spotlight after months of flying under Trump’s radar. The tariffs not only were far above what markets had priced in — the nation was initially assigned the baseline 10% levy — but also because it’s unclear how the two countries can negotiate.

The US already runs a trade surplus with Brazil. And instead of the trade focus seen in other statements issued to commercial partners, Trump’s letter made a direct link to politics, saying he was making the change “due in part to Brazil’s insidious attacks on Free Elections, and the fundamental Free Speech Rights of Americans.”

While Luiz Inacio Lula da Silva hit back, saying the nation will not be “tutored” by anyone, the Brazilian president has little hope of avoiding the tariffs, multiple people close to him said. That’s because Trump’s demands involve legal matters which he doesn’t have the power to meet — likely setting up a difficult negotiation process ahead, leaving markets on edge.

“The move adds a new risk aversion factor to local assets, increasing volatility and potentially fueling the need for cash flow and valuation reviews for companies with greater exposure to the US market,” Ativa Investimentos analyst Ilan Arbetman wrote in a note.