The foreign policy of Brazil adopted by the Estado Novo regime was called “the equidistant policy”. That policy had as its main goal making sure Brazil wouldn’t gravitate towards either side of WW2. The government had a grand design of starting a great steel manufacturing and mining operation, but in order to succeed it would need tons of investment by foreign powers. That means that Brazil would put a price tag on which side of the war it would join, the price being investment.

The leverage Brazil had over both sides was its location. Brazil is the closest point between the Americas and Africa, with the Vichy France fascist government being in control of France African colonies, including the closest point between the two continents. That meant the Axis could launch an invasion through Brazil and gain a foothold in the Americas, or have Brazil willingly join them for that price tag I mentioned. The Allies on the other hand could use that same position to refuel planes going into Africa to fight Italy. Ultimately, Vargas forced the Allies’ hand when he received a proposal by the Krupp company to build that steel manufacturer, resulting in the US agreeing to pay for it, plus agreeing to pay for infrastructure and airbases in the area that would be used to reach Africa, in exchange not only for Brazil nominally declaring war on Germany, but actually send troops to the frontlines, which was agreed and executed.

As for the Allies’ willingness to have an authoritarian ally, don’t forget they were already allied to the USSR, the Polish government in exile and were trying to get the dictatorial Turkey to join as well. One of Churchill’s most famous quotes reads: “If the Devil declared war on Hitler, I would make sure to throw a compliment his way in the a House of Representatives”, illustrating the pragmatism that went into choosing your allies at the time.

Sources:

Getúlio trilogy by Lira Neto

Oswaldo Aranha A Biography by Pedro Cortêa do Lago