LIVE MARKETS-Economic risk or political power-up - what Brazil's tariffs mean for Lula

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ECONOMIC RISK OR POLITICAL POWER-UP - WHAT BRAZIL'S TARIFFS MEAN FOR LULA

The impact of U.S. President Donald Trump's sweeping 50% tariffs on Brazilian exports last week may be felt in the country's national elections more than its economy, Wells Fargo said on Friday.

Brendan McKenna, an economist at the American bank, said that the tariffs could give current president, Luiz Inacio Lula de Silva, a platform to rally support for the elections, scheduled for October 2026.

The tariffs could give Lula the political and economic justification to implement a more "populist" policy agenda with a focus on fiscal support that could raise his image with low-income households and other demographics, McKenna said.

The left-leaning leader of Latin America's biggest economy has seen approval ratings drop and structural problems arise as his administration goes back and forth with the legislature. Fighting Trump on the tariffs could restore his "patriotic" image, McKenna added.

He also noted that if the tariffs go into effect, Lula could get a scapegoat to blame for any potential economic slowdown, renewed inflation pressures, or local financial market volatility, even though the Brazilian economy is not dependent on trade with the U.S.

And here comes the twist. Lula is not the only one who can use the tariffs to his benefit.

Trump's tariff letter linked the levies to the treatment meted out to former right-wing Brazilian president Jair Bolsonaro, who is banned from running for public office till 2030, while facing charges of plotting a coup against Lula following the 2022 elections.

McKenna said if Bolsonaro negotiates the tariffs off Brazil, the public favor could tilt to the right - to Bolsonaro himself - if he is allowed to run or a successor.

Wells Fargo sees the October 2026 election yielding a more conservative and right-leaning government, despite the tariffs potentially boosting Lula's chances at a fourth term in office.

(Purvi Agarwal)

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