Brazil Chooses Local Relief Over Retaliation for U.S. Tariffs, Sources Say

By Marcela Ayres, Bernardo Caram, and Lisandra Paraguassu

BRASILIA, Aug 4 (Reuters) – Brazil’s government has set aside for now plans for direct retaliation against steep U.S. tariffs taking effect this week, focusing instead on a relief package for industries hit hardest by the levies, sources familiar with the strategy said.

Wide-ranging exemptions granted in U.S. President Donald Trump’s executive order last week spared some of the most vulnerable sectors of Latin America’s largest economy, to the relief of many investors and business leaders.

That has left Brasilia cautious about responding to Trump with reciprocal tariffs or other retaliation that could escalate tensions, said government officials, who requested anonymity to discuss confidential deliberations.

Talks with Washington are likely to be slow and complex, said one of the sources, so Brazil’s government is prioritizing immediate relief for exporters, such as through public credit lines and other support for export finance.

Another official said the government is studying potential responses to the tariffs that would affect U.S. companies, but sees them as a last resort if negotiations fail.

Those potential countermeasures, now under review, could include suspension of royalty payments for pharmaceutical patents and media copyrights, two sources said.

The government had also signaled last year that it was preparing a new tax that could affect big U.S. tech companies, but shelved the plan this year to avoid antagonizing Trump ahead of his April tariff announcement.

At the time, Brazil was saddled with a 10% tariff, among the lowest in the world, which many credited to a longstanding U.S. trade surplus with Brazil.

Trump then tied a steeper 50% tariff in July to what he called a political “witch hunt” against former President Jair Bolsonaro, a right-wing ally on trial for an alleged coup plot to overturn his 2022 election loss.

Brazilian President Luiz Inacio Lula da Silva initially said he would respond under the country’s Economic Reciprocity Law, passed by Congress to provide legal grounds for countermeasures against trade sanctions, fueling speculation about retaliation.

Talk of reciprocal action has since faded, even as Lula criticizes Trump’s rationale for the tariff hike, defending the independence of Brazil’s judiciary and insisting any negotiations should remain strictly focused on trade.

U.S. tariff exemptions granted last week for Brazil’s aviation, energy and mining industries were taken in Brasilia as evidence that patient diplomacy and lobbying by affected U.S. companies seeking relief was the best way to get results in Washington.

Brazil also said it plans to file a formal complaint at the World Trade Organization over the tariffs, even though that dispute settlement system has been stalled since the first Trump administration.

“You still need to go through the available channels,” one Brazilian official said, while acknowledging that a resolution is unlikely under the current state of the WTO.

More immediately, the government is fine-tuning measures to shield sectors most hurt by the U.S. tariffs set to take effect on Wednesday, extending financial relief to companies already facing canceled contracts.

Officials have said the package will likely include credit lines and possible tweaks to the export credit insurance and export financing mechanisms, according to one of the sources.

Finance Minister Fernando Haddad, who said relief measures could begin rolling out this week, on Friday said the government was never committed to retaliating against Washington.

“We never used that verb to characterize the actions the Brazilian government will take,” he said.

“These are actions to protect sovereignty, to protect our industry, our agribusiness, our agriculture,” he told reporters. “That word (retaliation) was not present in the president’s speech, nor in any minister’s.”

(Reporting by Marcela Ayres, Bernardo Caram, and Lisandra Paraguassu; Editing by Brad Haynes and Bill Berkrot)