Brazil offers $5 billion for companies hit by tariffs

0:03Hello and welcome to Business Matters. I'm Liana Byrne. On the programme today, Brazil's president unveils a sweeping plan to help exporters hit by tariffs. But will it work? We spoke here in Brazil with mango producers that said that tons of the fruit would likely go rot because they wouldn't be able to export it. Meat exporters are estimating a billion dollars in losses until the end of the year. And why more companies are telling workers to take their shoes off in the office. If the secretary is signaling that all of that would be in play, if there are sufficient revenues attached to the Treasury, then that would be a wholesale change to how the export controls work.

0:42Now, he did seem to suggest that there would still be some red lines not to be crossed based on national security grounds. So that clip was actually about a controversial White House deal with US chip giants NVIDIA and AMD that could soon be grolled out to other industries. Now, here is why more companies are telling workers to take their shoes off in the office. We just make sure that people are comfortable in the office environment. And then so we do not do this to make them distracted or anything like that. This, in fact, helps them just relax and they can just focus on what they are working on.

1:16That sounds nice. What do you think of that? No shoes in the office? Maybe that's the norm where you are in the world. you can contact us on WhatsApp or send us a voice note on plus 44 330 678 3033. Or you can just email us anytime on world.business at bbc.co.uk. Now, I'll be joined throughout the programme by two guests on opposite sides of the world. Han Shen Li, China Country Director at The Asia Group, based in Shanghai. and Diane Brady, Executive Editorial Director at Fortune in New York. Hello to you both. Great to be here. Thank you. Diane, since you spoke first, no shoes in the office.

1:59What do you think? I am not a fan. I think work is work and home is home. And I can't imagine my colleagues walking around with little slippers. I say, let people wear their own footwear. Bring your own footwear to work. Yeah, nice one. And Han, what do you think about that? No shoes in the office. People can sleep on the floor as well. That's what our guest was telling us. We'll hear more of that later on the program. But yeah, I mean, do you just, you have to be at work. You know, you got to be professional, right? Yeah, yeah. So first of all, thanks for having me on. So being out here in China, it's actually quite normal to take off your shoes at home and to wear slippers.

2:42But in the office, I've never seen people wear slippers. And maybe it's the fact that I came previously from the financial services industry. So we tend to be a little bit stayed in our fashion. And so therefore, I haven't yet seen it expressed through different types of slippers in the office yet. Well, very good. Yeah, maybe there might be some BBC slippers they might give at some point, although I doubt it. But listen, we'll talk about that later on the programme because we're going to start with Brazil. Because when it comes to US tariffs, Brazil is one of the hardest countries hit. So it's just come up with a plan to help companies after the United States slapped import tariffs of up to 50%.

3:22So here's the plan. Brazil's president, Lula da Silva, says more than$5 billion in credit will be made available to affected companies and has agreed to buy the goods made by firms that had their contracts suspended since the tariffs came in earlier this month. The Trump administration's linking the tariffs to what it calls restrictions on free speech and the trial of former President Jair Bolsonaro over an alleged coup attempt in 2023. President Bolsonaro is a good man. I've gotten to know a lot of prime ministers and presidents and kings and queens. And I know him and I'm pretty good at this.

4:00President Bolsonaro is not a dishonest man. He loves the people of Brazil. He fought hard for the people of Brazil. he negotiated trade deals against me for the people of Brazil. And he was very tough. And he was tough because he wanted to do a good deal for his country. He was not a dishonest man. And I believe it's a witch hunt and it shouldn't be happening. Now, President Lula da Silva rejected the accusations and said Brazil would look for new markets for its exports. He also said there's no room for direct talks with President Trump that would likely be a humiliation. So what is happening?

4:38The civilized way for two heads of state to negotiate is to have the will to take the decision along with Brazil.

4:48He could have communicated with Brazil. He could have called. He could have proposed a negotiation. But we received the taxation statement in a completely authoritarian manner. And we are not used to negotiating in this way. Not like this. One of the people potentially affected by these tariffs is Amiram Teixeira, who collects and sells acai berries.

5:14With these tariffs we're facing, our products' production and price will drop, and it's going to be hard for us, really hard for us, working in the acai business. It's tough because they're imposing high tariffs, and acai is a source of income here. We're already feeling the impact. If no negotiations happen, it will be difficult for us. Our plan B might be selling within Brazil, within the country.

5:42So let's hear more from on the ground and understand what the impact of these tariffs are. So I asked our reporter Camila Mota in Sao Paulo. It's been exactly a week now, so we're still waiting for consolidated numbers. But sectors like the fruit industry and the seafood industry have already reported losses. You know, we've heard that dozens of containers with lobster fish ready to be shipped were held at ports. We just heard from acai producers. We spoke here in Brazil with mango producers that said that tons of the fruit would likely go rot because they wouldn't be able to export it. Meat exporters are estimating a billion dollars in losses until the end of the year.

6:22You know, and Brazil is a big coffee exporter and coffee producers haven't given a number, but almost 17 % of all their exports are shipped to the US. They're trying to redirect their product to other markets. But as we know, that's not an easy move. So they're worried and meanwhile, still trying to negotiate, you know, that their product is included in the exemption list. Well, Camila, will you talk us through this package? What's in it? Right. So today in Brasilia, Lula laid out this plan to help exporters, which has three main pillars, I'd say. A credit line worth around$5.5 billion that companies can resort to and ease on their tax burden and the strengthening of government purchases, prioritizing the worst affected sectors.

7:09Lula said his team is still trying to reach out to Washington to negotiate while also seeking for other markets Brazil could sell its products to. Over the past week, Lula had phone calls with Indian Prime Minister Narendra Modi and with China's President Xi Jinping. So a lot of things going on at the same time. Camilla, what are business owners, what are they saying about all this? Who stands to gain the most from this support? Right. So companies had a strong input on the aid package announced today. Weeks ago, the government had set up a committee with businesses and government officials to discuss possible alternatives, you know, how Brazil could respond to the tariffs.

7:52And the business people I spoke to were very afraid that Brazil would choose the path of retaliation, you know, and that could potentially escalate the current crisis. So they're glad in general that this was the first response and the aid package could alleviate the impact of these first few months, I'd say, and give time to companies to reorganize their strategies. But of course, it won't completely avoid losses. You know, I was speaking to seafood exporters in one of the worst affected regions in the northeast of Brazil, and they said they would probably have to squeeze their margins to sell their products to government programs, you know, because due to the exchange rate, the price there they get exporting is considerably higher than what they get domestically.

8:36That was our reporter Camila Mota in Sao Paulo. To discuss this further, I spoke to Welber Bajo in Brasilia. He's the former Brazilian Secretary of Foreign Trade from when current President Lula was previously in power. He's now a lawyer specialising in international trade. The United States is not the main trading partner of Brazil. It's China today. So Brazil exports around 11 % of its total exports to the United States. Some sectors are particularly hit. When you think about fruits, for example, or coconut juice, or furniture, 80 % of the Brazilian exports go to the U.S. market. So you have some particular sectors, especially with middle-sized companies, and that's what the government is trying to help now.

9:24So, Welber, you think from a policy point of view that this is going to make a big difference? Yes, it is. because the fact is that Brazil decided to resist because many of the U.S. complaints are related to domestic policies in Brazil and Brazil doesn't know it. Not even the president is able to negotiate things like decisions from our Supreme Court or the interpretation of laws regarding the digital platforms. So this can't be negotiated. And Brazil is trying to export these products to other destinations. And it's not, of course, it's not going to be possible for large products like coffee.

10:0530 % of the US consumption comes from Brazil, but I don't think they are going to fight coffee anywhere. That was Wilbur Bajo in Brasile. He is the former Brazilian Secretary of Foreign Trade. Diane Brady, Executive Editorial Director at Fortune. I'm just wondering, I mean, we got the Brazil perspective there, but how are moves like these judged in the US? Well, I think a lot of people, and I'm sure your listeners too, are scratching their heads. Let's start with the fact, as the last speaker said, the minister, the former minister, you know, governments are supposed to impose tariffs for economic reasons, protect industry, et cetera.

10:43If you want to punish behavior, you typically use diplomacy or sanctions. This is a government that's using tariffs to influence domestic policy. So I can't imagine grounds for Brazil to negotiate on the fate of Bolsonaro or any of the other demands. And we're seeing this across the board. We're seeing Canada and Mexico facing tariffs for not doing enough about fentanyl, you know, India being punished for buying oil from Russia. So we're really in unprecedented territory. And it's redefining what exactly a tariff is for and makes it very, very tough for trading partners to come to the table. Switzerland is another country that's been hit hard, hasn't it?

11:25And I'm still very confused as to why. I mean, it's one of the reasons, of course, is to get them under the EU, allegedly. Again, I'm not in the White House. I would not be imposing these policies. But we have been speaking to a number of CEOs in Switzerland. Of course, they're suffering in the same way that Brazil is suffering. But these are geopolitical issues. These are they're exerting pressure on domestic policy. Of course, this is not, I believe, going to influence Switzerland's decision, whether it goes with the EU or any of the other things the U.S. wants. But it makes it what do you do?

12:05It's almost existential in this case because you're not dealing with access to markets. You're not dealing with protecting homegrown industries. there's a whole host of issues on which the very definition of nationhood comes into play. I mean, some people might see it as an effective economic tool because, in fairness, the UK came to the table, the EU came to the table in the end of the day, and China, they haven't struck a deal yet, but still, it seems like they're talking. I mean, look, this kind of behaviour can work for a while. It's certainly bringing a lot of money into the US government coffers.

12:42I mean, Howard Lutnick, the Commerce Secretary, estimated about$50 billion a month coming in from these tariffs. The question is for how long? A, what is this doing to longstanding trading relationships? And what's going to happen ultimately for prices? Because tariffs are charged ultimately to U.S. consumers. It makes it less attractive and it makes it tough on the people selling to those consumers. But the people who are going to eat the cost ultimately will be those who want to buy these products from abroad. Hanshan Lin, I'm going to come to you now because it's China watching something like what's happening in Brazil closely.

13:20Obviously, there's another 90 day delay to its trade talks with the US. But it's quite interesting. This is a country that is very much pushing back and it shows what happens when you push back. Absolutely. And in fact, when we look at how different countries have reacted to the U.S. tariffs, they basically fall into three categories. You've got countries that will just give up and accept whatever is imposed upon them. You have those directly fighting back. And then you have those that are seeking to negotiate. And China's been one of the early forerunners of us as a country and a market wanting to fight back against the U.S.

13:58tariffs. Hence, as you mentioned, we've got the ongoing discussion. But Brazil is actually very interesting. they're standing up for themselves. And when they're putting together this sovereign plan to help support the businesses, they're really accomplishing three objectives. They're providing an economic shield to the businesses. Lula gets to exert his leadership and show that he's protecting Brazil's interests. And it also allows Brazil to dovetail and really broaden their efforts to pivot away from U.S. dependence and really to focus more on China. And China welcomes that very much because China is very much focused on things such as food security and to be able to access not only commodity and agricultural products from Brazil, but to be able to see a common alignment of values in supporting multilateral trade, in being against U.S.

14:52unilateralism and the extraterritorial reach of its trade measures, China allows itself to see maybe this is an opportunity for them to show themselves as a responsible global stakeholder that other countries can follow too. It's interesting. I mean, how does a government decide whether to hit back or support from within? Because for China, it's the second biggest global economy, so it might be a lot easier for it to stand up for itself. But for other countries, it probably isn't. Absolutely. You know, the ability for each country to retaliate, it really depends on their trade leverage. And Brazil's kind of in that in-between situation where they're not a small nation.

15:35They're certainly large enough to get the U.S.'s attention, but they seem not to have an approach of wanting to retaliate and hit hard directly, but more focused on just protecting themselves to buy time for any transition that they need. Diane, yes, go ahead. No, I was going to ask you a question. Go ahead. Yeah. These are not, I mean, there's also the, part of it is how dependent you are on the US, I agree, but it's also look at what's being asked. I mean, there's one thing about imposing a particular tariff about your dumping, et cetera. You're actually telling a country what to do on a domestic policy.

16:16You're calling, you're trying to influence who's in charge of that country. I mean, I feel like any nation would want to stand up to that level of interference. It certainly helps that Brazil is not as dependent on the U.S. as some other countries. But I think the demands vary quite radically around the globe. It's unusual to have a trade war with everyone, but it's not being applied equally across the board. And is that being felt in the US, Diana? Do people recognise that and say, our country is asking other countries around the world to essentially change their own policies for what we want?

16:55I mean, look, I'm not going to speak for all Americans because as you know, and we've talked about on this show, it's quite polarised. There are people who are incredible fans of Donald Trump And I listen to a lot of the media that is very supportive. And the narrative there is quite different. They're talking about unfair practices worldwide. And there's great support for Donald Trump standing up to these countries across the board. I think certainly when I talk to people in the business community, there's incredible concern on the basic level that tariffs are not being applied for economic reasons.

17:33It's hard to predict. Now we've got export fees, etc. So the lack of certainty and the lack of logic, in all honesty, is quite disturbing. And it's not the way typically trade policy operates. Because the US essentially was, you know, is still the dominating, you know, world force. And it was more through soft power. But do you think this fuels a trend of countries looking for alternatives, particularly to the US market? And does that risk, does that bring any risk for the US, particularly the companies inside it? Yeah, I mean, look at what's happening in Europe with the defence industry. So there are some positive impacts with regard to building homegrown industries.

18:17But I think this fortress mentality that you're seeing around the world is going to continue. And as nations look to other trading partners, specifically, you know, China, Russia, etc. Those links are not going to be unwound. I think trust is hard to gain, easy to lose, and it will be hard to gain again. I think some of these feel like generational changes, and I don't think we're going to go back to the status quo if there is a change of administration any time soon. So Han, does China look at this as an opportunity, particularly to deepen trade ties with other BRIC countries? Absolutely. In fact, China's in a different position where they actually got hit considerably by tariffs in the first Trump administration.

19:08So in the second administration, they feel like they've seen this playbook before and they're much better prepared. And so this time around, China came out with a much deeper and wider toolkit of different types of retaliatory measures should the U.S. keep raising its tariffs. because they've noticed one thing that's been different about the Trump administration this time, which is traditionally tariffs have been used as a trade tool, but now it's increasingly used to achieve non-economic objectives as well, such as addressing fentanyl precursors. And so this is something that China's noticing is a bit different this time, but they've been much better prepared to retaliate.

19:49But one of the things they've been trying to do is this, which is however they retaliate, they're trying to match the U.S. in a position of strength, but not to over-escalate it in order to keep negotiations open. And hence, we're continuing to see the negotiations extend, probably at least until Trump and Xi have a chance to meet each other. It's an interesting situation, though. These talks get delayed and that they are talking. But at the same time, I feel like both countries are making moves to decouplise from each other, to sever those trade ties, perhaps behind the scenes. Absolutely. And in fact, you know, this year is a special year, at least for China, because it's 2025, which means it's the end of the 14th five-year plan and the end of Made in China 2025, which is basically a 10-year decade plan to advance China's technology self-reliance.

20:44So next year, everyone's going to be focused on thinking what the new plans are. But fundamental of what China's development trajectory is, is how to become less reliant on the rest of the world and become increasingly self-reliant within its own economy. So, yes, that decoupling discussion continues onwards. And Diane, an interesting one is de-dollarization, isn't it? There's a lot of countries around the world talking about that. Does that pose a risk for companies in the U.S. at all? No, I mean, look, it's been talked about for some time. And I remember when there was actually, I think it was our renminbi denominated debt, you know, between Russia and China.

21:27I mean, I think the challenge right now is look at the alternatives. And this is not me sort of beating my breast as Team America here. But when you look at the liquidity, the strength of the markets, where the technological innovation is, the dollar remains strong, much stronger, in fact, than Donald Trump would like, you know, if you're dealing with this massive debt. But I so, yes, there's definitely a move away where possible. We're going to see the euro and many other the yuan, et cetera, you know, be the currency of choice where possible. But I think the dollar is not going away anytime soon as the default currency for most countries when it comes to global trade.

22:10Well, what do you think about that, Han? Do you think the yuan could take its place? You know, the yuan is likely to be an alternative regional currency. That much is a share. So where China has certain trade corridors, such as Africa or Latin America, the global south in general, the yuan is making considerable leeway. Because it's interesting that everyone recognizes the dollar is dominant. But China needs to feel like that's a way you have to work around because it affects China's national security as well. All right, Han Shen Li, thank you so much. And Diane Brady, don't go anywhere because we're going to be back with more from Business Matters.

22:59Welcome back to Business Matters with me, Liana Byrne. Now, the US Treasury Secretary says a controversial deal the White House struck with computer chipmakers NVIDIA and AMD, handing over 15 % of their Chinese sales in return for export licenses, could be rolled out to other industries. Scott Besson said the arrangement is a beta test that could go wider, but critics call it an export tax in all but name. I asked Dan Kim, Chief Strategy Officer at Tech Insights based in Washington, D.C., to remind us what was unusual about the NVIDIA AMD deal. The administration seems to have bought into this idea that the proliferation of certain AI chips, not the best ones, but certain AI chips, would be a positive benefit for U.S.

23:45national security. And so let's sell more of them. Let's sell them into China so that they don't develop their own or create market access opening for them to do so. And if there is some revenue to be made along the way, let's take advantage of that. That is a very new way of thinking. And I'm sure there are strong arguments on both sides of the argument here. Now, I'm hearing this and I'm thinking, is this essentially the U.S. inventing a new kind of export tax? Or is this more complicated than what I've just said? Well, with this administration, new things come out that are quite paradigm shifting.

24:16And so I think this is one of those things. The president values personal relationships. The president values deal-making. And so it's really interesting to hear the conversation that he and Jensen Wang, the CEO of NVIDIA, had. The president proposing 20 percent, Jensen saying, you know, 15 percent and settling on that. It'll be really interesting to see whether this is a one-time deal or whether this is a new framework to be imposed for export controls broadly or even access to the Chinese market broadly. You are a former senior official in U.S. government. So in your experience, how would a model like this even work outside semiconductors?

24:58Well, actually, my first thought is to stay within the semiconductor space and consider what other chips this might apply to. So presumably, this type of licensing fee would only apply to items that currently require a license but has not been given. So this includes certain type of memory chips, certain types of manufacturing equipment that has been restricted into China to keep them from making the most advanced semiconductors. So if the secretary is signaling that all of that would be in play, if there are sufficient revenues attached to the treasury, then that would be a wholesale change to how the export controls work.

25:31Now, he did seem to suggest that there would still be some red lines not to be crossed based on national security grounds. But as we saw in the last four months with the NVIDIA H20 chips, at least some of those red lines seem to be up for negotiation. So if we broaden out that circle, there are many types of chips that are not controlled. That is, they don't require a license to sell into the Chinese market generally. And this portion of the market is much, much bigger. And that market is close to, say,$200 billion, which is a little less than 30 % of the global market. So after the U.S., China is a close second when it comes to market size.

26:07And so pretty much all the semiconductor companies in the industry, revenues from China can be somewhere between 15 % to 25%, or in some cases, a majority of their sales. So, for example, if you're selling into the smartphone market, a majority of the smartphones sold into the world by volume are Chinese handsets. So it's very difficult for them to say, well, just don't do business there. And they're already facing increasing competition from China's domestic champions and chip makers, undercutting them in price. So for them to have to pay a tax on Chinese revenue would essentially mean that they have to give up a significant portion of their margins to just to have access to a very, very important market.