The US administration implemented a 50% tariff on all Brazilian goods, which took effect on Aug. 6, 2025. The tariff combines a 10% baseline with an additional 40% levy. Despite such high tariffs, Brazilian exports continue to grow relatively quickly. Across economic sectors, Brazilian exports rose 9.1% year over year in October.21 Notably, the most significant impact has not come from tariffs imposed directly on Brazil, but rather from the indirect effects of US tariffs on China and the concomitant escalation in trade tensions.22
Meanwhile, the EU-Mercosur free trade agreement continues to move forward. In early September, the European Commission released its formal proposal to the Council for ratification. If approved, the deal will create the largest free trade zone, encapsulating a market that includes over 700 million consumers.23 The agreement is expected to eliminate tariffs on over 90% of bilateral trade. South American farmers will gain greater access to European markets, while Mercosur’s protected markets will open to European industrial goods.24
While the agreement will drive additional demand for Brazilian agricultural goods, it also risks deepening Brazil’s economic reliance on commodity exports at the expense of higher-value manufacturing and services. This dynamic could reinforce Brazil’s exposure to the middle-income trap by reducing the need for productivity-driven growth, thereby constraining long-term growth potential.
Separately, the US Section 301 investigation of Brazil remains ongoing. The United States cited anticompetitive digital trade and electronic payment services policies, an unfair tariff regime, and illegal deforestation.25 Yet, deforestation hit a 15-year high back in 202126 and decreased by 31% from August 2023 to July 2024 compared with the prior year.27 The current administration has pledged to eliminate illegal deforestation by 2028.
For many, deforestation is seen as the only viable pathway to further economic development. For example, in 2024, soybeans, meat, wood, and metals accounted for approximately 40% of Brazil’s exports, much of which originated from cleared lands in the Amazon.28 Additionally, 70% of Brazil’s energy comes from hydropower generated by dams in the Amazon.29 Already, about 25% of the Brazilian Amazon has been cleared for agriculture, livestock, and mining.30
Rising demand from both China and Europe will likely place upward pressure on Brazil’s supply of agricultural products and lead to increased deforestation. Yet recent reports suggest that preservation of the Amazon rainforest and Brazil’s economic growth are not mutually exclusive. A study by the World Research Institute in Brazil found that, rather than reducing output, more efficient land use and energy production, a larger bioeconomy, and investments in sustainable agriculture and livestock practices could grow the region’s GDP by roughly US$8.2 billion annually by 2050.31
Despite near-term challenges to growth, Brazil’s economy is likely to rebound next year. Falling inflation will allow the central bank to ease policy, which will likely improve domestic demand. Meanwhile, despite high barriers to trade with the United States, demand for Brazilian goods is rising. Indeed, Brazil is benefiting from US trade tensions with China and the European Union—a common trend among its Latin American peers.
