The Situation

Brazil held general elections over the weekend, and the results were surprising. Most polls predicted incumbent octogenarian Luiz Inácio Lula da Silva, aka “Lula,” would beat challenger Flávio Bolsonaro, son of former president Jair Bolsonaro, who is serving a 27-year prison sentence for an attempted coup in 2022.

Instead, Bolsonaro took 47% of the vote and Lula took 45%, forcing an October 25 runoff. Four other Bolsonaro family members were also elected: Jair’s wife, Michelle, and second son Carlos won seats in the Senate, where their right-wing Liberal Party (PL) secured more seats (28) than any other party. Jair’s brother, Renato, and son Jair Renan won seats in the Chamber of Deputies, where the PL also won a plurality.

Brazilian politics often mirrors US politics to an uncanny degree. Jair was nicknamed the “Trump of the Tropics” during his first presidential campaign. In 2023, Brazil had its own version of January 6, when thousands of Bolsonaro supporters attacked the Supreme Federal Court, National Congress Palace, and Planalto Presidential Palace. Bolsonaro’s political prospects were left for dead, and he was even jailed… only for his clan to resurrect itself against an aging establishment politician dogged by inflation and corruption concerns.

How Lula Lost the Room

Lula’s third-term record was mixed. Brazil grew faster than most of its neighbors, though growth slowed to 2.3% last year. Unemployment fell to a record low 5.3% in August, while average wages hit a record high. Lula also pushed through meaningful tax reform, and his policies led to declines in poverty and food insecurity.

But Lula could not tame inflation: Prices accelerated more than expected last month, up 4.47% year-on-year. The central bank has been cutting rates as consumption weakens but still maintains one of the highest real interest rates among major economies at 13.25%. Households are increasingly indebted, and delinquencies have risen by over 20%. And despite a smaller budget deficit, high rates have increased interest payments by more than 2 percentage points and contributed to rising public debt.

Lula is a skilled politician; one doesn’t get elected President of Brazil three times otherwise. But unless he can get the 21% of Brazilians who didn’t vote on October 4 to show up for him, Flávio will likely be the next president, and that has far-reaching implications.

The Pendulum Swings Again

The first is at the hemispheric level. Healthy democracies tend to function like a pendulum, with control rotating between parties of different ideologies, and this pendulum effect has been particularly pronounced in South America over the past three decades. A so-called “Pink Tide” of left-wing governments swept the region in 2011, a “Right Turn” followed in 2018, and a second “Pink Tide” pushed back in 2022.

2025–26 has seen another shift to the right, with conservative, pro-Trump leaders coming to power in Colombia, Peru, Chile, and now Brazil. This swing is different because of its geopolitical context. The second Trump White House has articulated a clear strategy to dominate the Western Hemisphere—see the removal of Nicolás Maduro and Washington’s soft annexation of Venezuelan resources and politics, or the economic and political pressure the US is applying to push Cuba toward the same kind of capitulation.

With Brazil’s turn to the right, Washington now has the potential for strong relations with every government of consequence in the region. And this is a shift the US wanted. President Trump has called Jair Bolsonaro “a great friend” and enacted tariffs against Brazil over his imprisonment.

The geopolitical question is: What can the US do with this ideological alignment?

A Generational Opportunity for the US

Despite their proximity to the US, most South American nations trade more with China than with the US, or even with each other. China has invested billions of dollars in South American infrastructure to better access the region’s commodities. In 2018, Jair Bolsonaro campaigned on a strong anti-China message, only to turn pragmatic once in office because China was and remains Brazil’s largest trading partner. Brazil never banned Huawei from its telecoms infrastructure, and by the end of his term, Bolsonaro was singing both China’s and Xi Jinping’s praises. If anything, Brazil is even more dependent on trade with China in 2026—as is almost every country that has turned right.

The US has a huge opportunity to consolidate influence in the region at China’s expense, but it must offer more than platitudes. Security, which is top of mind for Latin American leaders and voters alike, is one place to start: The US can offer meaningful help fighting cartels and the violence that drives illegal migration in a way China won’t. But to translate this political shift into geopolitical currency, the US will ultimately have to spend in the region.

China buys products, builds ports, bridges, and railroads, and keeps its political platitudes to itself. Secretary of State Rubio has focused on this, but strategy requires more than a single champion. Suffice it to say there is a generational opportunity for the US to deepen relations with countries in its own backyard that have veered toward China.

Like Father, Like Flávio?

What this means for Brazil—and for investing there—comes down to whether Flávio is a populist like his father or means to govern like an economic liberal. Jair’s term does not inspire much confidence. He came in promising fiscal responsibility and economic liberalism, and early returns were good: Led by economy minister Paulo Guedes, Jair pushed through pension reform and privatization, defended central bank autonomy, and abided by the constitutional spending cap. But COVID brought out the populist in Jair who, by the end of his term, was criticizing the central bank for not cutting rates even as inflation rose (remind you of anyone?) and circumventing the spending cap to subsidize fuel prices.

Flávio has talked a similar pro-business game on the campaign trail, but with inflation and Lula’s missteps doing the work for him, he has not felt a need to detail the austerity measures he plans. Instead, he wants to have his cake and eat it too: rein in spending without cutting Social Security or Lula’s minimum wage increases, and cut taxes while lowering the deficit. Brazilian markets rallied almost 8% on Bolsonaro’s first-round victory, and once-skittish foreign investors are interested once more.

Much of this is structural: Brazil is a dynamic economy with abundant commodity and agricultural wealth that will do well in almost any political circumstance—not even Lula’s leftist policies could diminish it. But for Brazil to graduate from supreme economic underachiever and commodity exporter, Flávio or any future government will have to govern as promised rather than descending into populism or, in this case, revenge politics against the system that jailed Jair for his role in attempting to overthrow the government.

Potential in a Multipolar World

Brazil is also one of the few countries with the strength and economic depth to become a regional power in its own right. Agree or disagree with Lula’s policies, he has always seen clearly the role Brazil can play in a multipolar world. Brazil has always punched below its weight, and Lula sought to change that.

Lula, however, made the mistake of cozying up too much to China and the “BRICS” out of leftist sympathies. If Flávio simply swings the pendulum toward an ideologically friendly US while maintaining pragmatic economic relations with China, Brazil will remain what it has been for decades: a supply depot for the commodities outsiders want, while a wealthy ruling elite stifles entrepreneurship and profits from a potentially dynamic growth story.

But if Flávio really is the mirror image of Donald Trump—if his aim is to Finally Make Brazil Great, if Brazil articulates a continental strategy of its own and uses its economic gravity to connect South America, a region defined since the Age of Discovery by its utility to outsiders—then just maybe this is the beginning of something bigger.

Either way, Brazil is well suited to a multipolar, deglobalizing world. What is at stake is how much of that potential Brazil decides it can and wants to realize—and whether the US can capitalize on this moment or make the mistake of assuming the tide won’t go out again.

Map/Chart of the Week

Blind Spot

Germany and France co-wrote a letter to the European Commission calling for a new “credible instrument” that could “cut off” access to the EU’s internal market if needed.

This is an important development for three reasons:

1.     France and Germany are on the same page.

They had not been in previous discussions on internal market access and on dealing with foreign powers’ trade advantages, and a joint Franco-German proposal has a much higher chance of coming to fruition than one from the EU bureaucracy.

Note also that the letter calls for this mechanism to be activated by “reversed qualified majority” (i.e., the European Commission can act immediately unless a qualified majority of EU states opposes it). That gives real power to the EC instead of waiting for 27 squabbling states to reach unanimity.

2.     The letter does not mention China by name, but its publication ahead of EU-China trade talks later this week is not coincidental.

It would have been easy for the EU to go soft on China given pressure from the US, high energy prices, and Russia. Instead, the EU is developing stronger tools for dealing with China—not to prevent a deal but to use its heft to get a better one.

3.     China is the inspiration behind this policy, but if it succeeds, the EU can use it as a blueprint for dealing with other major economies.

China may have been the necessity that mothered this invention, but in a multipolar world—especially one where Europe is awake—necessity will be constant.

Reader Question

Finally…

What I’m watching: MLB Playoffs (Go Braves!)

What I’m reading: Rising Tide, John M. Barry

What I’m listening to: 1873 (audiobook), Liaquat Ahamed