How the Election of Donald Trump Can Impact the Brazilian Economy and the M&A Market

The re-election of Donald Trump to the presidency of the United States creates both expectations and uncertainties for the Brazilian economy. Due to the global impact of the American economy, actions such as protectionist policies, changes in interest rates, exchange rate changes, and adjustments to commercial agreements can directly influence capital flows, especially in the mergers and acquisitions (M&A) market. The following are the main aspects to analyze.

Impact on the Exchange Rate and the Valuation of the Dollar

The economic policies of the United States have a direct impact on the value of the dollar historically. In Trump's first term, his initiatives to stimulate the American economy boosted the appreciation of the currency, and there is an expectation that a similar approach will be adopted in this new term. This strengthening of the dollar may increase the attractiveness of Brazilian companies to foreign investors, as local assets become more accessible. However, according to Forbes, exchange rate instability also represents an obstacle, especially for planning mergers and acquisitions in sectors that rely significantly on imported inputs.

Capital Flow and Interest Rates

A few days after Trump's election, Jerome Powell, president of the Federal Reserve (FED), stated that the victory of the Republican candidate would have no immediate impact on the institution's decisions. Thus, the market anticipates further reductions in interest rates in 2024. However, as pointed out by Reuters, the rate cuts next year are expected to be more moderate and less frequent. This may result in an interest rate scenario that is still attractive in the world's most robust economy, which tends to attract investors to safe assets, such as U.S. Treasury bonds. This preference may lead to capital outflows from emerging markets, such as Brazil, which would increase financing costs for Brazilian companies. Consequently, the volume of M&A transactions may be affected. However, assets in Brazil may become more accessible and attractive to foreign investors seeking opportunities in sectors with great long-term valuation potential, such as technology and infrastructure.‍

Protectionism and Trade Agreements

Protectionism is a strong feature of Trump's policy, focusing on tariffs and import restrictions, especially in relation to China. A more aggressive stance against China may benefit Brazilian export sectors, as Chinese demand for commodities such as soybeans and meat tends to increase. This growth may attract investments to Brazil's agricultural sector, which, according to Forbes, is a major exporter to the USA, driving mergers and acquisitions in companies seeking to expand their export capacity.

On the other hand, the increase in tariffs in the USA may negatively affect Brazilian sectors that export directly to the American market, such as steel and manufacturing, resulting in a drop in revenue and impacting the valuations of these companies.

Strategic Sectors: Energy and Mining

According to Forbes, Trump tends to adopt policies that favor the energy and mining sectors, focusing on easing environmental restrictions. This approach can benefit Brazilian companies in these segments, attracting foreign investment for mergers and acquisitions, since Brazil would come to be seen as a more favorable environment for business in markets with softer environmental regulation. In addition, greater collaboration between the U.S. and Brazil in areas such as oil exploration can boost M&A transactions in the oil and gas sector.

Perspectives for Agribusiness

With potential trade barriers between the US and China, demand for Brazilian products may grow, benefiting agribusiness. This sector, fundamental to Brazil, could see a wave of consolidation, with large groups buying smaller companies to expand their productive capacity. This scenario generates an appreciation of agribusiness assets, causing the M&A market for this sector to continue to heat up.

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Final Thoughts

Donald Trump's re-election brings both challenges and opportunities for the Brazilian economy and the M&A market. Exchange rate instability, high interest rates, and protectionist policies can create a scenario of uncertainty, but at the same time, they make Brazilian assets more attractive to foreign investors. On the other hand, strategic sectors such as agribusiness, energy, and mining can directly benefit from this situation, boosting the volume of mergers and acquisitions transactions in these markets.