Brazil will pursue negotiations rather than confrontation with the US over President Donald Trump's decision to impose 25% tariffs on steel and aluminium imports, as officials and industry leaders coordinate their response before the measures take effect in March.

"Trade wars benefit no one. Brazil does not encourage and will not engage in any trade war," Institutional Relations Minister Alexandre Padilha said, as quoted by Valor, reflecting the government's cautious approach to the dispute.

The tariffs, announced on February 10, eliminate quota arrangements that had benefited several countries including Brazil, which exported 3.4mn tonnes of steel slabs to the US in 2024.

The measure significantly impacts Brazil, which trails only Canada as the second-largest steel supplier to the American market.

"In the past, when tariffs were increased quotas were set. That's a smart mechanism," Vice President Geraldo Alckmin told reporters in Brasilia.

Still, he pointed out that the US maintains a trade surplus with Brazil, saying the South American nation was "not the problem."

The National Confederation of Industry (CNI) meanwhile warned the measures would harm both countries, highlighting how the levies would sharply increase costs for US producers.

"Only in the medium and long term could one consider a process of replacing imports with domestic production in the US," said the CNI, as quoted by O Globo.

Finance Minister Fernando Haddad called the tariffs "counterproductive to the improvement of the global economy" but noted they were "not a decision against Brazil, it is something generic for everyone."

He said his ministry is gathering information to present to President Luiz Inacio Lula da Silva.

Earlier this week, Folha de S. Paulo had quoted a government source as saying that if the US imposed tariffs on steel, Brazil would consider hiking taxes on major US tech firms, a possibility which Haddad later denied.

Quotas

Brazilian officials are hoping to preserve the quota system established during Trump's first term, which allowed Brazil to export up to 3.5mn tonnes of semi-finished steel and 687,000 tonnes of rolled products without tariffs.

The arrangement had been maintained under President Joe Biden but was abruptly revoked by Trump's latest order.

"This agreement has now been in effect for about six years, and if it lasted that long, it's because it was beneficial for both parties," said Marco Polo de Mello Lopes, head of the sector’s trade group, Aço Brasil, as quoted by Reuters.

The industry group rejected Trump's allegation that Brazil was being used to circumvent restrictions on Chinese steel.

According to figures from the Brazilian Aluminium Association (Abal), 16.8% of Brazilian aluminium exports go to the US, generating $267mn in 2024.

The steel and aluminium sectors combined exported $4.14bn worth of products to the US in 2024.

Brazilian government sources said they aim to take advantage of the period before the March 12 implementation date to analyse the impacts and seek diplomatic solutions, noting that Trump has previously revised similar decisions following negotiations, such as the recent postponement of tariffs on Mexico after successful talks with President Claudia Sheinbaum.

Rising costs in the US

The dispute could have unintended consequences for the US industry. Brazil spent $1.4bn on US metallurgical coal imports last year alone – essential for steel production – with over $6.2bn in purchases over the past five years, according to trade ministry data.

Most remarkably, the tariffs could lead to higher prices for US consumers on products ranging from appliances to automobiles.

A US-based economist at ICIS said that steel tariffs would surely increase manufacturing costs in the US and warned of potential lower capital expenditure in building production plants, which would ultimately contradict Trump’s much-touted goal to bring back manufacturing to the US.

“A tariff raises the price in the market as domestic steel producers raise the price for steel to match the tariff… Higher price lowers the quantity demanded (law of demand) but does increase quantity supplied by domestic producers. Tariffs allow inefficient domestic products to remain in the market when then they could not have done so without the tariff,” said Kevin Swift.

“Steel tariffs will raise the cost of building a chemical plant, for ongoing maintenance, etc. These will hit hard when the government policy is to foster re-shoring and FDI [foreign direct investment] in the US.”

Swift added that during Trump’s first term, a study analysing the tariffs' employment effects found that while US metals sectors could generate 26,000 jobs over three years, mainly in steel, the broader economy would lose 433,000 positions during the same period.

“[This] Owing to damage of higher steel and aluminium prices on customer industries,” said the economist.

“Another analysis focusing solely on steel shows that steel users paid an additional $5.6bn for more expensive domestic steel; steel users will pay about $650,000 for each job created in the steel industry.”

US trade surplus

The dispute comes as Brazil and the US maintain strong trade ties, with bilateral trade reaching over $80bn in 2024. The US has maintained a solid trade surplus with Brazil since 2008, reaching $253mn last year.

Specifically in steel-related products, including coal and machinery, the US enjoys a $3bn surplus in $7.6bn of bilateral trade.

Brazil's steel exports totalled 9.6mn tons in 2024, dropping 18% from 2023, according to Aço Brasil data. The US imported 5.6mn tons of steel slabs last year to meet domestic demand, with 3.4mn tons sourced from Brazil.

As they gear up for negotiations with Washington, Brazilian officials are reportedly coordinating their response through the Ministry of Development, Industry and Trade, led by Vice President Alckmin, and the Foreign Ministry.

The Lula administration's measured response may reflect broader diplomatic efforts with the US, including recent cooperation on improving conditions for deported Brazilian migrants after some arrived handcuffed on a repatriation flight.

Meanwhile, as talks proceed behind the scenes, industry representatives have largely deferred public comments to their associations, with ten major companies declining to comment.