US President Donald Trump ambushed Brazil and Argentina on Monday, announcing tariffs on US steel and aluminum imports from the two countries in a measure that shocked South American officials and left them scrambling for answers.
In an early morning tweet, Trump said the tariffs, “effective immediately,” were necessary because “Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers.”
In fact, the opposite is true: Both countries have actively been trying to strengthen their respective currencies against the dollar. Analysts said the origin of Trump’s decision may lie in the domestic political consequences of his China trade war.
U.S. farmers represent a key demographic for Trump ahead of the November 2020 election, and they have watched in vain as the trade dispute has hurt the competitiveness of U.S. agricultural products, allowing their Brazilian and Argentine peers to get rich off China.
“For many Brazilians, this smells like revenge for their country’s soybean farmers bonanza – they have benefited enormously from the U.S.-China trade war by replacing U.S. soybeans sales into China,” said Kim Catechis, head of investment strategy at Martin Currie.
Representatives for the U.S. State Department and the Office of the U.S. Trade Representative did not respond to a request for comment.
Brazil’s president, Jair Bolsonaro, an avowed Trump fan who has sought closer US ties, said he would call his US counterpart and seek mercy.
“I don’t see this as retaliation,” Bolsonaro told Radio Itatiaia. “I’m going to call him so that he doesn’t penalize us … and I’m almost certain he’ll listen to us.”
Argentine Production Minister Dante Sica said Trump’s announcement was “unexpected” and he was seeking talks with U.S. officials. Additionally, Argentina’s Foreign Ministry said it will begin negotiations with the U.S. State Department.
“We are trying to get more precision (about the announcement) and what impact it could have” both commercially and administratively, Sica said.
Argentina’s production ministry said the country has exported around $520 million in steel and aluminum to the United States so far this year after exporting $700 million in 2018. The ministry added it was working with Brazil to define a joint position and plan of action.
Trump first announced metals tariffs against Brazil and Argentina in March 2018, but they never came into force as he granted Brasilia and Buenos Aires a permanent exemption.
Monica de Bolle, senior fellow at the Peterson Institute for International Economics, believed Trump’s tweets were an effort to pressure Brazil and Argentina into helping him with China.
“What he actually wants … I strongly suspect, is ‘we need you to reduce your exports of ag products to China’ because that’s really what’s hurting (U.S.) farmers,” she said.
Trump’s accusation that the Brazilian and Argentine currencies were being artificially devalued was met with widespread skepticism.
The head of Brazil’s Central Bank, Roberto Campos Neto, said the Brazilian real is a floating currency and that the central bank does not target a value.
Campos Neto said in a speech in Sao Paulo that the real’s recent slide was related to disappointment in an oil auction that failed to attract big investors. Argentina put in place currency controls to steady its beleaguered peso.
Trump also urged the Federal Reserve to lower interest rates so countries “no longer take advantage of our strong dollar. Lower Rates & Loosen – Fed!”
Trump has repeatedly urged the U.S. central bank to lower rates to below zero, but Fed policymakers have been reluctant. Fed policy makers hold their next meeting on Dec. 10-11.
Otavio Barros, spokesman for Brazil’s Bolsonaro, said Brazilian authorities would contact U.S. officials to discuss the currency, without elaborating.
The Instituto Aco Brasil, the country’s main steel lobby, said it was “perplexed” by Trump’s decision. It said in a statement that Brazil’s government could not be meddling with the real as the currency is free-floating.
“The decision to tax Brazilian steel as a way of ‘compensating’ the American farmer is a retaliation against Brazil,” it said. “Such a decision ends up hurting the American steelmaking industry itself, which needs semi-finished products exported by Brazil in order to operate its mills.”
Shares of U.S. steelmakers rose on Monday, while Brazilian steelmakers’ shares fell initially but then rebounded.
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