📓 A trade war playbook for Brazil

Good morning! This issue of Brazil Business is a little different. 

With a second Donald Trump administration underway in the US, Brazil faces the unsettling prospect of steep tariffs from the world’s largest economy. President Luiz Inácio Lula da Silva, while steering clear of direct confrontation with the White House, has made his position clear: any US trade restrictions will be met with retaliatory measures. 

Welber Barral, a partner at the consultancy BMJ and Brazil’s foreign trade secretary from 2007 to 2011, writes about how the country should brace for a potential shift in US policy. 

If you have any questions about this newsletter, or topics you’d like to see covered in future issues, you can reach us at [email protected] 

How Brazil should respond if targeted by Trump tariffs

Trade retaliation is the talk of the town. With the resurgence of protectionist measures under Donald Trump’s new administration, countries across the globe are once again confronted with the question of how to respond. 

Tariffs on Chinese goods have been hiked, new trade barriers threaten European and Latin American exports, and strategic sectors such as semiconductors and electric vehicles are caught in the crossfire of intensifying restrictions.

For trade policymakers in capitals everywhere, the issue is no longer whether to retaliate, but how to do so wisely. A poorly calibrated countermeasure risks harming domestic industries more than its intended target, while a well-crafted response can tilt the scales back toward negotiation. 

Having navigated Brazil’s high-stakes trade dispute with the United States over cotton subsidies in 2009 as secretary of international trade, I have seen firsthand the delicate art of applying pressure without triggering self-inflicted wounds.

There is no universal recipe for trade retaliation, but there are some principles that may separate effective responses from self-destructive ones.

Retaliation as leverage, not retribution

Trade retaliation is not about economic vengeance, it is a tool of future negotiation. The objective is to force the other country to withdraw harmful measures or return to the table for a reasonable compromise. But retaliation must be carefully calibrated:

• Hit where it hurts politically. The US Congress shapes the country’s trade policy as much as the White House. Tariffs are an electoral issue in swing states where agriculture and manufacturing dominate. Study the electoral districts. Targeting industries in these regions can awaken internal opposition.

• Minimize self-inflicted damage. Retaliation should pressure the target country without crippling domestic consumers or downstream industries. A trade war that fuels inflation or disrupts supply chains at home can quickly become a political liability.

• Keep escalation in check. Trade wars can spiral beyond control, eroding long-term economic relationships. Policymakers must ensure that retaliatory actions remain reversible once negotiations resume.

Lessons from the cotton dispute

Brazil faced this dilemma in 2009 when the World Trade Organization (WTO) ruled that US cotton subsidies were illegal. When the US refused to comply, Brazil crafted a strategic response:

• Pinpoint vulnerabilities. Instead of indiscriminately targeting US exports, Brazil focused on politically sensitive products — goods with strong support from influential US lobbies or located in key electoral districts.

• Go beyond tariffs. Brazil innovated by threatening to suspend intellectual property protections for US firms (a move greenlit by the WTO). The credible prospect of Brazilian companies freely using patents (backed by a proper domestic law) forced Washington to negotiate, resulting in financial compensation for Brazilian farmers and reforms in the US Farm Bill.

The lesson? Retaliation must be creative. Smaller countries often have more leverage than they realize — particularly when they move beyond conventional tariff-based responses. 

The 2025 trade war has higher stakes

Today’s trade battles present a different set of complexities:

• Fragmented supply chains. The global economy is far more interconnected than it was in 2009. Retaliatory measures can disrupt supply chains in unexpected ways, affecting allies as much as adversaries.

• Geopolitical entanglements. Unlike past trade disputes, today’s conflicts are not just about economics. The US-China trade war is as much about technological supremacy as it is about tariffs. Retaliation strategies must account for broader diplomatic and security implications.

• The political appeal of protectionism. Despite its economic downsides, Trump’s trade policies remain politically potent. Retaliating nations must challenge the narrative that tariffs “bring jobs back” or “punish trade cheaters” without alienating their own domestic constituencies.

How to retaliate smartly in 2025

1. Target politically relevant spots. Make it painful

The most effective retaliation zeroes in on politically sensitive industries. Analyze thoroughly the trade flows with the US. Point the tariff cannons at small but sensitive and noisy pressure groups inside the Beltway. In the US, this means:

• Agriculture. Farmers bore the brunt of Trump’s first trade war, and they remain a politically influential group. Tariffs on US soybeans, beef or dairy could trigger a backlash in key Midwestern states.

• Export-dependent industries. Aerospace, whiskey and luxury manufacturing rely heavily on global markets. Restricting access to these sectors can mobilize opposition from powerful business lobbies.

2. Use smarter weapons

Tariffs are blunt instruments. A more sophisticated approach involves:

• Export taxes on critical raw materials. The US depends on foreign sources for lithium, rare earth minerals and agricultural inputs. Taxing exports of these goods can squeeze American supply chains without triggering immediate domestic inflation.

• Regulatory barriers. Stricter environmental or safety standards can slow US exports while remaining WTO-compliant.

• Services. Look at the list of services imported from the US. Here lie strong US sectors that will react immediately against regulatory barriers.

3. Expand alternative trade alliances

The best retaliation is sometimes not retaliation at all, but rather a pivot toward other markets. Brazil, if hit by US tariffs, should:

• Sign new trade agreements to reduce dependence on the US market.

• Lower tariffs for alternative trading partners to cushion domestic businesses.

• Coordinate within trade blocs such as the EU or ASEAN to present a unified front.

4. Leverage the WTO — even in its weakened state

Despite its enforcement challenges, the WTO remains an important venue. Even if formal dispute resolution takes years (and the appellate body is not functioning), filing cases keeps pressure on Washington and signals a commitment to a rules-based system.

5. The “nuclear option”: suspend intellectual property rights

As a last resort, countries can follow Brazil’s example from the cotton dispute by threatening to suspend IP protections for US firms. This is a drastic measure that risks escalating tensions and deterring investment, but if deployed strategically, it can be a formidable bargaining chip.

Trade wars are easy to start

For those of us who have long advocated for open markets and free trade, the resurgence of protectionism is deeply frustrating. Tariffs may be politically expedient, but they are economically disastrous: during the 2018-2019 tariff war, American households paid an average of USD 1,400 per year in added costs, according to the Peterson Institute.

The faster these costs become apparent to the US public, the sooner policymakers will face pressure to reverse course. Smart, targeted retaliation — designed to shift political dynamics in Washington — can accelerate that process. Indiscriminate trade wars, however, will only deepen economic harm for all sides.

The ultimate goal must always be to return to the negotiating table. History shows that when economic pain becomes undeniable, even the most powerful and protectionist governments are forced to listen.

ABOUT THE AUTHOR

Welber Barral, a founding partner at BMJ, specializes in international trade and investment. A former Brazilian Secretary of Foreign Trade (2007–2011), he has served as an arbitrator for Mercosur and the WTO. With over 30 years of experience, he holds a PhD in International Law (USP) and was a Visiting Fellow at Georgetown.

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