The Supreme Court ruling that struck down US tariffs imposed by President Donald Trump under his emergency powers this year set off a scramble by the administration to reinstate tariffs on several countries using different rationales. Brazil is the first test case of this strategy, and it demonstrates the weakness of US leverage.
Leaving aside the separate question of these tariffs backfiring politically in Brazil—likely strengthening the standing of President Luiz Inácio Lula da Silva, whom Trump disdains—the US economic strategy toward Brazil shows the weakness of its leverage in trade policy.
The United States said its action followed a yearlong investigation into Brazil's trade practices under Section 301 of the 1974 Trade Act, which gives the president authority to impose tariffs to retaliate against "unfair" trade practices. Accordingly, the US Trade Representative (USTR) imposed a 25 percent tariff on Brazilian goods last week, effective July 22. The decision was accompanied by the usual name-calling from Washington. Secretary of State Marco Rubio, writing on X, charged that President Lula's government had "not negotiated in good faith" and accused him of "putting his own ego ahead of making a deal," an interesting complaint coming from this administration. He added that Lula's left-leaning "economic policies are bad for Americans and bad for Brazilians."
A closer look at the investigations and the announcement suggests there is less here than meets the eye. First, Brazil had very little room for a deal given that US demands violated Brazil's trade laws and its status as a member of Mercosur, the South American trade bloc whose other members are Argentina, Paraguay, Uruguay, and Bolivia. Not surprisingly, politics did play a role—on the US side. Two thirds of Brazilian exports to the United States will escape the new duties—mostly to avoid hurting US consumers and firms dependent on Brazilian exports. Other exemptions were made by the United States because Brazilian imports were covered by other tariff regimes or are otherwise not covered by this action.
The USTR's exemption annex covers some 400 tariff subheadings and spares 44 percent of Brazil's exports to the United States, including coffee, orange juice, beef, cocoa, nuts and tropical fruit, iron and manganese ore, chemical wood pulp, crude and refined petroleum, as well as civil aircraft. The aircraft exemption reflects the fact that Brazil's Embraer is one of the top global builders of short- and medium-range commercial jets.
Another 13 percent Brazil's exports escapes the Section 301 action altogether because they are already covered by tariffs on steel, aluminum, copper, autos, and lumber under Section 232 of the Trade Expansion Act of 1962. Special provision imports—such as returned goods and the like—sit completely outside the tariff base and account for the remaining 9 percent.
The products subject to the new 25 percent duty are concentrated in machinery, electrical equipment, granite, gold, tires, sugar, and apparel. But the exemptions demonstrate the limits of US protectionist actions. Acknowledging those limits, the administration exempted goods that "could cause economy-wide disruptions" or "cannot be adequately produced or sourced domestically." The exempted goods, together with those already covered by other tariff regimes, account for two of every three dollars' worth of goods the country sells to the United States.
The exemptions also recall the lessons from 2025, when the United States imposed tariffs of about 50 percent on many Brazilian goods, including coffee, that were later struck down by the Supreme Court. The inflationary repercussions of last year's tariffs and their effects on the cost of groceries for US consumers led to a much broader list of exemptions, which now includes all forms of coffee—down to unflavored instant coffee, added in the final action—as well as organic honey.
The exemptions list also includes pig iron, which had been slated to pay the 25 percent tariffs only one month ago. Between then and now, US foundries and steelmakers impressed upon the USTR that more than 95 percent of domestic pig iron production is consumed internally by integrated producers, leaving everyone else dependent on imports. Brazil supplies more than half of the United States' pig iron imports. On the other hand, high-purity dissolving wood pulp was removed from the exemption list, on the ground that it contributes to deforestation, a strange argument from an administration opposed to limits on logging and drilling in US forests. But in this case, a US producer had just won a preliminary antidumping determination against Brazilian pulp producers in May.
The Supreme Court's invalidation of the emergency tariffs imposed last year compelled the Trump trade team to adopt a rationale that Brazil has engaged in unfair trade practices. They resorted to a process entailing notices, comments, and public hearings, which in turn led to tariff carve-outs line by line. In effect, the process yielded to the reality that the US economy is integrated with other major global players such as Brazil.
The administration had last year sought sweeping tariff protection under the International Emergency Economic Powers Act (IEEPA) of 1977. When the Supreme Court struck down the IEEPA tariffs in February 2026, declaring that it did not see an emergency, the Trump administration bridged the gap with a temporary 10 percent tariff under Section 122 of the 1974 Trade Act, contending that there was a balance of payments crisis. But those tariffs lapse on July 24. The most recent action against Brazil is an attempt to reimpose tariffs through a more durable instrument that will remain subject to ongoing negotiations between the two countries.
Meanwhile, a separate Section 301 investigation into forced-labor import policies, due on July 24, proposes an additional 12.5 percent tariff on Brazilian goods. Stacked, the tariffs would rebuild a 37.5 percent trade barrier, a number closer to the unlawful 50 percent imposed in 2025. While lawful under US law, the new tariffs will continue to be the subject of intense sectoral negotiations between Brazil and the United States.
Of the investigation's six counts, the least discussed is the most revealing. The USTR found it "fundamentally unfair" that Brazil grants tariff preferences to Mexico and India under partial-scope agreements. But these trade arrangements are fully aligned with the World Trade Organization's (WTO) rules that have allowed preferences among developing countries since 1979.
Negotiations to avert the Section 301 tariffs have been ongoing for months. They collapsed because US authorities demanded exclusive tariff concessions that Brazil cannot legally grant one country unilaterally under its own trade law and its Mercosur and Latin American economic obligations. In effect, the Trump administration is punishing Brazil for extending preferences to others while insisting on its own preferences. The fundamental inconsistency in the US approach is further revealed by an inconvenient reality for Washington. The United States has a trade surplus with Brazil, which more than doubled in 2025, reaching $14.4 billion.
Trade diversion around the globe as a reaction to US tariffs has turned Brazil into an export powerhouse. Since the first round of US tariffs in 2025, Brazil has posted record exports, with China absorbing some 37 percent of its trade at the end of 2025. Shipments to India are up more than 50 percent, while the US share of Brazil's trade is at a record low.
Brazil has also shown that it can retaliate against the United States through its Economic Reciprocity Law and a WTO case against the United States. The Economic Reciprocity Law's most potent instrument is the suspension of intellectual property obligations affecting sectors such as agriculture (seeds), pharmaceuticals, and technology—sectors where US companies earn their most reliable income from Brazil.
The 50 percent wall built overnight by the Trump administration actually reveals the strategy's limitations, all the while facilitating trade diversion from the United States. One can only conclude that those responsible for putting egos ahead of making deals are not the people sitting in Brasília, but those based in Washington.
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