How the U.S.-China trade war will impact Brazil

One year into the trade war staged by the U.S. and China, tensions have reached new levels with the world’s top 2 economic powers announcing new rounds of tariffs against each other. Animosity sparked up (again) on Friday, when the U.S. raised tariffs on USD 200 billion worth of Chinese goods from 10 to 25 percent. Beijing retaliated on Monday, raising import fees on American products. The increasing level of economic belligerence between the two behemoths sent shockwaves through global markets—and Brazil was no exception.

In times of uncertainty, riskier emerging markets take a bigger hit, with investors ducking for cover and taking their money to “safer” countries. As a result, the Brazilian stock market index crashed to a four-month low on Monday.

What to expect for Brazilian assets?

As in any international crisis, foreign exchange rates are the first to take the blow. The U.S. Dollar spiked against emerging currencies such as the Mexican Peso, Russian Ruble—and the Brazilian Real. In São Paulo, the greenback briefly broke the BRL 4 threshold, pressuring local investors.

According to Cleber Alessie, a foreign exchange trader at brokerage H.Commcor, the sudden hike is an effect of the deterioration of the global scenario, which is unlikely to improve until investors see signs that tensions between the U.S. and China—Brazil’s top two trading partners—are on the horizon.

“Markets have been adjusting on a global scale to a scenario...