From electronics to data centers: How Trump’s 50% tariff could hit Brazil’s ICT sector

The 50% tariff threatened by Donald Trump on all Brazilian exports to the US took the tech and telecom markets by surprise. However, the potential effects are unclear.

In ICT infrastructure, such as data centers and computing sets, two sources consulted by BNamericas believe the impact should be minimal, as Brazil mainly imports data equipment from the US, rather than exporting it to the country.

The same goes for data itself and content.

Around 60% of the digital load and overall data consumed by Brazilians, in Brazil, come from data centers and clouds located elsewhere, primarily the US.

Besides, according to one of the sources, the current assessment is that tariffs will apply to physical goods, and cloud and software would not be impacted.

“Our industry predominantly imports products and services from the US, rather than the other way around,” Renan Alves Lima, president of Brazil’s data centers association ABDC, told BNamericas, adding that he recommends dialogue.

“The US-based technology and data center chain is extremely important for Brazil – many of the investments made here are led by US-based companies, operators and investors,” he said.

“It is essential that we maintain an open and transparent dialogue with the US. We need to pursue a frank conversation, based on mutual interests, avoiding turning this scenario into a standoff that could harm both sides.”

As an indirect effect, a depreciation of the Brazilian real against the dollar as a consequence of the turmoil could hike the price of equipment used in Brazil’s data centers, such as servers, racks and particularly chipset processing units GPUs and CPUs.

Brazil imported nearly US$600mn in data processing machines in January to May this year, according to trade statistics.

In that sense, the time may be ideal to enact the tax reduction policy for data center equipment, dubbed Redata, pledged by the Brazilian government but not yet officially announced, according to some sources.

“The federal government promised to remove these taxes to promote the sector, which did not happen. We need to move forward on this, and the time is now,” Alessandro Lombardi, CEO of Elea Data Centers, told BNamericas.

Lombardi says Brazil charges over 52% in tariffs, including federal and state taxes, on imported computing equipment needed for data centers used by major tech companies such as AWS, Microsoft, Google and Oracle – all US-based.

“One of the first things at this point is to approve Redata. It’s the best short-term, clear and ready-made measure on the table,” Lombardi said.

Electronics

As for the electronics sector, the scenario is somewhat different.

Brazil exports more than it imports from the US, and the latter is among the major destinations of certain types of equipment manufactured domestically.

Brazil’s electric and electronics association Abinee said the US was the top export destination for the sector’s products in H1, with 23.1% year-on-year growth. As a result, the US increased its share in Brazil’s exports of electric and electronics goods to 29% from 26%.

However, according to Abinee, the sector had a trade deficit with the US of US$1.3bn, with Brazil exporting US$1.1bn and importing US$2.4bn.

In a statement following the tariff announcement, Abinee said it received the news “with concern” and advocated negotiation and dialogue to solve the issue.

The main products exported by Brazil to the US include electrical equipment for EV charging infrastructure.

Exports of motors and generators, as well as components for industrial equipment, are also key and may be affected, says Abinee.

In electronics, Abinee lists processing and data machines as items exported by Brazil to the US – even though Brazil is more of an importer of these.

Overall, in Abinee’s assessment, the “unilateral” decision by Trump “has no economic justification” given that trade flows between the two countries, both within the sector and in general, register a surplus in favor of the United States.

Software

For the software sector, the tariffs should have a neutral impact.

The Brazilian association of software companies (Abes) says the measure does not affect exports of Brazilian systems because these are non-physical copyright content.

In a statement, Abes said it “regrets” the US government’s decision and calls on authorities in both countries to “make every effort to seek reconciliation.”

The group says dialogue is key for reducing the impact on exchange rates and bilateral investment flows for both economies.

“Abes will continue to monitor developments on this issue to assess and mitigate potential impacts on both product and technology service exports to the US.”