Embraer, ethanol: How Brazil will try to avoid Trump’s tariffs

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Embraer, ethanol: How Brazil will try to escape Trump's overtaxes

U.S. President Donald Trump

Brazil’s government will only go to the World Trade Organization to protest U.S. President Donald Trump’s decision to impose a 25 percent import tax on steel goods after exhausting all possibilities for negotiation. According to Brazilian diplomats, the federal administration wants to avoid an aggressive reaction by Trump and is aware that to avoid the taxes, Brazil will have to offer something in return.

Negotiations could include sectors that have nothing to do with the steel industry, such as aircraft manufacturer Embraer as well as ethanol, a biofuel. Brazil could also threaten to impose barriers to U.S. coal – Brazilian imports in 2017 amounted to 1 billion USD, more than any other country. An alternative to the U.S. could be Poland or Australia.

While the move targets China – the world’s largest steel and aluminum producer – it will be a huge blow to Brazilian exports. One-third of Brazil’s steel exports go to the U.S. In 2017, sales of Brazilian steel to American companies amounted to over $2.6 billion. “This new tariffs will destroy any competitiveness of the Brazilian industry,” said Marco Polo de Mello Lopes, president of the Brazil Steel Institute, to the BBC.

No country has been as affected by Trump’s decision as Brazil. Canada, the second biggest exporter of steel goods to the U.S. and first on the list, and Mexico, the third, were not affected because both countries are, like the U.S., members of Nafta.

Quid pro quo

America’s Boeing has for months tried to take over Embraer’s know-how to build light aircrafts. The deal has faced some resistance from the Brazilian government however, as it doesn’t want to give Boeing any control over Embraer’s military division. Brazilian representatives believe that the U.S. government could demand a greenlight for the deal in order to lower tariffs.

The same could happen with the ethanol industry. American corn-based ethanol faces fierce competition from Brazil’s sugarcane biofuel. The U.S. could demand incentives for its product in the Brazilian market.

Intense lobbying

Informal negotiations between both countries started even before the announcement of the bump in tariffs by the Trump administration. Brazil’s Minister of Industry and Trade, Marcos Jorge, sent a letter to Wilbur Ross, the American Secretary of Commerce, asking for Brazil to be excluded from the list of countries affected by the new tariffs.

Brazilian steel producers now plan to hire a lobbying firm based in Washington to try to sway representatives. The move will be financed by companies, but is supported by the government.

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