Honestly, I think that modifier's at least half there to protect Castile from an early-game Portugal-Aragon alliance.
Don't know why this is being downvoted. It may not be the reasoning in actuality, but I definitely agree that it protects Castille as much as, if not more than, Portugal early game.
Anyway, to address OP points:
Trade is by far the most important thing when balancing Portugal, and something that had a huge influence IRL, therefore it should be the main thing tackled when making changes in the Iberian peninsula. The thing i would suggest is the biggest issue, is the fact that both Spain and Portugal belong to the seville tradenode. This makes them have competition for trade income, and weakens both, in the current state of the game. Other major colonizers, such as france and England have their own end trade node, with little competition in it (the netherlands hardly ever manages to sucessfully form), so the fact that 2 major colonizers must share the same node means they are both being nerfed. his issue is copounded even more due to the fact that seville is now no longer an End node, meaning they will now be competing with the italians as well.
Portugal are capable of throwing so much trade power into Sevilla that this change doesn't really mean much to them. AI Portugal will still be one of, if not the, richest AI nation in the game post-CS unless the player interferes them (as is the case now). As it is now, Spain and Portugal sharing Sevilla trade node is to their mutual benefit (I'd argue it favours Portugal more, but whatever); their competition are countries trying to steer away from Sevilla further upstream, of which there are many notable powers doing so. This doesn't change much with Sevilla no longer being an end node, either. Castille/Spain will still want to steer toward Sevilla regardless of whether their trade capital is in that node or in Genoa.
I'd argue that your suggestion of splitting Sevilla into Lisbon and Sevilla would be a far larger nerf to both Portugal and Castille/Spain than Sevilla no longer being an end node.
Lets face it, portugal is extremely weak in land forces, which while having some basis in reality, is way overblown. For example During the war of castillian sucession portugal fielded armies comparable to those of the castilians Whereas in game you can barely field half of castiles troops, which just seems ridiculous.
I would propose to fix this by adding 1 province (abrantes) that would come from a split of the Lisbon/castelo branco provinces. This is a province that over the time period was the site of many battles like during the seven years war, or the napoleonic wars not only that, but the adition of this province would allow a fortress to be placed there and essentially make it "the Key to Lisbon" and serve a similar purpose as the Elvas Lines.
They're not, really. AI Portugal gets so rich off trade that they're able to (and do, at least for me) field armies quite in excess of their force limit. It's more of an issue of how the AI uses those forces, to my mind, as a player can utilise them far more efficiently.
Having said that, I do agree that Portugal could use a couple more provinces/development buff. But North Africa (specifically Morocco, I guess) could use a look at, at the same time, if that happens.
And finally we must talk about colonization. Portugal is primarily a colonizar and a trader, and therefore any balance regarding it will influence it. Therefore the change to make the first idea group at level 5 rather than 4 is a straight up nerf to portugal. As it is portugal is already artificially prevented from colonizing for a decade, and this will just make it worse.
Therefore i propose a change to the portuguese traditions, replace the +5% Trade efficiency with a +1 colonist.
This allows portugal to colonize africa, as it did IRL, and speeds up the way to india, making it as attractive as the new world, without allowing it to colonize the new world (since explorers can only go through ocean when they have quest for the new world at level 5). This means the new world will continue to be competed for, while giving portugal more oportunities to expand early on and build on things that can pay off later on.
I understand that this is a big change, but i truly believe that there is little downside in incentivising portugal to fulfil their missions and take advantage of certain events, because otherwise we get a portugal with events in india (GOA!) when all it did the entire game was focus on america. This would make asia and africa just as attractive to it as the new world.
That change isn't a direct nerf to Portugal. It's a nerf to all colonizers. And as it stands, Portugal and Castille/Spain are already dominating the new world at the expense of others, so throwing Portugal an additional colonist only compounds that issue.
These Portugal "nerfs" continue to get blown way out of proportion.