What Trump’s victory means for Brazil

Donald Trump's return to the US presidency in January will have economic and political ramifications for Brazil. 

Shortly after the Republican candidate clinched the 270 electoral votes needed to become the US president-elect, the main index of the Brazilian stock exchange fell over 1% while the country's currency depreciated to 5.80 per US dollar.

"Trump defends a protectionist trade policy and this will have a negative impact on Brazilian exports such as steel, automobiles,and other industrial goods, generating a depreciation of the Brazilian currency against the dollar, and inflationary pressures," Roberto Troster, former chief economist at Brazilian banking federation Febraban, told BNamericas.

"Such effects should create a greater sense of urgency in the Brazilian government to quickly adopt measures to control public spending, to strengthen the government's tax side and avoid disturbances in the prices of local assets."

Trump's return to power could also have political implications for Brazil's left-leaning administration, as President Luiz Inácio Lula da Silva declared his support for Democratic Party candidate Kamala Harris. During his first term in 2017-21, Trump had a close ideological affinity with then-president Jair Bolsonaro, the main political rival of Lula's workers' party.

"Trump's victory could energize right-wing forces in Brazil. This is quite negative for Lula because if the centrist parties supporting his administration in congress realize that the winds are blowing in favor of rightwing forces, then they will jump ship," Mário Sérgio Lima, an analyst at Medley Global Advisors, told BNamericas.

"This effect could be harmful to the fiscal side of the government because, to maintain its support base in congress, the administration may be forced to increase spending instead of adopting a more restrictive fiscal policy." 

Recently, government officials have admitted that Trump's election could generate volatility in financial markets and that new fiscal measures were under evaluation to contain the fallout.

"The main element is for Brazil to do its homework well, regardless of the results of the elections in the United States," Maurício Muniz Barretto de Carvalho, PAC’s special secretary, told BNamericas in a recent interview.  

"If we have fiscal and regulatory stability, we'll bring investments. Lula has already governed Brazil with the US having Republican and Democratic presidents, so the important thing is that we do our homework and guarantee stability, which the Lula government is doing."

Lula was previously president for two consecutive terms, between 2003 and 2010, which coincided with the US administrations of George W. Bush, a Republican, and Barack Obama, a Democrat. On Wednesday, he suggested he would work with Trump.

"My congratulations to President Donald Trump on his electoral victory and return to the presidency of the United States. Democracy is the voice of the people and it must always be respected. The world needs dialogue and joint work to have more peace, development and prosperity. I wish the new government luck and success," said Lula on social media. 

Meanwhile, Brazil's private sector is grappling with the prospect of new or increased tariffs to ship to the US market.

"It's difficult to predict the effects of barriers for companies that do not have operations in the US. In our case, we do not expect any impact because we have production units in the United States and this would not be affected by any tariffs," said Gustavo Werneck, CEO of Brazilian steelmaker Gerdau.

"In any case, the result of the elections in the US does not affect our investment program, which focuses on our operations in Brazil and throughout North America, including the US, Canada and Mexico."