SAO PAULO (Reuters) - U.S. President Donald Trump's trade war with China will give Brazilian agricultural exporters an opportunity to take an even bigger share of the Chinese market at the expense of American farmers, but it could also fuel already high food inflation in Brazil.

China this week retaliated swiftly to fresh U.S. duties announced by Trump, imposing hikes of 10% and 15% in levies covering $21 billion worth of American agricultural goods, including meat and soybeans.

Brazil, the world's largest exporter of soy, cotton, beef and chicken meat, is expected to ship more to China as importers there seek tariff-free imports. During Trump's first term, the trade war he triggered with China led to U.S. farmers losing a chunk of market share to Brazil, including for China's valuable soybean imports.

The U.S. never regained that market share for soybeans. China continues to buy more of its agricultural imports from Brazil than it did before the first trade war, and that will likely accelerate again with the latest round of tariffs.

"Rising U.S.-China tensions are likely to prompt China to source more grains and proteins from Brazil, potentially lowering commodity demand and in turn prices in the U.S., while increasing demand and prices in Brazil," Santander analysts said.

Prices for Brazilian soybeans are already on the rise. The premium at local ports hit a season high this week, said Eduardo Vanin, analyst with Agrinvest.

"Any additional demand from China could result in stronger exports from Brazil at healthier prices," Itau BBA analysts said in a note to clients.

That would support Brazilian farm companies such as SLC Agricola ( SLCJF ) and BrasilAgro. More exports would mean less domestic supply, however, and that would increase costs for grains to feed to animals for local meatpackers such as JBS and BRF.

SEVERE PRESSURE

A surge in food prices, however, would be bad news for Brazil's President Luiz Inacio Lula da Silva, whose popularity has plunged in recent months, mainly due to elevated food costs.

Food and beverage prices rose around 8% in 2024 as a whole, according to statistics agency IBGE, and in January were up by nearly 1%, marking a fifth consecutive month of increase. February data will be released next week.

Brazil's central bank, which has been hiking interest rates, has said that higher meat prices were key to a significant rise in food costs and described an adverse short-term scenario.

Vice President Geraldo Alckmin and other officials have a meeting with leaders of the food industry on Thursday, as the government seeks ways to lower food prices.

Inflation also rose in 2018-2019, when Brazil exported more agricultural goods to China.

Brazil's consumer prices ended 2018 at 3.75% and accelerated to 4.31% at the end of the following year.

BACK TO THE FUTURE

Santander noted that although less severe than the 2018 levies, the latest tariffs announced by Beijing would accelerate long-term diversification away from U.S. supplies.

China's turbo-charged demand would brighten an already positive outlook for Brazil's agribusiness, which sees production of key goods reaching all-time highs this year.

Brazil is expected to reap a record soybean crop of about 170 million metric tons in 2024/25, with exports exceeding 100 million tons, and the beef, poultry and pork industries also forecast record output and shipments this year.

"China will seek to obtain as much as possible from Brazil," Carlos Cogo of agribusiness consultancy Cogo said, adding that the fresh tariffs would make U.S. products even less competitive against Brazilian ones.

PRIME MEAT

Representatives of Brazil's meat producers said the shift in global trade should be positive for the South American country.

"Brazil will end up benefiting, especially in terms of prices and profitability," Ricardo Santin, the head of meat lobby group ABPA, told Reuters.

Shares of Brazilian meatpackers and grain producers were roughly flat on Thursday after rising sharply in the previous session.

Santin said that gains from more exports to China, already a major buyer of Brazilian meat, would probably offset higher feed costs.