In an early morning tweet, Trump said the tariffs, “effective immediately,” were necessary because “Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers.”

In fact, the opposite is true: Both countries have actively been trying to strengthen their respective currencies against the dollar. Analysts said the origin of Trump’s decision may lie in the domestic political consequences of his China trade war.

U.S. farmers represent a key demographic for Trump ahead of the November 2020 election, and they have watched in vain as the trade dispute has hurt the competitiveness of U.S. agricultural products, allowing their Brazilian and Argentine peers to get rich off China.

“For many Brazilians, this smells like revenge for their country’s soybean farmers bonanza – they have benefited enormously from the U.S.-China trade war by replacing U.S. soybeans sales into China,” said Kim Catechis, head of investment strategy at Martin Currie.

Representatives for the U.S. State Department and the Office of the U.S. Trade Representative did not respond to a request for comment.

Brazil’s president, Jair Bolsonaro, an avowed Trump fan who has sought closer U.S. ties, said he would call his U.S. counterpart and seek mercy.

“I don’t see this as retaliation,” Bolsonaro told Radio Itatiaia. “I’m going to call him so that he doesn’t penalize us… and I’m almost certain he’ll listen to us.”

Argentine Production Minister Dante Sica said Trump’s announcement was “unexpected” and he was seeking talks with U.S. officials. Additionally, Argentina’s foreign ministry said it will begin negotiations with the U.S. State Department.

“We are trying to get more precision (about the announcement) and what impact it could have” both commercially and administratively, Sica said.

Argentina’s production ministry said the country has exported around $520 million in steel and aluminum to the United States so far this year after exporting $700 million in 2018 (all figures US$). The ministry added it was working with Brazil to define a joint position and plan of action.

Trump first announced metals tariffs against Brazil and Argentina in March 2018, but they never came into force as he granted Brasilia and Buenos Aires a permanent exemption.

Monica de Bolle, senior fellow at the Peterson Institute for International Economics, believed Trump’s tweets were an effort to pressure Brazil and Argentina into helping him with China.

“What he actually wants… I strongly suspect, is ‘we need you to reduce your exports of ag products to China’ because that’s really what’s hurting (U.S.) farmers,” she said.

Currency questions

Trump’s accusation that the Brazilian and Argentine currencies were being artificially devalued was met with widespread skepticism.

In Brazil, the recent slide in the real has caused a public outcry and led the central bank to intervene, while Argentina put in place currency controls to steady its beleaguered peso.

Trump also urged the Federal Reserve to lower interest rates so countries “no longer take advantage of our strong dollar. Lower Rates & Loosen – Fed!”

Trump has repeatedly urged the U.S. central bank to lower rates to below zero, but Fed policymakers have been reluctant. Fed policy makers hold their next meeting on Dec. 10-11.

The Instituto Aco Brasil, the country’s main steel lobby, said it was “perplexed” by Trump’s decision. It said in a statement that Brazil’s government could not be meddling with the real as the currency is free-floating.

“The decision to tax Brazilian steel as a way of ‘compensating’ the American farmer is a retaliation against Brazil,” it said. “Such a decision ends up hurting the American steelmaking industry itself, which needs semi-finished products exported by Brazil in order to operate its mills.”

Shares of U.S. steelmakers rose on Monday, while Brazilian steelmakers’ shares fell initially but then rebounded.

— Reporting for Reuters by Gabriel Stargardter in Rio de Janeiro and Andrea Shalal and Susan Heavey in Washington; additional reporting by Cassandra Garrison and Maximilian Heath in Buenos Aires, Lisandra Paraguassu in Brasilia, Pedro Fonseca in Rio de Janeiro and Herb Lash and Rodrigo Campos in New York.

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The temporary decree, which will expire unless it is ratified within 120 days by Congress, strips power over land claim decisions from indigenous affairs agency FUNAI.

It says the agriculture ministry will now be responsible for “identification, delimitation, demarcation and registration of lands traditionally occupied by indigenous people.”

The move stoked concern among environmentalists and rights groups that the far-right new president, who took office on Tuesday, will open up the vast Amazon rainforest and other ecologically sensitive areas of Brazil to greater commercial exploitation.

The executive order also moves the Brazilian Forestry Service, which promotes the sustainable use of forests and is currently linked to the environment ministry, under agriculture ministry control.

Additionally, the decree states that the agriculture ministry will be in charge of the management of public forests.

Bolsonaro, who enjoys strong support from Brazil’s powerful agribusiness sector, said during his campaign he was considering such a move, arguing that protected lands should be opened to commercial activities.

Brazil’s 900,000 indigenous people make up less than one per cent of the population, but live on lands that stretch for 264 million acres, or 12.5 per cent of the national territory.

“Less than a million people live in these isolated places in Brazil, where they are exploited and manipulated by NGOs,” Bolsonaro tweeted, referring to non-profit groups. “Let us together integrate these citizens and value all Brazilians.”

Critics say Bolsonaro’s plan to open indigenous reservations to commercial activity will destroy native cultures and languages by integrating the tribes into Brazilian society.

Environmentalists say the native peoples are the last custodians of the Amazon, which is the world’s largest rainforest and is vital for climate stability.

After she was sworn in on Wednesday, new Agriculture Minister Tereza Cristina Dias defended the farm sector from accusations it has grown at the expense of the environment, adding that the strength of Brazil’s farmers had generated “unfounded accusations” from unnamed international groups.

Dias used to be the head of the farm caucus in Brazil’s Congress, which has long pushed for an end to land measures that it argues hold back the agricultural sector.

“Brazil is a country with extremely advanced environmental legislation and is more than able to preserve its native forests,” Dias said. “Our country is a model to be followed, never a transgressor to be punished.”

In comments to reporters after her speech, she said that decisions over land rights disputes were a new responsibility for the agriculture ministry. However, she indicated that in practice, the demarcation of land limits would fall to a council of ministries, without giving further details.

Good news for farmers

Bartolomeu Braz, the president of the national chapter of Aprosoja, a major grain growers association, cheered Wednesday’s move to transfer indigenous land demarcation to the Agriculture Ministry.

“The new rules will be interesting to the farmers and the Indians, some of whom are already producing soybeans. The Indians want to be productive too,” he added.

Three-time presidential candidate and former environment minister Marina Silva, who was beaten by Bolsonaro in October’s election, reacted with horror to the move.

“Bolsonaro has begun his government in the worst possible way,” she wrote on Twitter.

Dinama Tuxa, a member of Brazil’s Association of Indigenous Peoples, said many isolated communities viewed Bolsonaro’s administration with fear.

“We are very afraid because Bolsonaro is attacking indigenous policies, rolling back environmental protections, authorizing the invasion of indigenous territories and endorsing violence against indigenous peoples,” said Tuxa.

Under the new plan, FUNAI will be moved into a new ministry for family, women and human rights.

A former army captain and longtime member of Congress, Bolsonaro said at his inauguration on Tuesday that he had freed the country from “socialism and political correctness.”

An admirer of Donald Trump, Bolsonaro has suggested he will follow the U.S. president’s lead and pull out of the Paris climate change accord.

In addition to the indigenous lands decree, the new administration issued decrees affecting the economy and society on Wednesday, while forging closer ties with the United States.

— Reporting for Reuters by Stefani Inouye, Carolina Mandl, Anthony Boadle, Ana Mano and Gabriel Stargardter.

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In comments that initially pushed Mexico’s peso currency down by more than one per cent, Trump on Tuesday reiterated his threats to terminate the North American Free Trade Agreement. Trump has long called the 1994 treaty a bad deal that hurt American workers, saying it should be re-negotiated or ended.

Initial talks between Mexico, the U.S. and Canada to update NAFTA ended in Washington over the weekend with no sign of a breakthrough, and further discussions are due in Mexico City in September.

Trump’s top trade official, Robert Lighthizer, underscored the NAFTA termination threat on Wednesday, saying the U.S. was seeking “substantial changes to address its fundamental failures.”

“President Trump has been clear from the very beginning that if the NAFTA renegotiation is unsuccessful, he will withdraw from the agreement,” Lighthizer said in a statement issued by the Office of the United States Trade Representative.

Mexican Foreign Minister Luis Videgaray sought to brush off Trump’s threat, saying his remarks were simply a tactic and Mexico would keep negotiating. The comments were not a surprise, nor would they scare Mexico, he added.

“He’s negotiating in his own particular style,” he told local television.

Mexican Economy Minister Ildefonso Guajardo added in a statement that Mexico has a “Plan B very clearly defined” in case NAFTA talks fail, but declined to provide details.

Canadian Prime Minister Justin Trudeau, speaking to reporters in Montreal, said his officials would “stay focused on the hard work we have ahead of us at the negotiating table… I don’t see anything changing in that.”

He did not directly refer to Trump’s remarks.

The peso later recovered all its losses. NAFTA’s fate is important to Mexico and Canada, which both send most of their exports to the U.S.

A Canadian official said Ottawa would not be deterred by Trump’s threat, given the government had been bracing for moments of turbulence.

“This was always a card we knew the president would likely play… it may have been a bit earlier than expected,” said the official, who declined to be identified given the sensitivity of the situation.

“It’s not going to cause us to waver at all in our position… (we) won’t really be deterred by these statements,” the official added.

Separately, the office of Foreign Minister Chrystia Freeland issued a statement saying Canada would work hard to modernize NAFTA and noted trade talks often had moments of heated rhetoric.

Mexico’s currency fell to record lows following Trump’s victory in the U.S. presidential election last November, with investors scared he could hurt Mexican exports and cause a recession south of the border.

However, the peso has recovered since then, as many of investors’ worst fears seemed to subside.

In recent months, peso traders increasingly appeared to pay little heed to some of Trump’s comments, helping a recovery in the currency.

But Trump’s remarks showed traders remain skittish about the future of NAFTA, and highlighted the complexity of the talks.

— Reporting for Reuters by Gabriel Stargardter in Mexico City and David Ljunggren in Ottawa. Additional reporting for Reuters by Veronica Gomez in Mexico City.

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