Last week saw more than 500 delegates from across the industry descend upon the iconic British Museum for CRU's annual CRU Breakfast. Monetary, trade and environmental policy were the biggest talking points.
This is further confirmed by a recent poll taken for our upcoming Mining & Metal Observer (Figure 1 and Figure 2) which places trade risks at the top of respondents' concerns. Importantly, and perhaps relatedly, we also find a marked downward turn in sentiment, from 80% optimists in the spring to only 46% in CRU's most recent survey.
Global trade war – entering a downward spiral?
Last year, we warned our clients that the U.S. President had considerable latitude, and little oversight from Congress, in relation to trade policy. As we all know, earlier this year, these risks have begun to crystallise with the U.S. placing import tariffs of 25% on steel and 10% on aluminium. On 24 September, President Trump imposed tariffs on an additional US$ 200bn of Chinese imports, with China retaliating imposing tariffs on an additional US$ 60bn of U.S. imports to China. These tariffs are expected to push up on consumer prices and drag down on exports and growth in these two economies.
China is in the political headlights in the U.S. amid allegations of market and currency manipulation, barriers to market entry, and misappropriation of intellectual property by companies and state actors.
Worryingly, should the Republicans do badly in the U.S. mid-term elections next month, the resulting weakness in the domestic policy sphere may encourage the Trump administration to further focus on trade policy.
These disputes are already creating some investor uncertainty and volatility in the market. A deepening of the trade war could further drive market sentiment. However, for commodity producers, real uncertainties exist surrounding the effects of policies designed to cushion the impacts of a trade shock.
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