The U.S.-China trade war is sparking so much fear over demand that even those parts of the commodity world that aren’t in the direct firing line are getting burned, says a report by Bloomberg
Oil had its biggest sell-off in four years after U.S. President Donald Trump brought an abrupt end to a truce forged with Chinese counterpart Xi Jinping in June 2019. That is after Beijing has spared crude from levies. Meanwhile, crop markets, industrial metals and shares of agricultural traders have all got walloped over the months.
The dispute between the two major economies is overwhelming concerns over supply. Tensions in the Middle East’s most important oil chokepoint are still simmering, the wettest 12 months of rains disrupted planting in the U.S. crop belt and a deadly pig virus is decimating pigs in China. For investors, the threat posed by the trade war to global economic health is trumping everything else.
Trump announced last week that he would impose a 10% tariff on a further $300 billion in Chinese imports, including smart-phones, laptops and children’s clothing, from 1 September, 2019. Beijing has vowed to respond. That sent the Bloomberg Commodity Index, which measures returns from raw materials including oil, corn and copper, 2.5% lower — the most in over a year.
While the new levies may have limited direct impact on industrial metals, the repercussions for the economy in China, the world’s biggest metals consumer, will be significant.
In agricultural markets, cotton and sugar declined, while crop markets slumped for the week, during which wheat, corn and soybean futures fell to the lowest levels in months.
An outbreak of African swine fever in China has resulted in the death of millions of hogs, prompting expectations for record meat shipments to the nation. Purchases of U.S. meat have lagged behind other countries such as Brazil due to tariffs that made American imports too expensive. U.S. benchmark West Texas Intermediate and global market Brent crude slumped over 7% last week after Trump tweeted his tariff threat.
Tensions in the Middle East have done little to boost prices. Over the past six weeks, Iran has brought down an American spy drone and seized a British tanker, all the while reeling from a U.S. sanctions campaign that has slashed its oil sales to the lowest since the 1980s.