Trump considers reciprocal tariffs on Brazilian ethanol

By Erin Voegele | August 12, 2020

President Trump during a press conference on Aug. 10 said his administration is considering reciprocal tariffs on Brazilian ethanol. The Renewable Fuels Association expressed support for Trump’s statement, but said it strongly prefers the return to a free and fair two-way ethanol trade relationship with the country.

Trump was asked during the press conference whether he has asked the U.S. ambassador to Brazil to focus his efforts on eliminating ethanol tariffs in the country. “We haven’t really discussed that too much, but at some point we probably will be,” Trump said, noting that “if they do tariffs, we have to have an equalization of tariffs, and we are going to be presenting something having to do with tariffs and fairness in tariffs. Because we have many countries for many years that have been charging us tariffs to do business, and we don’t charge them. And, it’s called reciprocity—it’s called reciprocal tariffs—and you may be seeing something on that very soon.”

Brazil currently has a tariff rate quota (TRQ) in place that allows, with seasonal restrictions, duty-free entry of 750 million liters (198.13 million gallons) of ethanol. Imports above that level are subject to a 20 percent tariff. The TRQ is currently set to expire at the end of August. According to the RFA, some Brazilian industry and government  officials have suggested that all U.S. ethanol should be subject to a tariff of at least 20 percent beginning in September.

The RFA set a letter to U.S. Trade Representative Robert Lighthizer on Aug. 11 noting that U.S. fuel ethanol exports to Brazil have fallen dramatically under the country’s current TRQ and 20 percent over-quota tariff, exacerbating the economic challenges already facing the American ethanol industry. “Even before COVID-19 battered world fuel markets, Brazil’s protectionist policies caused 2019 U.S. ethanol exports to Brazil to fall 33 percent compared to 2018 volumes,” wrote Geoff Cooper, president and CEO of the RFA, in the letter. “Ethanol exports to Brazil have continued to slide in 2020. Year-to-date exports to Brazil are down 15 percent compared to the same period in 2019 and 48 percent below the same period in 2018. It is estimated that Brazil’s trade barriers have already resulted in the loss of demand for nearly 350 million gallons of U.S. ethanol valued at nearly $400 million since late 2017.”

“Meanwhile, U.S. imports of duty-free Brazilian ethanol are surging,” Cooper continued, noting that year-to-date U.S. imports of Brazilian ethanol are at a seven-year high and nearly triple the five-year average volume of the same period.

“With the TRQ set to expire on August 31, 2020, there is growing concern that Brazil will eliminate the tariff-free quota and assess the 20 percent tariff on all ethanol imports from the United States,” Cooper wrote. “Worse still, some agriculture and trade officials in Brazil are suggesting the tariff on U.S. ethanol should be raised further to as much as 35 percent. Such a move by Brazil would be devastating to the U.S. ethanol industry, which is already suffering from the negative effects of COVID-19 on world fuel markets.”

Cooper stressed that the RFA wholeheartedly agrees with Trump that fairness in tariffs is an essential pursuit and said the RFA was pleased to learn that the administration may be presenting a plan very soon to restore fairness in ethanol trade with Brazil.

“While we would strongly prefer a return to the free and fair two-way ethanol trade relationship that we enjoyed with Brazil between 2012 and late 2017, it has become clear that the Brazilian ethanol industry (and some of the nation’s political leaders) no longer share our desire for free and open markets,” Copper continued. "Regarding ethanol trade, Brazil has chosen a path of protectionism and obstruction; unfortunately, at this point, it appears we have no choice but to respond in kind.”

Trump’s comments on the Brazilian ethanol tariff were made less than two weeks after the House Committee on Foreign Affairs sent a letter to Todd Chapman, the U.S. ambassador to Brazil, expressing alarm over his reported lobbying efforts regarding Brazilian ethanol tariffs. That letter cites a July 30 report in a Brazilian newspaper that claimed Chapman told his Brazilian counterparts that they could do the U.S. a favor and boost Trump’s electoral chances by eliminating the ethanol tariff. “These statements are completely inappropriate for a U.S. ambassador to make, and if true, would be a potential violation of the Hatch Act of 1939,” the committee wrote in the letter.

Chapman released a statement on Aug. 3 calling the Brazilian news reports a mischaracterization of the meetings he had with Brazilian officials. “Allegations were made that I suggested a particular outcome on an issue that would favor the election chances of one presidential candidate over another. Any interpretation of my defense of long-standing commercial interests during an election year as an attempt to benefit a particular presidential candidate is simply not correct,” Chapman said.

“What I have done in those meetings was to continue to advocate for open trade and cooperation on commercial issues as well as pursue other areas of mutual interest for both the United States and Brazil,” he continued. “At no time did I ask that Brazilians take any actions in support of any U.S. candidate. As a career diplomat with nearly 30 years of public service, I have had the pleasure to serve the U.S. government under administrations of both political parties. I always take very seriously my responsibilities under the Hatch Act, the U.S. legislation that restricts U.S. federal officials from participating in partisan political activities both within the United States and abroad. Moreover, it is the American people, and only the American people, who decide the outcome of U.S. elections.”