Brazil's retaliatory measures could include royalties, patents, and medicines

A possible retaliation by the Brazilian government to the 50% "tariff hike" announced on Wednesday (9) by US President Donald Trump, starting on August 1, could include taxation of dividend remittances from American multinationals based in Brazil and suspension of intellectual property rights, such as royalties, patents on medicines and agricultural seeds.

Possible alternatives for retaliation were already outlined by the Ministry of Development, Industry, Commerce and Services (MDIC), led by Vice President Geraldo Alckmin, in April, on “Liberation Day”, when Donald Trump had suggested reciprocal tariffs for several countries.

Ministry was taken by surprise

The Ministry of Development didn't expect this reaction from Trump. Just days before the announcement of the 50% tariff on Brazilian products, ministry officials were negotiating with the US government. They were caught off guard because they were still working on a proposal for a 10% tariff targeted at the BRICS countries: 50% wasn't on anyone's mind.

Data from the MDIC indicate that the United States has accumulated a trade surplus with Brazil since 2009, equivalent to an accumulated R$484 billion at the current exchange rate.

A study by Nexus Pesquisa e Inteligência de Dados (Data Research and Intelligence) indicates that the US is the country on which Brazil is most dependent for imported items. It was a major source of six of the 10 most purchased items in both 2021 and 2022.

"The survey shows the high concentration of Brazilian imports among a few suppliers, especially in the United States, which suggests a scenario in which any changes in import tariffs would have a significant impact on the trade balance," says Nexus CEO Marcelo Tokarski.

Retaliation actions will be carried out under the Economic Reciprocity Law, as already signaled by President Luiz Inácio Lula da Silva (Workers' Party). The law allows Brazil to engage in trade retaliation without prior authorization from the World Trade Organization (WTO). However, the law must first be regulated by presidential decree, an action that would take several days in itself.

Three segments could suffer retaliation

There is speculation in the press that, should the government escalate the crisis with reciprocal retaliation, the response should focus on three points: suspension of intellectual property rights, audiovisual royalties, and taxation of American multinationals.

The first item is the suspension of patents in strategic sectors for Americans, such as pharmaceuticals and agribusiness. The second is the suspension of royalty payments for film and music productions. And, finally, the taxation of dividend remittances from American multinationals operating in Brazil.

The possibilities don't indicate that the government will retaliate; they merely present the possibilities if President Lula opts for reciprocity over diplomacy. Since Lula understands that the tariff hike was politically motivated, the response would not be forthcoming, for now, on the economic front.

Industry calls for calm and negotiations with the US

For the National Confederation of Industry (CNI), "there is no economic fact that justifies 50% tariffs, and it is necessary to preserve the trade relationship with the United States." Therefore, the confederation argues in a statement that "the priority must be to intensify negotiations with the Donald Trump administration to preserve the historic and complementary trade relationship between the countries."

"Therefore, for the production sector, the most important thing now is to intensify negotiations and dialogue to reverse this decision," says Ricardo Alban, president of the CNI. The increase in the tariff to 50% will have a significant impact on the competitiveness of approximately 10,000 companies that export to the United States, according to the CNI.