US Threatens Trade Sanctions Against Brazil

US-Brazil bilateral trade has once again soured after Washington threatened to impose trade sanctions (tariff increases) under Section 301 of the Trade Act of 1974, on the grounds that certain Brazilian trade policies and practices are "unreasonable or discriminatory" toward US commerce. This escalation sets a worrying precedent for the trade architecture of Mercosur, particularly because of the US challenge to the Partial Scope Economic Complementation Agreements (AAP.CE) with other countries, which are pillars of the South American trade framework based on the Latin American Integration Association (ALADI).

The Section 301 investigations

After the US Supreme Court, in Learning Resources, Inc. v. Trump, ruled against the reciprocal tariffs adopted by the Trump administration under the International Emergency Economic Powers Act (IEEPA), on February 20, 2026 the Trump administration implemented an additional global tariff of 10% under Section 122 of the Trade Act of 1974 on all countries without discrimination, as it could do with the IEEPA, based on the balance of payments imbalance the United States is experiencing, which was notified to the WTO. To recover part of the selective coercive power of the IEEPA, the Trump administration adopted two measures based on Section 301 of the Trade Act of 1974. On March 12, 2026, the United States Trade Representative (USTR) formally launched an investigation into countries that allegedly fail to adequately prohibit or monitor the import of goods made with “forced labor”, arguing that this omission creates unfair competition that harms its workers and companies, in addition to contravening international human rights standards. This investigation, which we discussed in our previous article, affects the 60 main trading partners of the United States, among them the EU, Argentina and Brazil, which accounted for 99 percent of US goods imports in 2025, and the ultimate goal is to raise tariffs and establish non-tariff restrictions on imported products. Simultaneously, on March 11, 2026, the USTR launched investigations into the acts, policies and practices of various economies relating to structural excess capacity and production in manufacturing sectors affecting trade in US products, covering 16 trading partners, among them China, the EU and Mexico. In July 2026 it did the same with Brazil, and today the continuation of the proceeding was announced. All the measures adopted by the US government aim to replace the tool for leverage in trade negotiations and for revenue collection that the US government had with the IEEPA.

As far back as 1998, the EU had challenged at the WTO the applicability of Sections 301-310 of the US Trade Act, but the Panel, in a highly political manner, stated that “We have not been asked to make an overall judgment on the compatibility of Sections 301 to 310 with the WTO agreements.” Responses like this weakened the credibility of the WTO and drive countries to adopt unilateral measures.

The threats against Brazil

The investigations had been launched in July 2025, and public comments were requested, whose responses provided the basis for the proceeding announced today, June 2, 2026, by the Office of the United States Trade Representative (USTR), which bases its determination on concerns over six issues: Digital Trade and Payment Services, Intellectual Property (IP), Ethanol Market Access, Illegal Deforestation, Lack of anti-corruption enforcement measures, Digital trade, Preferential agreements. Of all these issues, the one we consider most worrying at the regional level is the one that identifies as an unfair practice the tariff preferences granted under preferential agreements.

" Unfair, Preferential Tariffs • The acts, policies, or practices of Brazil which accord lower, preferential tariff treatment only to certain large trading partners in specific sectors, including sectors in which these trading partners are globally competitive. • The extent to which Brazil’s acts, policies, or practices discriminate against or unfairly disadvantage U.S. exports and economic output." (1)

And it makes special reference to Mexico and India. The former is accused of granting preferences in the automotive sector. These are provided under AAP.CE No. 55 (ACE 55) between Mexico and Mercosur, which lays the foundations for establishing free trade in the automotive sector and aims to promote the integration and productive complementation of the automotive sectors of the Mercosur member countries and Mexico. Although this agreement is applied differently to Brazil and to Argentina (our country did not renew it and is currently in negotiations), the umbrella of the agreement is shared.

Partial scope agreements and the systemic risk

The US challenge to Brazil's selective trade preferences, which allegedly harm US interests, constitutes a direct threat to the architecture of the partial scope agreements that underpin South American trade integration within ALADI. ACE 55 on automobiles between Brazil and Mexico, as an instrument of regional productive complementarity, now faces the indirect pressure of this bilateral trade escalation. The use of Section 301 against Brazilian trade policies could extend both to other Mercosur partners and to other ALADI members, and this constitutes a systemic risk. Argentina, as Mercosur's main partner, must anticipate scenarios in which its own bilateral and multilateral agreements could face similar scrutiny under US criteria of "commercial reasonableness." Participating as an interested third party in the hearings provided for in the procedure of the investigation that has been initiated, and defending the integration instruments, would be a first step that would demonstrate Argentina's commitment to the process of regional integration.

Sources:

US - USTR "Notice of Determination and Request for Comments Concerning Action Pursuant to Section 301: Brazil’s Acts, Policies, and Practices Related to Digital Trade and Electronic Payment Services; Unfair, Preferential Tariffs; Anti-Corruption Enforcement; Intellectual Property Protection; Ethanol Market Access; and Illegal Deforestation" ustr.gov

US - USTR — Section 301 Determination on Brazil's Unreasonable Acts, Policies and Practices (June 2026)

US - USTR “Initiates Section 301 Investigations Relating to Structural Excess Capacity and Production in Manufacturing Sectors”

ustr.gov

WTO - Panel (7.13 p. 337) UNITED STATES - SECTIONS 301-310 OF THE TRADE ACT OF 1974 - Report of the Panel - WT/DS152/R - 22 December 1999

docs.wto.org