What a Lula or Bolsonaro victory would mean for Brazil and the world

Ambassador James Story is a nonresident senior fellow at the Atlantic Council’s Adrienne Arsht Latin America Center. He served as both ambassador and chargé d’affaires to Venezuela from 2018 to 2023 and is a founding partner of Global Frontier Advisors. 

There is a narrow window for a bilateral reset

Brazil is undergoing a generational political shift that presents several real, if fleeting, opportunities for cooperation with Washington on trade, security, and critical minerals. On October 4, Bolsonaro’s Liberal Party won nineteen of fifty-four Senate seats and will hold the chamber’s largest bloc, twenty-eight of eighty-one, next year. With alliances, the right will command roughly forty-nine senators, meeting the Senate’s three-fifths threshold to advance constitutional amendments. It also will move within reach of the fifty-four votes needed to remove a Supreme Court justice, including potentially Bolsonaro’s chief antagonist Justice Alexandre de Moraes.  

One of Bolsonaro’s first steps will certainly be to seek an Agreement on Reciprocal Trade (ART). The Section 301 tariffs that the United States imposed in July have hurt the Brazilian economy and the bilateral trade relationship. However, seeking relief is not the same as obtaining it. Argentinian President Javier Milei, who is arguably very closely aligned with the Trump administration, was able to secure relief on over a thousand products, but tariffs on steel and aluminum remain “under review,” and the agreement still awaits ratification in Argentina. Brazil could find its process even more difficult. In addition, the country faces scrutiny from the US Trade Representative on its own tariffs, including those against US ethanol, Brazil’s digital payment system (Pix), and Brazil’s enforcement of anti-corruption laws. These issues form a checklist Bolsonaro could address; however, Mercosur’s common external tariff could limit Brasília’s room to maneuver.  

Under Bolsonaro, security cooperation could move quickly as well. The candidate has said Brazil would join the US-led Shield of the Americas security initiative. His administration might also seek to designate the Primeiro Comando da Capital (PCC) and Comando Vermelho under its own domestic anti-terrorism laws, while working to deepen intelligence sharing, port security, and financial cooperation with the United States. But joint operations on Brazilian soil require congressional authorization, and while potentially achievable with the new Brazilian Congress, these types of activities carry a steep political cost. 

Critical minerals are perhaps the biggest prize. By some estimates, Brazil holds the world’s second-largest rare earth reserves. Yet Lula declined Washington’s February minerals alliance, leaving the bilateral framework unfinished. Washington should supercharge this relationship by concluding that agreement, expanding financing through the US International Development Finance Corporation and Export–Import Bank, exploring Brazil’s participation in Pax Silica and the Forum on Resource Geostrategic Engagement, and developing supply links to Project Vault, the US strategic critical minerals reserve. Brazil, however, is likely to insist on processing minerals domestically, a focus for any Brazilian president and a priority that would endure regardless of administration. 

The window for much of this is narrow. In the United States, Democrats appear set to gain control of the US House of Representatives in the November 3 midterm elections, which will put much of the Trump administration’s policies under review. While greater oversight and scrutiny can be expected, the executive actions of applying tariffs, designating terrorist organizations, or approving membership in the Shield of the Americas will be left untouched. However, oversight regarding counternarcotics operations through International Narcotics Control and Law Enforcement funding could well be a focus area for the new US Congress.  

Finally, this short window faces another test in January 2029, midway through the next Brazilian president’s term, when a new US president takes office. Alignment built on results such as tariff relief and agreements on critical minerals would be better positioned to endure a change in Washington rather than alignment built primarily on personal affinity. 

Alejo Czerwonko is a member of the Adrienne Arsht Latin America Center’s Advisory Council. He is also managing director and chief investment officer for emerging markets at UBS Global Wealth Management in New York.

Candidates offer two paths but face one fiscal imperative

The outcome of Brazil’s runoff will have significant implications for economic policy and financial markets. But the challenge facing either administration will be the same: restoring Brazil’s fiscal credibility. 

Brazil’s public debt is above 80 percent of gross domestic product (GDP). Fiscal deficits are running at almost 9 percent of GDP a year. And double-digit interest rates have increased the cost of servicing that debt. The next president will therefore need to convince investors that Brazil can stabilize its debt trajectory. 

The difference between the two men will likely be in the speed and composition of the debt trajectory adjustment. A Lula victory would likely point toward a more gradual approach, building on the existing fiscal framework while also seeking to preserve public investment and social spending. Lula’s challenge in this scenario would be to convince markets that such an adjustment is sufficiently ambitious to stabilize his country’s debt. A Bolsonaro administration, meanwhile, would likely favor a faster, more expenditure-focused consolidation, with a greater emphasis on containing mandatory spending. However, reducing this expenditure would almost certainly require politically costly decisions and, potentially, legislative changes. Bolosonar’s stronger-than-expected first-round result, accompanied by gains for right- and center-right parties in Congress, has increased market expectations for such an adjustment. 

Success in stabilizing the debt trajectory is important to Brazil’s future. A credible fiscal anchor would help reduce the substantial risk premium embedded in local interest rates. Lower real and nominal yields would, in turn, support the Brazilian real and provide a powerful catalyst for domestic equities. Conversely, if the next government fails to deliver a convincing fiscal program, borrowing costs are likely to remain elevated, constraining investment and economic growth. 

Trade presents a different set of issues for the next president. Regardless of who wins, Brazil’s economic interests still lie in maintaining constructive relationships with both the United States and China. Brazil is strategically well positioned as a major producer of agricultural commodities, energy, minerals, and sophisticated manufactured goods. While the tone of foreign economic policy could differ substantially between the two administrations, the economic considerations will likely favor a pragmatic approach. 

If the next administration can establish a durable fiscal anchor while preserving Brazil’s pragmatic approach to trade, today’s still-elevated risk premiums could become an investment opportunity. 

Valentina Sader is the director for strategy and programs at the Atlantic Council’s Adrienne Arsht Latin America Center

The outcome will impact Brazil’s place in the region and the world

Brazil’s next president will inherit a challenging international environment, with growing competition between major powers and shifting political alliances across Latin America. Lula has sought to preserve Brazil’s autonomy through diversified partnerships and multilateral diplomacy, while Bolsonaro has campaigned on closer political alignment with Washington, particularly on trade and security. On October 18, a televised debate between the candidates highlighted some of these differences, with Lula questioning the implications of greater US involvement in Brazil’s critical minerals sector and Bolsonaro defending closer intelligence-sharing and security cooperation with Washington. 

China would be central to either administration’s foreign policy. Lula has made cooperation with Beijing and the BRICS grouping of his strategy to expand Brazil’s influence in global affairs, including through alternative financial arrangements and stronger ties across the Global South. Bolsonaro, meanwhile, has questioned Brazil’s participation in the BRICS grouping, particularly its efforts to reduce reliance on the US dollar. Yet Brazil’s extensive commercial relationship with China would complicate any significant realignment. Even during Jair Bolsonaro’s presidency, trade with Beijing expanded despite political tensions, suggesting that Flávio could pursue closer strategic ties with Washington without substantially reducing economic cooperation with China. 

In Latin America, the contrast is particularly evident in the candidates’ approaches to the Mercosur trade bloc. Lula has emphasized regional integration and trade diversification, with the signing of the EU-Mercosur agreement, the implementation of the agreement with European Free Trade Association (EFTA), and ongoing negotiations with Canada. Bolsonaro has instead advocated greater flexibility for Brazil to negotiate bilateral agreements, potentially challenging Mercosur’s current framework. 

Relations with Argentina illustrate the political complications ahead. This summer, Milei traveled to Brazil to support Bolsonaro’s candidacy, deepening an already strained relationship with Lula. Another Lula administration would likely continue to rely on diplomatic and technical engagement to manage bilateral priorities, particularly through Mercosur. A Bolsonaro presidency could benefit from closer political ties with Buenos Aires, although the two countries would still have to reconcile their economic interests within the bloc. 

Regardless of the outcome, Brazil’s next administration will also have to navigate a more right-leaning Congress and a divided country in the context of increasingly challenging institutional dynamics among the different branches of government. While the executive branch sets the country’s diplomatic direction, congressional support would remain important for trade agreements and other international commitments requiring legislative approval.