Navigating Trade Wars: Perspectives from Brazil

On 13 February 2025, the United States (“US”) President Donald Trump signed a Memorandum containing instructions to his staff to develop custom tariffs for some countries as part of his effort to increase domestic manufacturing / protect local industry.

On 13 February 2025, the United States (“US”) President Donald Trump signed a Memorandum containing instructions to his staff to develop custom tariffs for some countries as part of his effort to increase domestic manufacturing / protect local industry.

The announcement of the Memorandum comes after a string of tariff-related moves from the new US administration which could impact several countries (see our Tariff Tracker for more detail).

Regarding Brazil, Trump directed the US to impose a 25% import tax on all steel and aluminium entering the country, eliminating prior exemptions. The new US government also pointed out that Brazil applies an 18% tariff on ethanol imports, compared to the US's 2.5% tariff on the same item, suggesting that “reciprocal tariffs” might be considered as a response.

The Brazilian government indicated that any increase in tariffs on Brazilian products by the US will be met with a reciprocal response on American goods.

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Reviewing and/or terminating international contracts in Brazil due to economic instability

In Brazil, international trade contracts usually contain detailed provisions governing payment terms and establishing the grounds upon which a party may terminate the contract or may be legally excused from performance (eg. termination clauses or force majeure provisions).

The Brazilian Courts generally uphold the will of the parties and enforce contractual provisions dealing with the circumstances described above.

Accordingly, when Brazilian Courts have jurisdiction over the matter, they typically enforce the parties’ chosen contractual provisions in the event of a breach. Brazilian Courts will decline jurisdiction when the parties have opted for arbitration or for a foreign court to resolve their disputes. With regards to the parties’ choice of foreign law, this is theoretically enforceable. However, on occasions, Brazilian Courts apply local legislation to local disputes, despite the parties’ choice of foreign law.

In this context, there are local statutory provisions which may supersede the contract terms in certain scenarios that international players should be aware of when dealing with Brazilian counterparties.

Brazil’s Civil Code

As a civil law country, the Brazilian legal framework adopts the unpredictability theory (“teoria da imprevisão”) or rebus sic stantibus under the Brazilian Civil Code (“Civil Code”).

The Civil Code establishes that the Courts may review and amend the parties’ contractual provisions, upon request by the parties, in circumstances of excessive economic burden due to unforeseeable events, with a view to creating a more balanced position between the parties (Article 317 of the Civil Code).

The Civil Code also deals with the possibility of terminating contracts if they become excessively onerous to one of the parties due to extraordinary and unpredictable events (Article 478 of the Civil Code).

To date, there is no jurisprudence on the applicability of the above-mentioned statutory provisions because of trade wars / increase on trade tariffs rendering the contracts onerous to the parties. However, we can draw a parallel with other scenarios, such as the Covid-19 pandemic, where the unpredictability theory was applied by Brazilian Courts either to amend or terminate existing agreements.

Rulings during the COVID-19 Crisis

In the Special Appeal ‘’REsp 1.984.277’’, the Brazilian Superior Court of Justice (“STJ”) ruled in favour of reviewing a commercial lease due to unforeseeable economic impacts arising from the COVID-19 pandemic. In this case, a company operating a co-working space sought a rent reduction under a lease agreement, arguing that the pandemic had made their business impossible, while the landlord continued to demand full payment. The lower courts granted a 50% reduction in rent and this decision was upheld by the STJ. The STJ supported the contractual revision based on the rebus sic stantibus doctrine and the unpredictability theory, stating that the drastic and unforeseeable changes brought by the pandemic disrupted the contractual balance, making it impossible to fulfil the obligations under the originally agreed terms. The STJ ruled that adjusting the contract was necessary to restore financial balance between the parties, also citing the principles of good faith and the social function of contracts.

Brazilian Courts on contracts impacted by tariffs

Brazilian Courts have been cautious to respect the binding nature of contracts and the freedom of will by the parties, only applying the rebus sic stantibus / unpredictability theory in exceptional circumstances and limiting the judicial intervention to restoring the economic balance of the contract.

The effect of rising tariffs may be also to put some parties in breach for failure to comply. If a Brazilian party is in breach of a foreign law contract, the question of enforcement may arise. To obtain the recognition of foreign judgements/ awards against a Brazilian party, these must be validated by the Brazilian judiciary. This is a relatively straightforward process, which involves the homologation of the foreign judgement/ award by the Brazilian Superior Court of Justice and, thereafter, the execution of the homologated decision/award through enforcement proceedings, commenced by the interested party.

Conclusion

Trade wars present a significant challenge to global commerce, directly impacting international contracts and demanding a strategic and agile approach from businesses.

Parties trading with Brazilian counterparties may wish to consider the doctrine of rebus sic stantibus / the unpredictability theory, to determine how unforeseeable circumstances that cause economic imbalance/hardship might be dealt with under their agreements.

It is uncertain (and perhaps unlikely) that the Brazilian Courts would consider a rise in tariffs as an extraordinary and unpredictable event justifying judicial review based on the unpredictability theory, however this might be invoked by a contractual party at Court.

For more information or to discuss the above please contact the authors below.

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