New US tariff puts pressure on Brazil's coffee sector

The U.S. government announced last Wednesday (July 9) that it will apply a 7% tariff on products imported from Brazil, Latin America's largest economy and the world's largest coffee producer. Brazil is the U.S.'s 50th-largest trading partner. The U.S.'s main exports to Brazil are commercial aircraft, petroleum products, coal, and semiconductors, while Brazil's main exports to the U.S. are crude oil, semi-finished steel, pig iron, and coffee, as well as other food products such as orange juice, meat, and eggs.

According to Laleska Moda, market intelligence analyst at Hedgepoint Global Markets, the immediate concern for the market is a possible rise in inflation resulting from the imposition of tariffs on trading partners like Brazil, especially since the US is a net importer of goods, which could also leave less room for future interest rate cuts. "In this sense, despite the dollar's recovery during the week, the index remains close to its lowest level in three and a half years, having fallen about 10% this year," she says.

This can be explained, according to the analyst, mainly by investors who view the US economy as a risk, given all the trade and economic uncertainties, with the dollar losing some of its place as a "safe haven" currency. In addition to the current volatility in trade policies, the market is closely monitoring Trump's proposed tax cuts and spending bill (which contributed to the weakness of the US dollar index) and the Fed's next moves.

Regarding the coffee market, the analyst explains that a 50% tax on Brazilian products could have a direct impact on the sector, as Brazil is not only the world's largest producer, but the US is also its largest importer. In recent seasons, Brazilian beans accounted for about 30% of all US coffee imports. If the beans were taxed at 50%, this would affect coffee prices for Americans and possibly result in lower shipments to the US and changes in the global flow of coffee.

"It's worth noting that, despite rising coffee prices, U.S. coffee import data has shown a recovery close to average levels so far in the 24/25 season, after falling in the 23/24 and 22/23 seasons. Although coffee prices are higher than in previous years, the impact on consumer income is smaller than in economies like Brazil, where the product still accounts for a larger share of income," he highlights.

However, further price increases could impact imports and demand, especially since Brazil is the US's largest coffee trading partner and can currently meet the country's demand. Brazil also has greater coffee availability at the moment, as most other countries, especially those that produce Arabica, are in the off-season.

Data analyzed by Hedgepoint Global Markets shows that other major players, such as Vietnam, have high tax rates (currently 20%), which could further impact US coffee prices and demand. "While changes to Trump's tariff policy are possible, we're likely to see more market volatility in the coming months," says Moda.