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Futures File: Trade Wars Knock Markets Lower

Mar 23, 2018

Trade Wars: China Strikes Back

On Thursday, President Trump announced a slew of potential actions against China, including tariffs on $60 billion in Chinese imports. The White House is hoping to use these threats to bolster negotiations surrounding trade, U.S. businesses in China, and technology transfers.

China initially responded by threatening tariffs against U.S. products, including pork, wine, and steel pipes. Fears of escalating trade tensions put many markets on edge, as global businesses depend on the free flow of goods between nations. These concerns sent stock markets worldwide sharply lower on Thursday, with the major U.S. markets dropping to the lowest level in five weeks.

 

A New Hope: Former Iowa Governor Branstad?

After the warning of Chinese retaliation against U.S. pork, prices for hogs collapsed to a four-month low under 60 cents per pound on Friday. China is the world’s largest pork consumer and a major buyer of U.S. hogs.

Hopes for diplomatic resolutions still remain, as the threatened tariffs won’t be implemented for at least a month. The U.S. ambassador to China is Iowa’s former governor, Terry Branstad, who is no stranger to pork or soybeans, two of that state’s main exports.

For now, China has not threatened to tax U.S. soybeans, likely because they are so dependent on them. China buys two-thirds of globally-traded soybeans, buying over $12 billion from the U.S. last year. If that trade is endangered, values for soybeans could collapse. On these fears, however unlikely, beans plummeted this week to a one-month low, trading Friday for $10.10 per bushel.

Going forward, President Trump will need to walk a delicate balance between protecting domestic industries against unfair Chinese trade practices while trying to keep U.S. goods flowing unimpeded to China.

 

Gold Rockets Higher

Amidst a general commodity selloff this week, gold shone through as a major winner, jumping to a one-month high.

The metal got a boost on Wednesday from the Federal Reserve after its announcement that it was going to maintain its policy of steady interest rate hikes. Investors had feared that the new Fed chair Jerome Powell might raise rates faster, which could have diminished demand for gold. With that danger largely removed, buyers gladly bought gold and silver, which were trading near three-month lows prior to the announcement.

They got a further boost as investors fled to gold as a “safe haven” investment against falling stock prices, pushing gold to $1350 per ounce and silver to $16.60 per ounce on Friday.

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