Argentina and Brazil are different in currency and steel

President Trump dropped his threat to reinstate Section 232 tariffs on Brazilian steel and aluminum.  Trump and Brazilian President Jair Bolsonaro spoke by phone on Friday.  Brazil claims to have persuaded Trump not to follow through on his threat to reimpose the 25% tariffs on Brazilian steel (including semi-finished slabs that are important imports for several steelmakers in the US.).  He made that threat on December 2nd in a surprise move.

The US was retaliating against Brazil and Argentina for currency manipulation, which Trump said gave them an advantage in global trade against the US.  Brazil is a major importer of semi-finished steels into the US and operates today under a quota system that it negotiated in 2018 in place of the 25% tariffs that were applied to all importers under Section 232 and the premise of national security threats.  In regard to currency, we did not view Brazil as a currency manipulator and it has not seen significant currency devaluation over the past year, certainly much less than Argentina has seen.trends in the currencies of Argentina and Brazil lately.

Quotas versus tariffs have made the import pattern lumpy, where used up quotas at the end of the quarter result in very low imports for the last month of the three, but then a sharp increase in the first month of the next quarter.  The pattern on imports can be seen in the monthly charts below, along with the differing trends in the currencies of Argentina and Brazil lately.

Both Brazil and Argentina have had success gaining market share in Chinese food markets against US companies that ran into tariff or other trade-related issues.  However, Argentina much more than Brazil, in our view, has also used its currency more aggressively than most in competing.  Steel from Argentina is a very small part of the US market.  Bottom line is that Trump rescinding his threat means it is back to normal in the Brazilian steel import situation.


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