The possible victory of the Republican Donald Trump in the United States presidential election tends to further increase the upward pressure for the dollar in Brazil, according to analysts interviewed by Reuters, in a movement that has already begun to be anticipated in recent days, with the North American currency surpassing the R$ 5.70.
Trump increased his favoritism over the Democrat Kamala Harris in betting markets and led polls in key battleground states, albeit by narrow margins. In this scenario, since last week the dollar has risen against most of the currencies of emerging countries, including the real. After closing September at R$5.4491, the spot dollar was quoted at R$5.73.
Although the “Trump factor” is not the only element supporting the dollar against the real, analysts say that an increase in pressure is to be expected if the Republican’s victory is confirmed in the November 5 election.
“We have seen this upward pressure on the exchange rate when the possibility of Trump winning is more prominent. Much of this is due to partner import surcharge proposal of the USA”, said Leonel Mattos, Market Intelligence analyst at StoneX.
READ MORE: Why Trump’s promise to tax imports should be taken seriously
Trump has already announced that he plans import rates higher than 60% on Chinese products and 10% to 20% on goods imported from other countries. Last week, it threatened to impose tariffs of 150% to 200% on Chinese products if China moves against Taiwan.
Impact on Brazilian exports
“This is negative for Brazilian exports, because the USA is the country’s second largest trading partner”, recalled Mattos. If it exports less to the USA, Brazil will also receive fewer dollars, which tends to increase the currency’s exchange rate against the real.
Data from the Ministry of Development, Industry, Commerce and Services (Mdic) show that Brazil exported US$ 36,916 billion in goods for USA em 2023which corresponded to 10.9% of the general total exported. For the China – main trading partner – exports added US$ 104.325 billionor 30.7% of sales.
More than increasing import tariffs to 20% in general, increasing Chinese tariffs to 60% tends to worsen global economic conditions, says Mauro Schneider, economist at MCM Consultores Associados.
“It is worth remembering that China has grown at a slower pace than ever before, largely at the expense of the industrial sector and exports. If, due to the USA, China encounters barriers, it may have difficulty sustaining the growth rate, which is still quite reasonable, at around 4%”, explains Schneider. If it grows less, China will also buy less from countries like Brazil.
Inflation
In addition to the consequences for global trade, analysts have assessed that the imposition of Higher rates would have an inflationary impact for the USA, with repercussions also for Brazil.
Cost pressure on products could also be intensified if Trump, if elected, makes good on his promise to limit the entry of immigrants into the US and promote mass deportations.
“This would increase labor costs, which impacts inflation. If this happens, either interest rates will stop falling sooner than expected in the US or they will rise again”, said Schneider. “And rising interest rates in the US always attract capital, which generates a strengthening of the dollar and pressure on currencies like the real,” he added.
Fiscal imbalance
Another point of attention is linked to Trump’s promises to reduce taxes. The former president plans to extend all the tax cuts he managed to pass in Congress in 2017, exempt Social Security and tip income, and further reduce corporate income taxes.
The changes could add $3.6 trillion to $6.6 trillion to U.S. primary deficits over 10 years, a Reuters report showed in September.
“It is part of Trump’s speech to lower taxes, and we know that reducing taxes, combined with rigid spending, will increase US debt,” said the economist Gesner Oliveirapartner at GO Associados. “The US will end up being led to raise interest rates, and this ends up appreciating the dollar and devaluing emerging market currencies.”
For Gesner, Trump’s victory alone also raises tension in global geopolitics, as the Republican is famous for making decisions on impulse and criticizing multilateral organizations, such as the UN.
In an increasingly tense world, with wars in the Middle East and Eastern Europe, Trump’s unpredictability would be yet another pressure factor.
“With Trump, (Russian President Vladimir) Putin is strengthened and a reasonable agreement for the Middle East becomes uncertain. All of this greatly increases volatility,” said Gesner.
Trump X Kamala
The most recent Reuters/Ipsos poll on the US elections indicated that Vice President Kamala Harris leads with 46% of voting intentions nationally, against 43% for Trump, with a margin of error of 2 percentage points.
The advantage, however, may not be enough to ensure the Democrat’s victory in the election. National surveys give important signals about the opinions of the electorate, but it is the electoral college results, state by state, that determine the winner.
Analysts project that the US election will be defined by seven key states: Arizona, North Carolina, Georgia, Michigan, Nevada, Pennsylvania and Wisconsin. According to website 534 linked to ABC Newswhich uses aggregate polls, Trump would be leading in four of them and Kamala in three – in all cases, with differences of a few tenths.
Newspaper search Washington Post showed a tight race between the two candidates in these seven states.
The Polymarket website shows that bets on Trump’s victory have grown, going from around 50% at the beginning of October to 63% last Wednesday. (Fabricio de Castro)
