Bolsonaro's trial stalls negotiations with the US: "If he is convicted, there will be no agreement"

Amid the trial of former President Jair Bolsonaro (PL) by the Federal Supreme Court (STF) and new criticism of Donald Trump launched by President Lula (PT) from the stage of his temporary presidency of the BRICS, Brazilian businesspeople find themselves “interdicted” in negotiations on the tariff hike and in the US government’s investigations into alleged unfair trade practices in Brazil.

Negotiations conducted during the mission organized by the National Confederation of Industry (CNI), which brought together around 130 businesspeople and leaders of state federations in Washington at the beginning of the month, did not produce concrete results.

The delegation participated in the public hearing at the Office of the United States Trade Representative (USTR), opened in July to investigate the Section 301 investigation, which accuses Brazil of adopting discriminatory trade practices.

However, USTR representatives did not comment on expanding sectoral exceptions to the tariff hike, nor did they hint at the possibility of additional surcharges or other non-tariff sanctions. Instead, they made it clear that the negotiations were not limited to trade defense.

Sources interviewed by Gazeta do Povo admitted that the current situation is one of perplexity and a complete lack of hope for a short-term solution, as any progress depends on political developments. "The debate is blocked, the political issue is not being negotiated, Lula continues to provoke, and [Bolsonaro's] trial is still ongoing here in Brazil. Everything is blocked," says a business executive who prefers to remain anonymous.

Lula's attacks and Bolsonaro's trial

Even though business leaders don't express it publicly, there's a climate of irritation with the government's inaction and Lula's new attacks against Trump this week at the virtual BRICS meeting.

On Monday (8), to the leaders of the BRICS countries (China, Russia, India, South Africa, Iran, Egypt, Indonesia, United Arab Emirates and Ethiopia), Lula stated that the pillars of the international order are being eroded and that BRICS is an alternative to unilateralism and “tariff blackmail” which, according to him, threatens the sovereignty of emerging countries.

"There's a group of businesspeople who believe the government is focusing on electoral and sovereignty issues, leaving the private sector aside," says another industry representative. "But few speak out. There's fear of alienating the government and also that arguments will be turned against us. Any misplaced word could further jeopardize negotiations."

"Lula should at least stop talking," he says, arguing that a channel of negotiation should be opened. "Governments need to talk. Presidents need to sit down at the table. It's clear to us that this isn't just a technical issue, it's political. We're doing everything we can technically, but the political channel is missing."

The assessment, however, is not unanimous. An executive who requested anonymity says he is highly skeptical of any initiative by the Brazilian president. "It won't work," he assesses. "We've been to every [US] department: Commerce, Treasury, State, USTR, and even Capitol Hill. They were blunt: there's no point in Lula going to the US to open negotiations. What matters is Bolsonaro's trial. Period. If he's convicted, there's no deal."

Since everyone believes the Supreme Federal Court (STF) has already reached a verdict, the message now is for Congress. "He [Trump] is waiting for Congress to grant amnesty. Bolsonaro's fate isn't in the hands of the Supreme Federal Court, it's in Congress's, and they know it," he says. "What they want is for Bolsonaro to be freed from punishment. Meanwhile, the private sector remains hijacked by political agendas."

Section 301 Defense Divides Expectations

Despite the political turmoil, some leaders of sectors investigated by Section 301 say they are confident that additional tariffs or import restrictions will not be imposed. Welber Barral, former Director of Foreign Trade who represented some of the sectors at the USTR, says the arguments were well received. "We were able to defend the companies' interests very well," he emphasizes.

"In the case of furniture, we have no serious allegations," says Cândida Cervieri, executive director of the Brazilian Furniture Industry (Abimóvel). "The association presented figures, quality, standardization, traceability, sustainability, wood origin, and everything else. There is no slave or child labor, no reason for new sanctions."

According to the executive, the US represents about 30% of Brazilian furniture exports, but Brazil's share of the American market is minimal: "For the United States, this doesn't even represent 1%. Technically, there's no reason for them not to want an agreement."

For José Velloso, executive director of the Brazilian Association of Machinery and Equipment (Abimaq), also represented at the hearing with the USTR, the private sector “was very well prepared and defended the country very well.”

But this, according to him, doesn't guarantee victory because the environment is too "contaminated by politics." "I'm not making a prediction, but it won't be easy for Brazil to emerge victorious in 301," he says. "The verdict won't be handed down by the American judiciary, but by the Trump administration."

The solution, for Velloso, involves negotiating with American counterparts, that is, the companies' clients in the United States. "It's not simple, nor quick, but it's what we have left," he says.

"They [American companies] can push to have tariff exemptions extended to our sectors. They won't solve the entire tariff problem, but they might be able to secure some items that Brazil exports and that they need to buy without the 50% tariff."

Sectors also bet on other markets

At the same time, companies are looking for alternatives to minimize the impacts of the reduction in exports to the American market, which fell 18.5% in August , the first month of the tariff hike, according to the Ministry of Development, Industry, Commerce and Services (MDIC).

"It's a time when we can't stand still," says Cervieri, speaking to Gazeta do Povo from Saudi Arabia, where he is organizing a furniture fair in search of new business partners together with the Brazilian Trade and Investment Promotion Agency (Apex).

"We are stepping up initiatives to open up the market together with other companies, regardless of the outcome of the negotiations. We've recognized in the past that this structured move was important, but the path isn't easy in the short term."

The machinery and equipment sector, one of the hardest hit by the tariff hike, is also betting on the strategy, but faces specific challenges. "Machinery isn't a commodity," says Velloso.

"Selling machinery abroad requires quality, reliability, and competitive pricing, as well as investments in promotion, distribution, parts and machinery inventory, assembler training, and technical assistance. It's also necessary to adapt products to each country's technical standards, such as ISO in Europe, DIN in Germany, and specific standards in the US and Japan. Building trust—all of this takes time," he states.

The tariff hike affects 7% of the machinery and equipment industry's revenue, and companies that export to the United States typically derive more than 50% of their revenue from that market, due to their size. The maximum impact, in an extreme case, if sales to the US were to be eliminated, would be a loss of approximately R$23 billion, with the loss of 20,000 direct jobs and approximately 80,000 indirect jobs.

In addition to diversifying markets, companies have sought to increase efficiency through tax planning and cost reduction. "This includes fully activating credits and customs regimes, accelerating refunds, reviewing product engineering and logistics routes, and renegotiating prices and tax compliance to prevent fines," explains Leandro Alves, a tax law specialist at Bento Muniz Advocacia.

For Cervieri, all the cards are on the table to mitigate the effects of the tariff hike. "There's no forecast, no one knows what's going to happen," he says. "I think everyone is waiting until next week to venture a guess. Every day is different. I never thought I'd live through such an uncertain time. That's why we need to act on all fronts."