US tariffs on Brazilian goods: Economic consequences and dividend outlook

On July 9, US President Donald Trump said that the US planned to impose a 50% tariff on Brazilian goods starting on Aug. 1. The move could have significant repercussions for Brazil’s economy, as the US is the second-largest destination for Brazilian exports, following China. In 2024, Brazil exported about $40.4 billion-worth of goods to the US, with key segments including crude oil, steel and coffee.

How has Brazil responded?

With the looming tariffs potentially leading to a loss of more than 100,000 jobs in Brazil, trimming an estimated 0.2% from the country’s GDP, President Luiz Inácio Lula da Silva indicated that Brazil would invoke its recently approved Economic Reciprocity Law if negotiations with the US falter. This law, effective on July 15, empowers Brazil to suspend trade concessions, investments and even intellectual property rights in retaliation against unilateral actions that threaten its interests. Furthermore, China has publicly expressed its support for Brazil, offering to enhance trade relations and expand its markets to Brazilian products, specifically those that may be adversely affected by the US tariffs.

Which companies are likely to be impacted from a shareholder return point of view?

• WEG SA (BVMF: WEGE3.SA): Recognized for its motors used in vehicles, wind turbines and power transmission lines, WEG is one of the most vulnerable Brazilian companies when it comes to the tariff implementation. Having reported lower-than-expected second-quarter results due to geopolitical uncertainties, the company will have to counterbalance the negative effects of the imposed tariffs by rerouting some of its exports. As a result, the company is planning to leverage its operations in Brazil to supply countries like Mexico and India, which could then fulfill US demand. That said, although WEG’s Brazilian-made products constitute less than a third of its US sales, macroeconomic shifts are still likely to impact business dynamics for 2025. Financially, free cash flow is projected to drop by 24% and net debt is projected to rise by 3.5% as the company deals with additional costs to strategically maneuver its operations. As a result, we forecast that the company will distribute a dividend of 0.06 Brazilian real per share in September, down 36.2% quarter over quarter and 14.3% year over year.

• Embraer SA (BVMF: EMBR3.SA): The Brazilian-based aircraft manufacturer is facing significant headwinds when it comes to the new tariffs imposed. The US is Embraer’s largest market, accounting for 45% of the company’s commercial jet exports and 70% of its executive jet exports. According to management, the tariff impact could potentially trigger a decline in the company’s revenue, similar to what it experienced during the COVID-19 pandemic, when revenue fell by approximately 30%. Additionally, the company estimates that the new tariffs could increase the price of a jet for US buyers by approximately $9 million, potentially leading to airlines unwilling to bear the increased costs and delaying deliveries until the tariff situation is resolved. As the company deals with a projected decline in free cash flow of 53% and a projected rise in capital expenditures of 89%, our forecasts highlight a 36% decrease in dividends for fiscal year 2025.

Which companies are not likely to be impacted from a shareholder return point of view?

• Suzano Papel e Celulose SA (BVMF: SUZB3.SA): Pulp company Suzano will not likely face financial implications derived from tariffs in the short to medium term. While 15% of Suzano’s revenue comes from US operations, the company’s low costs, flexibility to reallocate volumes, and global scales can help it withstand tariff pressures. Suzano has recently formed a joint venture with Kimberly-Clark Corp., a global leader in the consumer staples industry, with the deal valued at $3.4 billion and focusing on manufacturing, marketing and distributing consumer and professional tissue products in more than 70 countries. From a manufacturing perspective, 22 facilities will be located across 14 countries, highlighting Suzano’s global footprint and diversification of its operations, decreasing the company’s reliance on the US market, which accounted for more than 40% of the total timber exported by Brazil in 2024. Following a disciplined capital allocation priority, Suzano maintains a balanced amortization schedule and robust liquidity. This, coupled with expected increases in revenue and free cash flow of 8.2% and 72%, respectively, supports our forecast dividend rise of 9% for fiscal year 2025.

• Marfrig Alimentos SA (BVMF: MRFG3.SA): As the second-largest food processing company in Brazil, Marfrig is at a privileged position when it comes to the macroeconomic challenges faced. Unlike one of its top competitors, Minerva SA (BVMF: BEEF3.SA), Marfrig benefits from having a large part of its operations in the US, which would likely insulate the company from potential risks associated with tariffs. With the US occupying its position as the second-largest market for Brazilian beef, the company is able to continue rewarding its shareholders while cutting costs that could have potentially put downward pressure on its financials. As of the previous quarter, 76% of Marfrig’s expected combined revenue post-merger with BRF SA, a poultry and pork processor, was derived from international operations, and given Marfrig’s expected annual expense reduction of 320 million reais post-merger, these factors reinforce a projected 40% dividend increase for fiscal year 2025.