Trump order excludes aircraft, OJ, energy from Brazil tariffs

The U.S. signed an executive order imposing tariffs on Brazil, explicitly linking the action to Brazil's prosecution of former President Jair Bolsonaro. However, the order notably excluded key Brazilian exports such as aircraft from Embraer and wood pulp from Suzano, leading to an 11% surge in Embraer shares and over 1% gain for Suzano. This targeted approach, alongside sanctions on a Brazilian Supreme Court justice, signals U.S. pressure on Brazil's political landscape while strategically mitigating economic impact on major Brazilian industries.

Analysis

The United States has implemented a new 50% tariff on select Brazilian exports, an action officially linked to the prosecution of former Brazilian President Jair Bolsonaro. However, the executive order strategically excludes several key products, most notably aircraft from Embraer and wood pulp from Suzano. This targeted exclusion provided significant relief to the market, evidenced by an 11% surge in Embraer's shares and a gain of over 1% for Suzano. The decision to spare these companies is material, given that Embraer exports 45% of its commercial aircraft and 70% of its executive jets to the U.S., a market where a tariff would have had a severe impact. The simultaneous U.S. sanctioning of a Brazilian Supreme Court justice overseeing the Bolsonaro trial underscores the geopolitical nature of the measures, suggesting a U.S. strategy of applying direct political pressure on the Lula administration while mitigating broad economic damage to critical bilateral trade relationships.

Key Decisions for Investors

• For investors in Embraer (ERJ) and Suzano (SUZ), the tariff exemption removes a significant near-term risk, justifying the positive share price reaction and potentially supporting a re-rating of these specific equities.
• Investors with broader Brazilian market exposure should exercise caution, as the selective nature of the tariffs and accompanying sanctions indicate heightened geopolitical risk for sectors not explicitly protected.
• It is critical to monitor the U.S.-Brazil political relationship and the domestic legal proceedings involving former President Bolsonaro, as any escalation could lead to an expansion of tariffs, directly impacting previously shielded assets.