Five days into a 25 percent US tariff, and with a second duty now stacked on top, President Lula is resisting pressure to strike back while his ministers assemble a menu of retaliation options.
Peacock Tariff Consulting | US Trade Desk | July 27, 2026
WASHINGTON, July 27. Brazil enters the new week absorbing not one but two American tariff blows, and the question consuming Brasília is no longer whether the United States will escalate but whether Brazil will finally answer. A 25 percent Section 301 tariff on most Brazilian goods took effect last Tuesday, July 22. Three days later, on Friday, a separate 12.5 percent duty landed on top of it as part of Washington’s new forced labor tariff program covering 60 economies. President Luiz Inácio Lula da Silva has so far held his fire, launching World Trade Organization proceedings and the machinery of Brazil’s Reciprocity Law while pointedly declining to impose counter-tariffs. How long that restraint survives is now the central question in the most serious rupture in US-Brazil economic relations in decades.
The stakes of the choice are stark. The Brazilian government estimates the 25 percent tariff alone strikes about 18 percent of the country’s exports to the United States, worth roughly 7.4 billion dollars based on 2024 trade data, according to reporting by The Rio Times. The National Confederation of Industry, Brazil’s most powerful business lobby, puts the affected share closer to 26 percent, and the consultancy MB Associados, working from 2025 figures, estimated the impact at 9.51 billion dollars, or just over a quarter of Brazil’s exports to the American market. Friday’s additional 12.5 percent duty, which the Global Trade Alert notes applies on top of the existing Section 301 tariffs on Brazilian goods, pushes the combined surcharge on non-exempt products to as much as 37.5 percent.
No justification, and no retaliation either
Lula’s rhetoric has left no doubt about how Brasília views the American action. There is “no justification,” he said, for the “illegal and arbitrarily imposed tariffs,” and his office labeled the day the duties took effect a “lamentable milestone” in relations between the two largest economies of the Western Hemisphere, according to reporting by CNBC and Semafor. Writing on X, Lula announced that “Brazil will immediately initiate the procedures to activate the instruments provided for in the Reciprocity Law, approved unanimously by the National Congress, and will resume the issue within the framework of the WTO dispute settlement mechanism.”
The Reciprocity Law is the sharpest tool in Brazil’s kit. Enacted with unanimous congressional support, it authorizes the executive to respond to foreign trade barriers with countermeasures, from tariffs on goods to the suspension of intellectual property protections, without returning to Congress for approval. Activating its procedures starts a formal process of analysis and consultation; it does not automatically impose anything. The final decision rests with Lula alone, and Brazilian ministries are preparing what officials describe as a menu of options for the president to consider, The Rio Times reported.
That deliberate pace reflects a hard-fought internal argument. Vice President Geraldo Alckmin, who doubles as Brazil’s industry minister and served as governor of São Paulo, the country’s industrial heartland, has led the case for restraint, warning alongside major industry groups that a rapid tit-for-tat would compound the damage to Brazilian exporters and put jobs at risk. Exporters facing the loss of American customers have little appetite for a retaliation round that would raise the cost of imported American inputs, aircraft parts, chemicals and machinery on which Brazilian industry depends. Reuters reported that a tougher retaliation package is being prepared in the background even as the official posture remains one of caution.
Instead of counter-tariffs, the government has reached for cushioning. Brasília is expanding its Brasil Soberano aid program to support companies hit by the new trade barriers, offering credit and relief intended to prevent factory closures and layoffs while negotiations and litigation proceed. The program, created during the first round of the confrontation last year, channels subsidized credit lines, tax deferrals and export promotion support toward firms that can demonstrate tariff-driven losses. Officials frame it as buying time: if talks or litigation eventually roll the tariffs back, the aid will have carried exporters across the gap; if they do not, it finances the pivot toward other markets that Brazilian trade policy has been preparing for years through agreements with the European Union, expanded ties across Asia and deepening Mercosur integration.
How Washington got here, twice
The 25 percent tariff is the product of a Section 301 investigation into what USTR calls Brazil’s unreasonable acts, policies and practices, a probe that gave the administration a durable legal foundation after its first attempt at hitting Brazil collapsed in court. The original 50 percent tariff on Brazilian goods, imposed in 2025 under the International Emergency Economic Powers Act amid a public feud between President Trump and Lula over the prosecution of former president Jair Bolsonaro, was swept away when the US Supreme Court invalidated the administration’s IEEPA tariff program in February. The Washington Post reported that the new 25 percent duty, announced on July 16 and effective July 22, is the administration’s court-proof second try.
The rollout came with a broader than expected list of exemptions. Coffee and beef, two of Brazil’s most visible exports to American consumers, were spared, according to Bloomberg and Rio Times reporting, a carve-out that acknowledges the arithmetic of American grocery inflation: Brazil supplies roughly a third of US coffee imports, and American beef prices have been running at record levels. Roughly 3,000 product lines remain covered, however, including steel, pig iron, ethanol, machinery, apparel, sugar and a range of agricultural goods. USTR celebrated the action with a release compiling applause from American farmers, loggers and industry leaders, and the agency has scheduled further proceedings in the underlying investigation.
The feud that spawned the tariffs has deep and unusually personal roots. In July 2025, President Trump announced 50 percent tariffs on Brazilian goods while publicly denouncing Brazil’s prosecution of Bolsonaro, his political ally, who was later convicted over the plot to overturn his 2022 election loss. Lula vowed reciprocity at the time, invoking the newly passed Reciprocity Law, and Brazil requested WTO consultations over the measures in August 2025. What distinguished the Brazil action from every other front in the American tariff campaign was its explicitly political justification, which made it both a rallying point for Brazilian nationalism and a legal vulnerability once American courts began scrutinizing the emergency powers underneath it.
When the Supreme Court’s February ruling erased the IEEPA tariffs, Brazil enjoyed a brief window of relief. The administration’s response was to rebuild the pressure on sturdier legal ground. USTR’s Section 301 investigation into Brazil’s acts, policies and practices, which had been proceeding in parallel, examined a basket of grievances including Brazil’s digital trade rules, its treatment of American companies, ethanol tariffs and intellectual property enforcement. The affirmative determination gave the administration what the courts had taken away: a tariff on Brazil that rests on the same statutory foundation that survived years of litigation over the China tariffs of the first Trump term.
Friday’s second blow arrived through an entirely different door. The forced labor Section 301 action, which took effect July 24 across 60 economies, assigned Brazil to the group of 38 economies paying the flat 12.5 percent rate, the tier reserved for countries that have neither adopted a forced labor import ban nor committed to one in a reciprocal trade agreement with Washington. Unlike the treatment given the European Union, whose 10 percent rate applies net of existing duties, Brazil’s 12.5 percent stacks on top of the tariffs already in force, according to the Global Trade Alert’s analysis of the Federal Register notice. For Brazilian products caught by both actions, the combined additional duty now reaches 37.5 percent before normal tariffs are counted.
The coffee cup test
The exemptions reveal the constraint that disciplines even the most aggressive American tariff policy: the checkout counter. Brazil is the world’s largest coffee producer and supplies roughly a third of American coffee imports, and the 2025 experience, when the original 50 percent tariff briefly touched coffee and sent wholesale prices jumping, taught both governments how quickly a Brazil tariff becomes a breakfast-table issue in the United States. Beef tells the same story. American cattle herds are at their smallest in decades and retail beef prices have set repeated records, leaving the administration little appetite for a duty that would show up directly in supermarket meat cases. Sparing both products cost the tariff some of its bite, since coffee and beef are among Brazil’s largest exports to the American market, but it inoculated the action against its most obvious domestic criticism.
The goods that remain covered map the harder politics. Steel and pig iron face organized American producer constituencies that welcome protection. Ethanol is a long-running irritant in both directions, with American producers complaining for years about Brazilian import treatment. Machinery, apparel and sugar carry smaller consumer visibility and larger domestic lobbies. The result is a tariff engineered to concentrate pain on Brazilian industry while minimizing evidence of it in American consumer prices, at least in the short run.
For Brazilian exporters, the product-by-product outcomes are existential. Pig iron producers in Minas Gerais send the bulk of their output to American foundries, and industry representatives have warned publicly of furnace shutdowns if the duty persists. Ethanol shippers had built their business around American coastal fuel blending. Apparel and footwear makers, already squeezed by Asian competition, describe the American market as effectively closed at a 25 percent surcharge. The National Confederation of Industry has pressed the government for exactly the posture Lula has adopted, negotiation backed by aid, while warning that prolonged tariffs will force permanent redirection of trade toward Asia, deepening a dependence on China that Brasília has its own reasons to manage carefully.
The WTO route, and its limits
Brazil has formally turned to the World Trade Organization, resuming and expanding the dispute it first opened against American tariffs in 2025. Officials in Brasília frame the move as a matter of principle as much as tactics: Brazil has built its trade diplomacy for decades around the multilateral system, and Xinhua reported that the government coupled its rejection of the new tariffs with a commitment to pursue the WTO dispute settlement mechanism.
The practical limits are well understood in both capitals. WTO dispute proceedings take years, and the organization’s Appellate Body remains paralyzed by the American blockade of appointments, meaning any panel ruling Brazil wins can be appealed into a void. The filing serves other purposes: it preserves Brazil’s legal rights, builds a record for eventual countermeasure authorization, and positions Brazil as the defender of trade rules in the court of international opinion, a posture Lula has cultivated as he seeks to rally other tariff-hit economies toward coordinated responses.
Diplomacy, meanwhile, continues in parallel. Brazilian diplomats are expected to intensify contacts with Washington in the coming weeks, exploring tariff reductions, suspensions or sectoral exemptions, and industry groups on both sides are pressing for carve-outs. The exemption of coffee and beef demonstrated that the administration will bend where American consumer prices are exposed, and Brasília’s negotiators are searching for other pressure points with domestic American constituencies, from orange juice to aircraft supply chains.
There is also a hemispheric diplomacy dimension to the WTO play. Lula has spent the year positioning Brazil as a convener of tariff-affected economies, arguing that unilateral American measures threaten the trading system itself and that collective responses carry more weight than bilateral pleading. The forced labor action, which hit 60 economies simultaneously, handed that argument fresh material: governments from South Africa to Southeast Asia found themselves facing the same 12.5 percent rate on the same day. Whether that shared grievance translates into coordination is another matter. Most affected economies, as Mexico’s accommodation and China’s studied restraint demonstrate, have concluded that separate peace terms beat collective defiance.
An election year complication
Hanging over every decision is Brazil’s presidential election in October. The tariff confrontation has already become a partisan weapon, with government and opposition trading blame for the rupture. The dispute’s origins are inseparable from Brazilian domestic politics: the original 2025 tariffs were announced amid the American president’s objections to the prosecution of Bolsonaro, and the Section 301 investigation that produced the current 25 percent duty grew from the same confrontation.
For Lula, the politics cut both ways. Standing up to Washington plays well with his base and burnishes the sovereignty credentials he has made central to his international profile; his approval ratings rose during earlier rounds of the confrontation. But a retaliation spiral that deepens the export shock, weakens the real or raises consumer prices in Brazil would hand his opponents a potent economic argument three months before the vote. The restraint counseled by Alckmin is, among other things, an electoral hedge: it keeps the blame for economic damage pointed north while preserving the option to escalate if talks fail.
What it means for American businesses
For US importers, the immediate effects are concentrated and real. Brazilian pig iron feeds American steel mills, Brazilian ethanol supplies coastal fuel markets, and Brazilian machinery, apparel and sugar flow to American manufacturers, retailers and food processors. A 25 percent duty, now 37.5 percent for goods also caught by the forced labor tariff, forces the familiar triage: absorb, pass through, or re-source. Some flows have obvious alternatives; pig iron buyers can turn to India or Ukraine, at a price. Others, like specific grades of semi-finished steel tuned to particular mills, do not adjust quickly. Customs brokers advising clients this weekend noted that entries of Brazilian goods must now sequence multiple Chapter 99 headings, and that goods on the water before July 24 can still escape the newest duty if entered before July 28.
Trade compliance teams handling Brazilian supply chains are working through a checklist that has become standard in the tariff era but is unusually urgent here. The first task is classification review: confirming whether specific products fall within the roughly 3,000 covered lines of the 25 percent action, within the forced labor action’s exemption annexes, or both. The second is entry timing, given tomorrow’s deadline for in-transit relief. Beyond that, importers are weighing foreign trade zone admission and bonded warehousing to defer duty exposure while the diplomatic picture clarifies, revisiting valuation methods including first sale where supply chains support them, and examining whether processing steps in third countries legitimately shift origin. None of these tools erases a 37.5 percent surcharge, but in combination they can blunt it, and the difference between a well-papered exemption claim and a missed one is now measured in millions of dollars for large importers.
American exporters face a different calculus: they are the targets if Brazil’s restraint breaks. The Reciprocity Law’s menu reportedly ranges from tariffs on politically sensitive American goods to suspension of patent protections, an option Brazilian officials have raised in past disputes over pharmaceuticals. US exporters of aircraft components, refined fuels, chemicals, fertilizers and agricultural equipment, categories in which Brazil is a major customer, would bear the first wave of any countermeasures. The two countries have historically run a rough balance in goods trade, with the United States frequently in surplus, a fact Brazilian officials cite constantly as proof that the American tariffs answer a problem that does not exist.
Currency markets add a further transmission channel. Trade tensions have historically pressured the Brazilian real, and a weaker real partially offsets the tariff for Brazilian exporters while raising the local price of imported American goods, a dynamic that shifts some of the adjustment burden onto Brazilian consumers regardless of what Lula decides. For American companies with Brazilian operations, from agricultural traders to automakers with São Paulo plants, exchange rate volatility layered on tariff uncertainty complicates every pricing and investment decision in the pipeline.
The wider hemisphere is watching the precedent. Brazil is the second largest economy in the Americas, and how this standoff resolves will shape how every mid-sized trading power weighs the choice between accommodation and defiance when Washington’s tariff machinery turns toward them. Mexico, which drew the milder 10 percent forced labor rate and is deep in USMCA review negotiations, chose accommodation. Brazil is testing whether patience, litigation and selective pressure can produce a better outcome than either capitulation or trade war.
The week ahead
The next few days offer several markers. The July 28 entry deadline for in-transit goods arrives tomorrow, closing the last duty-free window for cargo loaded before the forced labor tariffs took effect. Lula’s ministers are expected to continue presenting Reciprocity Law options, and any announcement of specific countermeasures, even ones suspended pending negotiation, would mark a significant escalation. On the American side, further proceedings in the Brazil Section 301 investigation could broaden or narrow the product coverage, and the exemption process gives both governments a face-saving channel for de-escalation if they choose to use it.
For now, Brasília’s message is strategic patience, and Washington’s is that the pressure stays on until Brazil changes course on the practices the investigation condemned. Between those positions lies a negotiation that has not yet seriously begun, a WTO case that will outlast the tariffs it contests, and billions of dollars of hemispheric commerce paying the toll in the meantime. Five days into the 25 percent era, the US-Brazil trade relationship is not yet at war. It is something more precarious: armed, aggrieved and waiting for someone to decide.