Brazil stocks drop, real rebounds after Trump’s 50% tariffs

LONDON/NEW YORK (Reuters) -Brazil’s stock market slid on Thursday, but the real rebounded the day after U.S. President Donald Trump’s shock move to slap 50% tariffs on Latin America’s largest economy rather than the 10% previously indicated, citing political disagreements.

Currency volatility gauges were at their highest since the back end of April’s tariff announcements, after the real slumped as much as 2.8% on Wednesday in reaction to what Deutsche Bank described as an escalation of tensions. The currency ended down 2.3% Wednesday but bounced on Thursday and was up 0.5% to the dollar.

U.S.-listed shares of Brazilian companies fell, with a widely followed Brazil ETF down nearly 2%. Itau Unibanco fell 3.8%, Banco Santander was down 3.5% and state oil firm Petrobras lost 0.4%. The local benchmark fell 0.6%.

The impact of the tariff is still uncertain according to a Citibank analysis, but the announcement is a setback for Brazilian external accounts. “Moreover, further escalation could cause financial account outflows, potentially damaging asset prices,” Citi said.

Brazil’s bonds have been a strong performer in emerging markets this year, with international dollar-denominated bonds returning nearly 8% and local real ones a whopping 20%. The local stock market hit a record high this month and is among the cheapest in terms of dollars paid for expected earnings.

MSCI’s dollar-denominated Brazil stock index is up nearly 25%, too, helped by the year’s 13% surge in the real.

Graham Stock at RBC BlueBay Asset Management said Trump’s reasoning for the 50% tariff level had centred on his grievances around a court case against right-wing former Brazilian president Jair Bolsonaro, as well as legal moves against U.S. social media firms.

“The economic implications are nevertheless fairly modest,” Stock said, as just over 10% of Brazil’s exports go to the U.S., and were worth only around 1% of the South American country’s GDP.

“The risk is that President Lula seeks to exploit his defiance of U.S. interference as a badge of honour in the run-up to the October 2026 elections, in which case de-escalation becomes less likely,” he said.

Brazil is a closed economy that has a trade deficit with the U.S. U.S. consumers face sharp price rises on food staples like coffee and orange juice if the 50% tariffs stick, traders and experts said.  

Around a third of the coffee consumed in the U.S., the world’s largest drinker of the beverage, comes from Brazil and more than half of all the orange juice sold in the U.S. also comes from the South American agricultural powerhouse.

Wednesday’s decision by Trump followed a threat on Monday to impose an additional 10% tariff on the BRICS group of developing nations – of which Brazil is the ‘B’ – which he called “anti-American.” 

(Reporting by Marc Jones and Rodrigo Campos; editing by Bernadette Baum and David Gregorio)