Make steel not war: Why Brazil softened its stance on US tariffs

Performing something of a diplomatic U-turn, the administration of Brazil's Luiz Inácio Lula da Silva has opted for a less confrontational approach to US tariffs on steel and aluminum.

Just hours before US President Donald Trump announced on Monday tariffs on all steel and aluminum imports, Lula was still vowing to retaliate. 

However, on Tuesday the tone changed. "Brazil does not encourage and will not enter into any trade war. We are always in favor of strengthening free trade more and more," Alexandre Padilha, minister of institutional relations, told an event with mayors in Brasília.

"What Lula has said very clearly is that trade wars are not good for anyone. One of the important advances in the world in recent years was exactly that we built instruments for dialogue with countries." 

Brazil has softened its tone because the tariffs aren't specifically aimed at the country, so "it doesn't make sense" to take a tough stance, a person close to the matter told BNamericas, asking not to be identified.

In addition, talks aimed at implementing a new quota system that allows tariff exemptions are seen as more effective instruments. 

A quota system was negotiated during Trump's first term between 2017 and 2021, when he imposed similar tariffs.

Any negotiations for a quota system would be influenced by the private sector in both countries, as the tariffs have an impact across sectors.

"The United States imported 5.6Mt of slabs in 2024 due to insufficient domestic supply to meet product demand in its internal market, of which 3.4Mt came from Brazil. Brazilian steel exports to the United States fully met the conditions established under the 'hard quota' system, never exceeding the volumes set for both semi-finished products and rolled products," steel association Aço Brasil said in a statement.

"Aço Brasil and its associated companies are confident a dialogue between the governments of the two countries will be opened to restore the flow of steel products to the United States based on the agreements made in 2018, due to the longstanding partnership and the understanding that the 25% tariff on Brazilian steel products will not be beneficial for either party," it added.

The US business community doesn't seem happy either.

Jim Farley, the CEO of Ford Motor Company, the country's second-largest automaker, criticized the tariffs during a conference, NBC reported.

“President Trump has talked a lot about making our US auto industry stronger, bringing more production here, more innovation in the US, and if his administration can achieve that, it would be one of… the most signature accomplishments,” Farley reportedly told the event. “So far what we’re seeing is a lot of cost, and a lot of chaos.”

The tariffs add to existing troubles in the steel industry.

China, the world's biggest producer, has been directing a large part of its production to exports as its construction sector slowed down.

In the process, global steel prices fell and impacted companies everywhere.

The US tariffs exacerbate the situation in Brazil because almost half the country's exports go to the US and new markets are currently not available.