President Trump’s seemingly-ceaseless trade war has caused quite a disturbance in both international markets and headlines, causing anxiety for investors and consumers alike around the world. Nonetheless, with new scandals consuming the attention of the headlines every few days and with many investors lost in the ensuing media maelstrom, many are struggling to make sense of the US trade war and how it will affect commodity prices.
Luckily, a reasoned analysis of the situation isn’t far from hand, and we can already begin to see how the trade war has affected commodity prices thus far. Here’s how President Trump’s trade war has impacted commodities, and how they may fare in the near-future.
Traders are still bullish on commodities
The good news for those who are invested in a global free trade regime (essentially everyone but the current U.S. president) is that traders are still bullish on commodities despite the political furor that’s recently dominated international diplomacy. Goldman Sachs, for instance, recently posited in a research note that fears surrounding the existing trade dispute between the United States and China were likely largely overblown in the public market. As a matter of fact, the company actually sees commodities as being set to rise, and thinks that in its current stage the trade war won’t ultimately have a terrible impact on the commodities market in general.
Still, raw materials aren’t magically insulated from the economic fallout of President Trump’s trade war, and it would be dishonest to say that they haven’t already felt the heat from the economic fires currently raging between Beijing and Washington. An analysis of the Bloomberg Commodity Index, for instance, which measures the wellbeing of disparate raw materials across the economy, notes that the commodity market has slumped recently and stands to drag other sectors with it. Traders may be bullish on commodity prices where they stand to make a profit, but that doesn’t mean the market isn’t concerned about the damage that’s already been wrought by the trade war.
Furthermore, virtually no meaningful progress has been made in the current trade war to indicate it may come to an end soon, either. Despite the fact that Mexico, Canada, and the United States recently announced a slightly re-worked version of NAFTA, relatively little to no real progress has been made between Uncle Sam and his negotiating partners in Beijing. Until the United States and China finally settle the grand economic disputes between them, then, we can expect this trade conflict to continue on the path towards sustained escalation.
China isn’t backing down anytime soon
President Trump and his American backers in this trade war have banked quite a bit on the hopes that the Chinese economy will wither and succumb to his tariff regime before American voters feel economic anxiety at home. The Chinese middle class has been surprisingly critical of its leadership’s efforts against President Trump’s trade war, but as foreign policy analysts have astutely noticed this is likely to soon change. The Chinese middle class is reportedly set to turn on President Trump with a hitherto unforeseen level of resentment thanks to his restrictive trade policies, which could cause the Middle Kingdom and its market to buckle down for the long-haul in its trade war against America.
This isn’t good for the long-term fate of commodities, which will suffer more and more for as long as this trade dispute continues to go on. What’s more, further escalation and uncertainty in the market will only guarantee that the prices of commodities aren’t only negatively impacted, but see exponential returns in negativity that grow worse and worse as the dispute does. The more one side digs its heels into the ground during the dispute, the greater an incentive the other side will have to do the same, thereby causing commodities to be sealed into a deadly plunge.
Volatility amongst commodity prices is still spread out, however, with some sectors faring better than others. Agricultural commodities, for instance, are liable to receive substantial support from the U.S. federal government because the farmers (or agribusinesses) producing them have sway with the president and the Republican majority in congress. That’s why certain agrarian commodities like cotton have done better than others despite the trade war’s ceaseless escalation. Farmers and other commodity producers can’t expect to live on handouts supplied by the U.S. government forever, however. The trade war between Donald Trump’s nationalist economic agenda and the ambitions of the Chinese Communist Party continues unabated, and will likely only grow more bombastic as time goes on. The US trade war will continue to stymie growth. While commodities haven’t been plunged into the abyss thus far, it’s only a matter of time until the losses weathered in that sector leak out and negatively impact the broader market to disastrous results.