Coffee, Ethanol, and Aircraft: Navigating the US-Brazil Trade Relationship for Investors

Introduction

The US-Brazil trade relationship, one of the largest bilateral corridors in the Western Hemisphere, has been thrown into fresh uncertainty this month. On July 15, 2026, the US announced a 25% tariff on most Brazilian imports under Section 301 of the Trade Act, effective July 22. The tariffs are the culmination of a yearlong investigation and mark a significant escalation in what has been an unusually volatile stretch for one of the most important trade corridors in the Americas.

The tariffs will affect a broad range of Brazilian exports, though several sensitive categories are exempted, including coffee, beef, orange juice, aircraft, and energy products. Brazil’s President Lula has rejected the decision as “groundless” and pledged countermeasures, including WTO action and the activation of Brazil’s Reciprocity Law. A separate probe into forced-labour enforcement in Brazilian supply chains could add another 12.5% duty on affected goods.

Beyond the immediate market implications, the tariffs have significant political dimensions. They come against the backdrop of former Brazilian President Bolsonaro’s 27-year prison sentence for plotting a coup, and Lula’s re-election campaign heading into Brazil’s October 2026 presidential election. Both sides are positioning the trade dispute as much for domestic political consumption as for economic effect.

For investors, the US-Brazil corridor sits across dozens of sectors, from agriculture and energy to aircraft, steel, and industrial machinery. This article, the latest in our trade relations series, breaks down what’s happening, which sectors are exposed, and what investors should watch as the tariffs take effect. It follows on from our previous coverage of the April Section 232 tariffs, the critical minerals battleground, the US-Vietnam relationship, and other trade corridors that are being reshaped under the Trump Administration.

What Just Happened: The July Tariffs Explained

The tariffs announced this week are the product of a Section 301 investigation launched in 2025. Section 301 gives the US Trade Representative authority to impose tariffs in response to what the administration deems “unfair” trade practices by another country. It is a different legal framework from Section 232, which was used for the April tariffs on metals and pharmaceuticals, and it allows for more targeted actions against specific bilateral practices.

The investigation concluded that Brazil engaged in a range of practices judged unfair to US interests. The USTR’s Section 301 investigation cited concerns over Brazil’s digital trade policies, including support for the Pix instant payment system, which the US argues disadvantages foreign electronic payment providers, and Brazilian judicial orders affecting US technology companies, including content-removal requirements. It also cited preferential tariff treatment for certain trade partners such as Mexico and India, insufficient anti-corruption enforcement, weak intellectual property enforcement, barriers to US ethanol exports following Brazil’s 2017 tariff changes, and inadequate enforcement against illegal deforestation.

The 25% headline tariff applies to most Brazilian exports to the US, but several strategically important categories are exempted. Coffee, beef, orange juice, aircraft and parts, and energy products are all off the tariff list, at least initially. This reflects both political calculation (US consumers would immediately feel higher coffee and beef prices) and industrial reality, as Embraer aircraft are integral to US regional airlines and defence.

A separate probe into forced-labour enforcement in Brazilian supply chains is ongoing. If it concludes with additional duties, it could add another 12.5% to certain categories, particularly agriculture and mining.

Trade Volume and the Balance of Power

The US-Brazil trade relationship is one of the largest in the Americas but has a somewhat unusual structure. Unlike most emerging market trade relationships with the US, Brazil actually runs a trade deficit with the United States.

US goods exports to Brazil reached approximately $54.4 billion in 2025, up 10.7% from 2024. US goods imports from Brazil totalled around $39.9 billion in 2025, down 5.7%. When services are added, the US trade surplus with Brazil reached $33.5 billion by Q3 2025, a multi-year high. This is one of the largest bilateral surpluses the US runs with any major economy.

This unusual structure is worth noting because it means the tariffs are being applied to a country from which the US buys less than it sells. The political framing around “unfair trade practices” is less about correcting a US deficit than it is about specific bilateral disputes. For Brazil, this makes the tariffs feel particularly punitive, since the US already benefits from a large trade surplus.

The composition of trade flows also matters. US exports to Brazil are dominated by capital goods (roughly $23 billion), industrial supplies and materials, and consumer goods, altogether around $50 billion. Brazilian exports to the US are more concentrated in petroleum, iron and steel, agriculture, and aircraft.

Key Sectors at a Glance

The following table summarises the major categories of Brazilian exports to the US, based on full-year 2025 data:

Source: US Census Bureau — Trade in Goods with Brazil, full-year 2025 data.

The pattern is clear. The most politically sensitive categories to US consumers – coffee, beef, and orange juice – are exempted. The most industrially strategic, aircraft and energy, are also protected. What is left is largely raw materials and industrial goods, where US buyers have more flexibility to source elsewhere.

Petroleum and Iron: The Industrial Backbone

Petroleum is by far the largest single category of Brazilian exports to the US, accounting for roughly $8.2 billion in 2025. Brazil’s Petrobras produces some of the highest-quality crude in the world, particularly for refineries on the US Gulf Coast, which are optimised for heavy sour crude. The energy exemption in the tariff package reflects this strategic dependence.

Iron and steel exports, at around $3.5 billion in 2025, are less protected. Brazil is one of the world’s largest iron ore producers, and Brazilian steel has been an important input for US construction, automotive, and infrastructure sectors. However, the April Section 232 tariffs already imposed a 50% tariff on steel and aluminium. The new 25% Section 301 tariff on top of that pushes Brazilian steel into an even less competitive position in the US market.

Vale, the Brazilian mining giant, sits at the centre of the iron ore story. Its exports to the US are relatively small compared to its Chinese-facing business, but the tariffs create additional complications and could accelerate Vale’s diversification toward Asian and European buyers.

Aircraft: Embraer’s Strategic Position

The exemption of aircraft and parts from the tariffs is one of the most significant elements of the package. Brazilian aircraft exports to the US totalled around $2.2 billion in 2025, dominated almost entirely by Embraer, one of the world’s largest producers of regional jets.

Embraer’s E-Jets are the backbone of US regional airline fleets, who operate hundreds of these aircraft. Imposing tariffs on Embraer would have consequences for US regional aviation, at a time when the airline industry is still recovering from the oil price shocks earlier this year. The effects could also be long-term, as fleet replacement is not instant.

For investors, Embraer’s exemption is broadly positive but not entirely so. The tariffs on other Brazilian sectors could depress Brazilian economic activity broadly, affecting domestic demand for Embraer’s commercial and executive aircraft. And political tensions around the broader trade dispute could complicate future joint ventures or programme cooperation.

Coffee: The Consumer-Sensitive Exemption

Coffee is perhaps the most politically sensitive category in US-Brazil trade. Brazil is the world’s largest coffee producer, and the US is the world’s largest coffee consumer. Any tariff on Brazilian coffee would immediately show up in US retail prices, an outcome the administration was clearly keen to avoid.

The coffee exemption is a reminder of the political calculation behind targeted tariffs. During earlier Brazilian coffee tariff episodes (when duties briefly rose to 46.5%), monthly import volumes dropped sharply. The pass-through to consumers was rapid and highly visible. The current exemption prevents a repeat.

For investors, this creates a specific dynamic. Coffee-related companies with heavy Brazilian sourcing, including Starbucks, Nestle, and JDE Peet’s, benefit from the exemption. Coffee traders and roasters are also spared disruption. But the exemption is conditional and could be removed if tensions escalate further.

Ethanol: A Long-Standing Dispute

One of the specific complaints cited in the Section 301 investigation is Brazil’s barriers to US ethanol exports. This is not a new dispute, US and Brazilian producers have been sparring over ethanol trade for years. Brazil is one of the world’s largest ethanol producers, primarily from sugarcane, while the US produces mainly from corn.

The tariffs are designed in part to pressure Brazil to open its market to US ethanol. Whether they succeed will depend heavily on Brazil’s political calculus and the willingness of the Lula government to make concessions to what it perceives as a hostile administration.

For investors, ethanol producers on both sides face uncertainty. US corn ethanol producers, including Archer Daniels Midland and Green Plains, could benefit if Brazil opens its market. Brazilian producers, including Cosan, face potential downside if the trade dispute escalates. The situation is fluid and depends on political rather than purely commercial dynamics.

Meat and Agriculture: The Beef Exemption

Beef is another politically sensitive exemption. The US imported approximately $1.12 billion of Brazilian meat in the first five months of 2025 alone, with frozen cattle meat volumes up 143% year-on-year. US demand for lean trimmings from Brazil has been strong, particularly for hamburger production.

The exemption is largely about US consumer prices. Beef costs have risen sharply since the pandemic, with ground beef prices up roughly 72% since January 2020, driven by supply chain disruptions, drought in major cattle-producing states, and a multi-year contraction in the US cattle herd. Any tariff-driven increase would land squarely on already-stretched US households. JBS, the Brazilian meat giant with substantial US operations, is well-positioned regardless of the tariff outcome given its diversified geographic footprint.

Orange juice, another exempted category, tells a similar story. Brazilian orange juice concentrate dominates US supply, particularly after Florida’s citrus industry has struggled with disease and hurricanes. Any tariff would be immediately visible on grocery store shelves.

Other agricultural categories are less protected. Sugar, tobacco, cocoa products, and various processed foods face the full 25% tariff, adding costs for both Brazilian producers and US industrial buyers.

Political Context: The Bolsonaro Factor

The trade dispute cannot be fully understood without its political context. Brazil’s former President Jair Bolsonaro received a 27-year prison sentence in 2025 for plotting a coup after losing the 2022 election to Lula. His political movement remains active, and members of his family, particularly Senator Flavio Bolsonaro, have been active in Washington.

The Brazilian government has claimed that the Section 301 investigation was launched with the active collaboration of the Bolsonaro family. Lula has directly accused Flavio Bolsonaro of helping trigger the tariffs after a visit to Washington, an accusation the senator denies while acknowledging he plans to lobby the Trump administration to delay tariff implementation.

The political dimension matters for investors because it makes the tariffs less about economic bargaining and more about a broader political struggle. This makes them harder to resolve through normal trade negotiations and more likely to persist through Brazil’s upcoming 2026 election.

Some analysts have argued that the tariffs may actually help Lula politically, providing him with an external adversary against which to unify Brazilian voters. The tariffs could become an “election gift” that boosts Lula’s standing rather than pressuring Brazil into concessions, particularly against the backdrop of high services imbalances.

Winners and Losers

The immediate effects of the tariff struggle create winners and losers on both sides of the corridor.

Winners:

• Coffee, beef, and orange juice-related US companies (Starbucks, JBS US operations, various food producers) benefit from continued tariff-free supply
• Embraer maintains its US market access and US regional airlines do not suddenly have higher aircraft costs
• US alternative suppliers of steel and industrial materials benefit from reduced Brazilian competition
• US ethanol producers could gain if Brazil opens its market as a concession
  

Losers:

• Brazilian steel, machinery, chemicals, and non-exempt agricultural exporters face 25% tariff pressure
• US industrial buyers of Brazilian raw materials face higher input costs
• US construction and manufacturing sectors that use Brazilian steel face compounding pressure from Section 232 and Section 301 tariffs
• Brazilian pulp and paper exporters face significant headwinds
• Broader Brazilian economic activity could slow, affecting corporate earnings across sectors

Sector Cascades and Supply Chain Effects

Like our previous coverage of the Hormuz supply chain disruption, the US-Brazil tariffs will create cascading effects across sectors.

Higher steel input costs will flow through to US construction, automotive, and heavy equipment manufacturers. Brazilian pulp is a key input for US paper and packaging companies, potentially adding to consumer goods costs. Machinery imports from Brazil have been a source of relatively affordable industrial equipment for US buyers; the tariff removes that advantage.

On the Brazilian side, exporters facing US tariffs will likely accelerate diversification toward Asian and European markets. This benefits Chinese, European, and increasingly Middle Eastern buyers who can source Brazilian materials and machinery without tariffs. Vale, JBS, Petrobras, and Embraer all have global customer bases and can rebalance to a degree. Even if US tariffs are eventually struck down by SCOTUS, newly forged supply chains may cause permanently higher prices for US buyers.

For investors, the cascading nature of tariff effects means portfolio impact goes well beyond the directly affected companies.

Foreign Direct Investment Flows

US-Brazil investment flows are substantial. US foreign direct investment in Brazil has grown steadily over the past decade, with US companies operating extensively in Brazilian oil and gas (ExxonMobil, Chevron), consumer goods, technology, and financial services. Brazilian investment in the US is more concentrated in food processing (JBS, Marfrig), aerospace (Embraer), and mining (Vale operations).

The tariff dispute could complicate future investment decisions in both directions. US companies planning Brazilian investments face increased political risk. Brazilian companies considering US expansion face a less welcoming environment.

However, longer-term investment ties are unlikely to unwind quickly. The two economies are deeply intertwined at the corporate level, and both governments have significant incentives to preserve the underlying commercial relationship even amid political tension.

Geopolitics: Brazil’s Balancing Act

Brazil, like Vietnam, practices a version of strategic non-alignment. It maintains active relationships with both the US and China, is a founding member of BRICS, and has cultivated ties with the European Union, India, and other emerging economies.

The Trump administration’s tariffs may push Brazil closer to China, which is already Brazil’s largest single trading partner. Chinese purchases of Brazilian iron ore, soybeans, and beef have grown steadily, and Chinese investment in Brazilian infrastructure has expanded. If the US relationship deteriorates further, Brazil’s economic pivot toward China could accelerate.

Brazil is also actively deepening ties with the EU. The EU-Mercosur agreement that we covered earlier this year gives Brazilian exporters improved access to European markets, potentially offsetting some of the US tariff impact.

For investors, Brazil’s geopolitical positioning matters because it shapes which markets absorb Brazilian production going forward. A Brazil that increasingly serves Asian and European buyers is a different investment story than one primarily oriented toward the US.

Future Outlook: Where the Relationship Is Headed

Several factors will shape the trajectory of US-Brazil trade over the coming months:

• Brazil’s countermeasures. Lula has committed to activating the Reciprocity Law and pursuing WTO action. Both take time to have effect, but they signal that Brazil will not simply absorb the tariffs passively.
• The forced-labour probe. If the pending Section 301 investigation into forced labour concludes with additional duties, the effective tariff burden on some Brazilian exports could rise to 37.5% or higher.
• Brazil’s 2026 election. Lula’s political standing and the outcome of the upcoming Brazilian presidential election will significantly shape how the trade dispute evolves. A Lula victory likely means continued confrontation. A right-wing victory could lead to negotiations.
• US electoral politics. The tariffs are part of a broader Trump administration trade strategy. Any shift in US political dynamics could affect enforcement priorities and negotiation flexibility, and the US midterm elections will be held in November.
• Exemption stability. The exemptions for coffee, beef, orange juice, aircraft, and energy are political decisions that could be modified. Watch for any suggestions of changes to these categories.
• Bolsonaro family political activity. Continued lobbying by Bolsonaro allies in Washington could either intensify or ease trade tensions, depending on how the Trump administration receives them.
• China-Brazil trade acceleration. Watch for major new Chinese-Brazilian trade or investment deals as evidence of accelerating diversification away from US dependency.

Sector Implications and DCSC

The US-Brazil corridor cuts across some of the most important sectors of global trade. DCSC’s Dynamic Company Sector Classification system tracks over 1,500 sectors, giving investors the granularity to map their portfolio exposure to specific industries affected by the tariff dispute.

Key sectors to explore include agriculture (coffee, beef, orange juice, soybeans), aerospace (Embraer), energy (petroleum), metals (iron ore, steel), machinery, pulp and paper, ethanol, and consumer goods. Each has distinct dynamics within the US-Brazil relationship and different exposure to tariff, political, and supply chain risks.

The US-Brazil relationship is likely to remain a significant flashpoint in global trade policy through at least the end of 2026. For investors, understanding both the immediate tariff impact and the broader geopolitical context is essential for identifying risks and opportunities.

Explore the full sector taxonomy on our homepage.