Image: Anton Khodakovskiy

Monday got off to a turbulent start after U.S. President Donald Trump used his Twitter account to threaten Brazil and Argentina with new import tariffs on steel products. Mr. Trump accused both countries of “presiding over a massive devaluation of their currencies” to make their agricultural products more competitive in the U.S. market, promising a retaliation in line with the stance he has taken towards China.

</p> <figure class="wp-block-embed-twitter wp-block-embed is-type-rich is-provider-twitter"><div class="wp-block-embed__wrapper"> <blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel &amp; Aluminum that is shipped into the U.S. from those countries. The Federal&#8230;.</p>&mdash; Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/1201455858636472320?ref_src=twsrc%5Etfw">December 2, 2019</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script> </div></figure> <p>Mr. Trump&#8217;s tweets have had a sharp effect on markets—to the point that JPMorgan created the &#8220;<a href="https://www.reuters.com/article/us-usa-markets-trump-volatility/volfefe-a-volatility-index-for-the-trump-era-idUSKCN1VU1XR">Volfefe Index</a>,&#8221; a portmanteau of the words volatility and Mr. Trump&#8217;s infamous &#8220;covfefe&#8221; tweet in 2017. Many expected Brazilian steel companies to crash today, following Mr. Trump&#8217;s morning tweet.&nbsp;</p> <p>However, that was not the case. Instead, stocks of the country&#8217;s main players went up.</p> <p>And that&#8217;s because of the limited effects Mr. Trump&#8217;s promised tariffs would actually have on them.</p> <p>Back in March 2018, the U.S. president announced a <a href="https://brazilian.report/money/2018/06/20/brazil-us-china-trade-war/?mc_cid=8f188df193&amp;mc_eid=3fe7a799a2">bump in tariffs</a> on steel and aluminum imports—with fees on the latter reaching 10 percent, and 25 percent on the former. As the U.S. industry alone was unable to meet the demand, the White House saw itself forced to <a href="https://g1.globo.com/economia/noticia/2018/08/30/trump-flexibiliza-tarifa-de-cota-de-aco-e-beneficia-brasil-argentina-e-coreia-do-sul.ghtml">loosen its rules</a>, adopting a quota system for Brazil, South Korea, and Argentina, with the first two being among the main exporters to the U.S.</p> <p>That system ended up increasing global steel prices, which reportedly <a href="https://www.dci.com.br/impresso/cotas-nos-eua-melhoram-preco-do-aco-exportado-brasileiro-1.733301">benefited Brazilian companies</a>.</p> <div class="flourish-embed" data-src="visualisation/1029000"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <h2>What impact on Brazil&#8217;s steel exporters?</h2> <p>Analysts at XP Research highlighted on Monday that “Brazil [is already] operating on the quota regime using the average of exports in 2018 as a ceiling. As the exported volume in 2019 wasn’t much different than in 2018, the impact of tariffs was small.”</p> <p>Pedro Galdi, an analyst at Mirae Asset Brokerage agrees that the tariffs Mr. Trump is threatening Brazilian companies with will have a very limited impact. “Gerdau has a unit in the U.S. What would change? Nothing. Usiminas exports roughly 10 percent of its production, with the U.S. representing only a small portion of that—and the same goes for CSN,” he told <strong>The Brazilian Report</strong>.</p> <p>Indeed, Usiminas&#8217; Q3 earnings report shows that exports account for only 16 percent of the company&#8217;s net revenue. For CSN, this figure is 15.2. Gerdau has plants in the U.S. which are not subject to the tariffs—and accounts for 37 percent of the group&#8217;s net revenue.</p> <div class="flourish-embed" data-src="visualisation/1029028"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>It is noteworthy that Brazilian steel companies are raising prices, leveling up to international competitors. Usiminas, for instance, has already bumped its fares by 5 percent over Q3, and will do it again in January. And on November 22, Gerdau announced an increase of up to 12 percent, as reported by <em>Reuters.</em></p> <p>For the moment, investors are not running for hills—rather choosing a touch-and-go approach, especially after the Brazilian government announced it would reach out to the White House to negotiate a way around new tariffs.</p> <div class="flourish-embed" data-src="visualisation/1028946"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <h2>Failed diplomacy for Bolsonaro?</h2> <p>Since taking office, Brazilian President Jair Bolsonaro made the U.S. the center of his foreign policy. But his &#8220;America-first&#8221; approach appears to have backfired. Time and time again, the White House has shown little appreciation for Brazil as a strategic ally—despite Mr. Bolsonaro&#8217;s efforts to please Washington.</p> <p>In March 2019, Mr. Bolsonaro <a href="https://brazilian.report/podcast/2019/03/20/jair-bolsonaro-donald-trump/">agreed</a> to give up its “developing country benefits” at the World Trade Organization—which include more room for agricultural subsidies and longer deadlines to implement WTO policies—and agreed to more access for U.S. pork in Brazil, as well as an import quota of 750,000 tons of U.S. wheat with zero tariffs.</p> <p>In return, the White House promised to support Brazil&#8217;s bid to join the Organization for Economic Cooperation and Development (OECD). But in October, the Trump administration instead announced it would <a href="https://brazilian.report/newsletters/daily-briefing/2019/10/11/white-house-ignores-oecd-bid-brazil/">back the memberships of Argentina and Romania</a>.</p> <p>Brazil&#8217;s Foreign Affairs Ministry is learning the hard way that, in diplomacy, there are no friends. Just interests.

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MoneyDec 02, 2019

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BY Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.