Gerdau will leave Brazil in 2026 Understand the crisis in Brazilian industry

The year 2026 should be a milestone of growth and modernization for the national industry. However, Gerdau ‘s recent announcements paint a diametrically opposite picture. The steel giant’s decision to lay off more than 1,500 employees, freeze billionaire investments in Brazil and prioritize the expansion of its plant in Texas, with capacity gains projected precisely for 2026, is not an isolated operational adjustment. It is a severe diagnosis and a vote of no confidence in the country’s industrial future. This move, accompanied by a narrative of unsustainable “Brazil costs” and unfair competition, sparks an urgent debate: is Brazil consciously giving up its strategic production base? While the United States prepares to receive new investments and increase domestic steel production in 2026, Brazil watches, paralyzed by ideological disputes and political inertia, as a sector that is the backbone of civil construction, infrastructure and auto parts withers away. Gerdau’s crisis transcends the sector; it is a potent symbol of a process of deindustrialization that threatens to set the national economy back decades, transforming us from an emerging industrial power into a dependent consumer market and an exporter of commodities.

Gerdau’s investment flight to the United States, with clear targets for 2026, exposes an open wound in the Brazilian economy: the total lack of predictability. For a heavy industry like the steel industry, which depends on long-term planning and high levels of fixed capital, legal, tax and political instability is poison. While the company can draw up a solid plan for its growth in Texas with a horizon of 2026, in Brazil it faces the constant risk of changes in the rules of the game – be it new taxes, protectionist measures of dubious effect or sudden changes in industrial policies. This chronic insecurity makes any strategy for the future unfeasible and turns the country into a very high-risk partner for its own productive sector. The “predictability blackout” is perhaps a more serious evil than the direct cost of bureaucracy or taxes, as it destroys confidence, a fundamental element for investment.

This case also reveals the dangerous geopolitical trap that Brazil has got itself into. Gerdau claims that the massive influx of Chinese steel, sold at prices below the cost of production (dumping), is one of the central causes of its suffocation. China, with its industrial surplus and strategy of dominating markets, floods Brazil with subsidized products. The expected reaction from a state that wants to protect its sovereignty and industrial park would be an agile and intelligent trade defense policy, combined with an internal effort to gain efficiency. However, what we see is paralysis. While nations like the United States impose defensive tariffs and relaunch their industry, Brazil struggles between ideological rhetoric and practical inaction. The result is that, by 2026, we could be a country even more dependent on Chinese steel, with our own productive capacity drastically reduced and thousands of high-skilled jobs lost forever.

The deepest blow, however, is to the regional socio-economic fabric. The closure of plants in cities like Barão de Cocais (MG) and Mogi das Cruzes (SP) doesn’t just mean layoffs at the factory. It means the dismantling of entire supply chains, a drop in revenue for municipalities, the emptying of local businesses and an exodus of talent. These are communities that developed around heavy industry and now face an uncertain future. Economic transformation is necessary, but it needs to be planned and led, not simply imposed by the collapse of a vital activity. The lesson of 2026, if nothing is done, will be that Brazil has passively accepted the erosion of its industrial power and the impoverishment of entire regions, exchanging value-added jobs for a fragile and subordinate position in the global economy.

Looking beyond 2026, Gerdau’s decision could be the harbinger of a devastating domino effect. The signal sent to the market is clear: if a century-old company, resilient to historic crises, believes that the Brazilian environment is unviable, what is the outlook for smaller industries or sectors under similar pressure? Sectors such as textiles, chemicals, automotive and even technology are watching this movement closely. The real risk is that Gerdau’s departure will normalize a narrative of flight, creating a wave of “industrial exodus” where other companies, out of caution or following the logic of capital, will also prioritize investments abroad. By 2026, we may not just be mourning the loss of a steel mill, but witnessing a general decline in our ability to transform raw materials into complex products, condemning the country to a primary role in the international division of labor.

The way out of this gloomy scenario, however, does not lie in pure and simple protectionism or endless state subsidies, as some advocate. Gerdau’s own discourse reveals a contradiction: the company calls for barriers to Chinese steel, but does not lead a vigorous lobby for the structural reduction of the tax and bureaucratic burden that afflicts the entire national production chain. The real reindustrialization that Brazil needs will involve a profound reform of its business environment. This means simplifying taxes, getting rid of red tape, guaranteeing long-term legal certainty and investing massively in logistics and energy infrastructure – the exact opposite of what the company will find in the US. Industrial policy in the 21st century is not about erecting walls, but about building bridges of competitiveness: quality technical education, partnerships between universities and companies, and stimulating innovation so that sectors such as steel can migrate to high value-added products, such as special alloys for the green technology industry.

The year 2026 doesn’t have to be a landmark for deindustrialization. It could be the year of a new pact for productivity. To this end, the debate must urgently move away from ideological polarization and political conflict and focus on data, projections and the long-term national interest. The question that remains is: will Brazil have the maturity to understand Gerdau’s warning cry as a symptom of its own chronic illness and take bold and coordinated action to cure it? Or will we passively watch the red alert come true, making 2026 the year in which we officially accept our economic regression? The answer to this question is beginning to be written now, in economic policy decisions, in the quality of public-private dialogue and in the capacity of leadership to put industrial development back at the center of the national project.

Detailed Brazil Cost: Complex taxation, bureaucracy, poor infrastructure (logistics, energy)

The so-called “Brazil Cost” is a multifaceted phenomenon that acts like a lead weight tied to the ankle of national industry. Its first and most omnipresent layer is the tax system, a veritable Tower of Babel of taxes, contributions and fees that overlap in a chaotic manner. Companies like Gerdau don’t just have to deal with high tax rates, but an absurd complexity: there are dozens of federal, state and municipal taxes, each with its own legislation, deadlines and ancillary obligations. The time and financial resources spent just to understand and comply with this web of regulations is astronomical, diverting capital that could be invested in efficiency gains, research and development. Insecurity is exacerbated by constantly changing interpretations and the threat that changes to the rules could be applied retroactively, as in the case of so-called “sin taxes” or revisions to the understanding of tax credits. This legal uncertainty makes any long-term strategic planning unfeasible, forcing companies to operate in a state of permanent defensiveness.

Bureaucracy is the second leg of this asphyxiating tripod, acting as a constant friction mechanism that slows down production and makes every stage of the industrial process more expensive. In order to open a factory, obtain an environmental license, expand a plant or simply import a necessary component, companies are faced with a marathon of agencies, forms, authentications and deadlines that stretch on for months or even years. This delay is not just annoying; it is economically lethal in a globalized world where windows of opportunity open and close at a rapid pace. While a competitor abroad resolves bureaucratic issues in days via integrated digital systems, Brazilian industry remains stuck in analog procedures and dependent on the discretion of public agents. Bureaucracy also manifests itself in the labor and social security spheres, with legislation so intricate that it requires entire legal departments to avoid liabilities, inhibiting formal hiring and the flexibility needed for innovation.

Poor infrastructure is the third critical component, eroding competitiveness when the product needs to reach the market. Brazil’s logistics system is a chronic Achilles heel, overly dependent on road transport, with roads in poor condition, expensive tolls and inefficient routes. Transporting tons of steel or steel products thousands of kilometers by truck becomes prohibitively expensive, especially when compared to countries with robust rail networks or efficient waterways. Ports, essential gateways for foreign trade, often operate at capacity, with high docking fees and slow and costly customs clearance processes, hampering both the export and import of inputs.

The cost and reliability of energy form another dramatic chapter in this equation. Heavy industry, such as the steel industry, is energy-intensive. In Brazil, however, companies are penalized by an electricity tariff that is among the most expensive in the world, a paradox for a country with abundant hydroelectric, wind and solar potential. This high cost is not just a number on the spreadsheet; it is a decisive factor in industrial location. In addition to price, there is the issue of security of supply. The constant threat of water crises impacting hydroelectric generation, coupled with a transition to intermittent sources without proper transmission and storage planning, creates risks of blackouts and grid instability. For a steel mill, an interruption in the power supply could mean metal solidifying in the blast furnaces, causing millions in losses and prolonged downtime. Meanwhile, the United States, with its shale gas revolution, offers abundant, low-cost energy, an irresistible magnet for electro-intensive industries.

Finally, the Brazil Cost is the synergistic and perverse sum of all these elements. High taxation reduces capital to invest in our own infrastructure and energy efficiency. Bureaucracy consumes time that could be used to improve logistics processes. Poor infrastructure further increases operating costs, eroding the margin already affected by taxes. It’s a vicious cycle that feeds on itself: the hostile business environment reduces competitiveness, which reduces tax collection and the government’s capacity to invest in infrastructure and quality public services, which in turn makes the business environment even worse. Breaking this cycle requires more than one-off measures; it demands a courageous and coordinated structural reform that simultaneously attacks tax simplification, radical debureaucratization and a massive program of investment in logistics and energy with technical management and state continuity, beyond the scope of a single government. Until this revolution takes place, decisions like Gerdau’s to prioritize other countries will not be exceptions, but the painful rule for a country that seems to have chosen to give up on its own industrial future.

International comparison: Why are the USA, Paraguay or other countries more attractive to industries like Gerdau?

Gerdau’s decision to prioritize investments in the United States and the movement of other companies towards countries like Paraguay are not whims, but rational responses to a clear calculation of attractiveness. In the United States, industry finds an ecosystem built on predictability. A complex but more stable tax system with competitive corporate rates at federal and state level allows for long-term planning. Industrial policies, such as the import tariffs on Chinese steel implemented in the Trump era and maintained with variations, create a clear defensive shield for the domestic producer, signaling that the government prioritizes maintaining the national manufacturing base. In addition, access to abundant and cheap energy, the result of the shale gas revolution, reduces one of the most significant operating costs for a steel mill. The logistics infrastructure, with its extensive rail network, waterways and efficient ports, allows raw materials and final products to move at a predictable cost and time, integrating seamlessly into global supply chains.

Paraguay, on the other hand, represents an attraction of a different but equally powerful nature: radical simplicity and extremely low operating costs. With an extremely lean tax burden, notably the iconic 10% Value Added Tax (VAT) and a low corporate income tax rate, the country has become a magnet for industries seeking tax efficiency, especially those geared towards exports. Bureaucracy is drastically reduced, with company opening and licensing processes being resolved in a matter of days, in stark contrast to the Brazilian marathon. Electricity, from the vast Itaipu and Yacyretá hydroelectric dams, is one of the cheapest in the world, offering an unsurpassed competitive advantage for electro-intensive sectors. The geographical location in the heart of Mercosur offers privileged access to the Brazilian market, but without the costs and complexity of producing within the national territory, often making it an ideal export platform.

Meanwhile, Brazil is positioned in a dangerously dysfunctional middle ground. It doesn’t offer the sophistication, regulatory predictability and access to cutting-edge technology that the United States does. At the same time, it rejects the adoption of an aggressive fiscal and bureaucratic simplicity that has made Paraguay a relative paradise for industry. The result is that the country is caught in its own trap: it charges dearly for a business environment that is of average quality and unstable. Political and regulatory uncertainty adds a risk premium that more stable countries don’t have. Infrastructure, despite having immense geographical potential, operates below capacity and at high costs due to decades of underinvestment and mismanagement. Energy, which could be a monumental comparative advantage, becomes prohibitively expensive.

This international comparison shows that the competition for industrial capital is global and fierce. Countries are actively competing, adjusting their policies to attract and retain companies that generate quality jobs and added value. Gerdau’s flight signals that, in this competition, Brazil is losing badly. Not for lack of natural resources or human potential, but because of a state structure that, instead of facilitating production, penalizes it with complexity, cost and uncertainty. While our neighbors and competitors act as facilitators, the Brazilian state still behaves, to a large extent, as an obstacle to be overcome. The message received by the productive sector is clear: in order to be efficient and competitive on the global stage, it is often more viable to operate from a base outside Brazil, even if the final consumer market remains here. This is the essence of deindustrialization: the disconnection between production capacity and the national territory, not because of a lack of demand, but because of an institutional failure to create the basic conditions for production to take place in a viable and sustainable way.

Gerdau to leave Brazil in 2026 Understanding the crisis in Brazilian industry – FAQ