Lula Suspends Tariff Threat on US Goods, But Keeps Economic Reciprocity Law Ready

President Luiz Inácio Lula da Silva announced yesterday that Brazil will suspend the threat of applying retaliatory tariffs against United States goods, but will hold its powerful Law of Economic Reciprocity in reserve as long as bilateral trade negotiations continue. The move defuses, for now, a looming trade war that had threatened to disrupt supply chains affecting approximately $5.8 billion in Brazilian exports.

Speaking to international media, President Lula confirmed that his government had officially notified the US in August of the formal start to the reciprocity process—a step that could lead to Brazilian tariffs on US imports. However, he stated that while both sides remain at the negotiating table, Brasília will not move forward with the countermeasures. Lula has been a vocal critic of the US administration's actions, stating on more than one occasion that the US was acting "like an emperor" in its imposition of unilateral trade barriers, or tarifaço.

The underlying dispute stems from a series of US tariffs imposed in 2025 and 2026 following US investigations that alleged unfair trade practices by Brazil. These tariffs, which are applied on top of existing duties, target key Brazilian manufacturing sectors, including wood products, furniture, machinery, and footwear. The Law of Economic Reciprocity, signed by President Lula in 2025, grants the Brazilian executive branch the authority to impose proportional countermeasures against countries that apply unilateral restrictions harmful to national interests.

For the affected Brazilian industries, a full-blown trade war would immediately impair their competitiveness in the critical US market, risking order cancellations and potentially forcing Brazilian companies to shift away from US suppliers in deeply integrated supply chains. For US consumers and companies, the reciprocal tariffs would likely mean higher costs for a range of imported goods. Lula maintains that the US tariffs are unjustified and has warned that if negotiations fail to remove the existing levies, Brazil will not hesitate to use the reciprocity law.

The next steps depend entirely on the progress of the trade talks between officials in Washington and Brasília. By announcing a pause but maintaining the threat, President Lula is signalling a willingness to negotiate while leveraging the credible threat of Brazilian retaliation, placing the burden of de-escalation squarely on the US to remove or significantly reduce its existing trade barriers.

What it touches

The threat of reciprocal tariffs and the continuing uncertainty in the trade relationship impact sectors on both sides, including Brazilian companies in the machinery, footwear, and wood processing industries that export to the United States. Should the trade talks break down and the reciprocity law be applied, it would likely affect US companies that export machinery, chemicals, and potentially other products to Brazil.