Tax the Exemptions
No country has ever used an export tax as a weapon in a trade war. Brazil holds the best hand to be the first, and the US Constitution forbids Washington from answering in kind.
Over the span of nine days, the United States imposed two tariff actions on Brazil. The first, announced on July 15 and in effect since July 22, imposed a 25 percent duty on most Brazilian goods under Section 301 of the Trade Act of 1974, following an investigation into Brazilian “unfair trade practices.” The second, effective July 24, added 12.5 percent under a separate set of Section 301 investigations covering 60 economies’ failure to impose and enforce forced-labor import bans, a case that, as I have argued, is about force, not forced labor. As a result, most Brazilian manufactured goods now face 37.5 percent in additional tariffs on entering the American market, and by my calculation Brazil now carries the second-highest effective US tariff burden of any major trading partner, after China.
Neither action rests on an economic grievance that survives scrutiny. The question for Brazil, therefore, is whether and how to respond. The debate has predictably organized itself around import tariffs, with the suspension of intellectual property obligations under the Economic Reciprocity Law as the potent but slower alternative. But the more interesting instrument is immediate, legally clean, and impossible for the United States to copy: the export tax.
Both US actions came with exemption annexes. The first action exempted roughly 1,200 tariff lines, while the second granted thirteen economies dedicated exemption annexes — Brazil, pointedly, not among them — but attached a universal exemption list that applied to all 60 targets. The overlap between the two lists is substantial, and as a result, roughly two-thirds of Brazilian exports to the United States will pay neither the 25 percent nor the 12.5 percent tariff. Why? Because the United States buys 35 percent of its imported unroasted coffee from Brazil, has not mined niobium since 1959 while Brazil accounts for some 93 percent of world production, and sources well over half its imported pig iron from Brazilian furnaces. The exemptions protect American consumers and firms from the administration’s own tariffs.
Weighting the full 2025 export basket, that is, the two Section 301 layers, Section 232 duties on metals, and the underlying MFN schedule, I estimate Brazil’s effective tariff at roughly 17 percent. The average is modest precisely because the exemptions shield the bulk of the basket. The marginal rates on what remains, 37.5 percent on manufactures and up to 50 percent on steel and aluminum, are not modest.
The exemption lists constitute a published map of American dependence on Brazil, organized by tariff line. An export tax is the most appropriate instrument to apply to that map. Whereas a retaliatory import tariff by Brazil would tax Brazilian consumers to punish American exporters, an export tax on precisely the exempted products does the opposite: it raises prices for American buyers, while the revenue stays in Brazil. The harder the substitution of a given good, the larger the share of the tax paid on the American side. This is the same test the Office of the United States Trade Representative (USTR) applied in drawing up its exemptions.
A common instrument with no combat record
Export taxes are fairly common, with many uses documented worldwide over time. Australia, for example, imposed a tax on coal exports for fiscal purposes in 1975. Argentina financed its post-2002 reconstruction with export taxes on the soy complex, deployed both for revenue and to hold down domestic food prices. Russia used a floating export tax on wheat between 2021 and 2025 to insulate domestic food prices. Côte d’Ivoire relies on its cocoa export tax as a fiscal pillar. Indonesia used an escalating export levy as an industrial policy, building the world’s largest palm oil refining industry in its wake.
Brazil has used the instrument too. From roughly 2000 to 2018, a tax on exports of wet-blue leather — semi-processed hides — was intended to strengthen higher-value domestic industries, footwear above all. The one academic evaluation of the experiment, published in the Revista de Política Agrícola in 2007, concluded that exports of finished leather grew because of the 1999 currency devaluation, not the tax. In 2018, Camex, Brazil’s foreign trade chamber, abolished the levy on the grounds that it was harming the cattle sector that paid it. The Brazilian example shows the instrument’s usefulness and its limitations: it establishes a precedent and documents how poorly the instrument performs when left in place for too long.
What no country has ever done is use an export tax as an instrument of trade retaliation. The retaliatory uses of export-side instruments have all been quantitative — embargoes, bans, quotas, licensing — from China’s rare earth embargo of Japan in 2010 to its controls on gallium and germanium, in force since 2023 in response to US semiconductor export restrictions. In January, Richard Baldwin proposed that US trading partners adopt ‘fair retaliation export taxes’ as a standing deterrent, emphasizing the instrument’s theoretical underpinnings without citing precedent. If Brazil taxed coffee or pig iron in response to the July actions, it would be the first country to put the idea into practice.
There is an ironic asymmetry. The US Constitution has prohibited export taxes since its origin: Article I, Section 9, drafted in Philadelphia in 1787, was a concession to the slaveholding South, which feared a Northern-dominated Congress would tax the tobacco and rice that sustained it. Two and a half centuries later, that clause prevents the United States from responding in kind. The Brazilian export tax is written into the country’s Constitution. Moreover, Brazil never bound its export duties at the World Trade Organization. A retaliatory import surcharge would put Brazil in breach of its tariff obligations, but an export tax in itself breaches nothing.
How to design it
Brazil’s export tax requires no new legislation. It is in the Brazilian Constitution (Article 153), and is authorized by Decree-Law 1,578 of 1977, which sets a base rate of 30 percent and authorizes the executive to lower it or raise it to as much as 150 percent by Camex resolution, with immediate effect. The Economic Reciprocity Law of 2025 supplies the framework for tying such a measure to responses against unilateral foreign actions.
How could the export tax be designed? A key principle is to do it asymmetrically: tax products the United States buys heavily from Brazil but that Brazil sells lightly to the United States. Coffee is the textbook case for this design, with 35 percent of US unroasted coffee imports coming from Brazil, while only 7.6 million of the roughly 50 million bags Brazil exported in 2024 went to the American market. Under this design, the impact of the tax falls on American consumers, while Brazilian exporters can redirect their products to other markets. Pig iron, on the other hand, illustrates the difficulties when the United States is the most important market: 85 percent of output from the Sete Lagoas hub in Minas Gerais, the country’s largest, goes to the U.S., so the burden of a tax would fall mostly on Brazilian producers. Niobium is a critically interesting case. It is Brazil’s highest-leverage asset for which the U.S. has no immediate substitute, and Brazil has full control over global supply. Taxing the most strategic American dependence, however, would shift the conflict onto national-security terrain and thus merits careful evaluation.
The tax would apply only to shipments bound for the United States, and Brazilian law is comfortable with that. From 2001 to 2021, Brazil charged a 150 percent export tax on arms and ammunition destined solely for South and Central America, a destination-differentiated export tax created and later dismantled by Camex resolution. The one legal wrinkle is that the GATT’s most-favored-nation clause applies to export duties, so a tax aimed at a single country violates MFN. Any American complaint, however, would have to travel through the dispute system whose appellate stage the United States itself disabled, and it would come from a government currently charging Brazil 37.5 percent. Brazil would present the measure as a proportionate countermeasure to prior wrongful acts, which is the architecture of our Economic Reciprocity Law.
The tax itself could be a moderate, mirrored rate of, say, 12.5 percent, matching the forced labor action. Set at this level, it carries symbolic force while potentially staying below the threshold that triggers market substitution. An explicit sunset clause, written into the measure itself and tied to American actions, establishes the temporary nature of the instrument. In principle, the tax would expire on the day the United States agreed to negotiate in good faith — or the moment periodic reviews showed that its costs outweighed its benefits, whichever came first. The revenue proceeds from the export tax would fund compensation for exposed sectors, in the spirit of Indonesia’s palm oil levy. Under such an arrangement, Brazil’s export relief package could finance itself.
I did the arithmetic for coffee. At 2025 prices, Brazilian naturals averaged 362 cents per pound, compared with 384 cents per pound for the washed milds. The static break-even tax rate is about 6 percent, and it swung between 2.4 and 8.9 percent over the year. A mirrored rate of 12.5 percent, matching the forced-labor action, sits above that band in all twelve months. The rate remains viable because replacing 8 million bags of coffee exceeds the spare capacity of every alternative supplier. An American attempt to switch would bid up competitors’ coffee prices, as the 2021 frost showed, when the loss of a few million bags moved world prices by 60 percent in months. The tax protects itself, up to a point. The protection erodes as tree crops respond over two or three seasons, and that is the arithmetic case for an explicit sunset clause.
The proposal’s force, moreover, lies more in the threat than in the firing. The first move would be an announcement: facing tariff actions without economic justification, the government, by presidential determination, has directed the Office of the Attorney General (AGU) and the Ministry of Development, Industry, Trade and Services (MDIC) to structure the legal and operational framework for a retaliatory export tax. Alongside the announcement, the government would publish an official document detailing the map of American dependence — coffee, pulp, and whatever else fits the asymmetry described above — while enacting no tax at all. The announcement would carry an explicit deadline: the tax takes effect in 60 days unless the United States signals a willingness to negotiate in good faith. The American sectors exposed to the tax — roasters, steelmakers, and their representatives in the U.S. Congress — would be the ones pressing the Trump administration.
The urgency created by the threat would also serve at home, to close a pact with Brazilian agribusiness: an explicit, public version of the revenue commitment described above — full compensation for the affected sectors — in exchange for which those sectors would direct their considerable lobbying power at their American counterparts. The strategy, in the end, is to make every coffee-roasting executive in the United States call his member of Congress afraid that the price of coffee is about to spike.
There are risks, and they deserve to be acknowledged. A tax aimed only at the United States invites Washington to call it discrimination and reach for Section 338 of the Tariff Act of 1930, a dormant statute revived against Canada in July that authorizes duties of up to 50 percent. Escalation is possible in services and in sanctions, where the asymmetry of power favors the United States. Every exceptional tax also carries the Argentine temptation. Two decades of taxes on Argentine soybean exports led to a loss of market share to untaxed Brazilian soybeans, a natural experiment that shows the instrument’s long-run cost. But the objection is addressed in the design of the export tax: it is temporary by construction, fully compensated, and reviewed periodically.
The Trump administration has built its new tariff wall while carefully exempting everything it needs from Brazil, and, in doing so, it has priced in its own dependence and published the list. Whether to apply pressure using that list is Brazil’s choice. Perhaps for the first time in this trade war, the choice belongs to the smaller party.