Goldman Sachs has projected the upcoming U.S. effective tariff rate on all Brazilian imports, accounting for exemptions, to be 30.8%. This estimate also considers potential additional sectoral tariffs.
The institution further notes that Brazil’s potential tariff retaliation could negatively affect both economic activity and inflation more extensively. These tariffs and potential retaliations suggest complex trade relations between the two countries.
Impact on Currency Markets
We are now looking at a potential 30.8% effective tariff rate on Brazilian imports, which will almost certainly cause major disruptions. The most immediate effect we anticipate is on the currency markets. Derivative traders should consider strategies that benefit from a weakening Brazilian Real against the U.S. dollar, as capital will likely flow out of Brazil.
The Brazilian Real has already shown weakness this month, sliding from 5.35 to 5.52 against the dollar amid these escalating trade talks. Looking back at the U.S.-China trade dispute in the late 2010s, the smaller economy’s currency consistently bore the brunt of the pressure. We expect this pattern to repeat, making put options on the Real, or long positions in USD/BRL futures, a logical response.
This outlook also spells trouble for Brazilian equities, particularly the iShares MSCI Brazil ETF (EWZ). We have already seen the EWZ fall nearly 9% in July 2025 as investors price in this risk. Buying put options on EWZ is a direct way to position for a further downturn as corporate profits get squeezed by these new trade barriers.
Opportunities and Risks
The threat of retaliation from Brazil creates opportunities in specific U.S. sectors. Brazil is a major importer of U.S. ethanol and machinery, which would be prime targets for counter-tariffs. We would monitor large U.S. industrial and agricultural firms with significant sales exposure to Brazil for signs of weakness.
Given Brazil’s status as the world’s largest exporter of soybeans and coffee, any disruption will create significant price volatility in commodity markets. Based on trade data from 2024, the U.S. remains one of the top destinations for Brazilian coffee. Traders can use options on coffee futures to position for the wide price swings that are likely to occur in the coming weeks.
Overall market uncertainty is set to rise, which suggests a move into volatility-linked products. The CBOE Volatility Index (VIX) has already crept up from 16 to 19.5 this past month. We believe buying VIX call options is a prudent hedge against the broader market shock that would accompany a formal tariff announcement.
