Oil, Copper, Soybeans Plunge as China Retaliates Against U.S. Tariffs: Market Sells Off Amid Trade War Fears
On Friday, a wave of panic swept through global markets as oil, copper, soybeans, and other key commodities saw a sharp decline. Oil prices fell nearly 8%, hitting their lowest levels since 2021, while other raw materials like copper and soybeans also tumbled. This market downturn was sparked by escalating tensions between the United States and China, as Beijing retaliated against President Donald Trump’s aggressive tariffs, intensifying concerns about a potential global trade war.
This article delves into the consequences of the escalating trade conflict between the U.S. and China, highlighting how it has negatively impacted the prices of commodities, from oil and copper to agricultural goods like soybeans, and examining broader market reactions including equity selloffs and recession fears.
The Trade War Escalates: China’s Retaliatory Move
The latest round of tariff hostilities between the U.S. and China reached new heights on Friday, with China announcing a retaliatory 34% additional levy on all U.S. goods. This aggressive move followed President Trump’s imposition of a 10% minimum tariff on most U.S. imports, alongside significantly higher duties on several other countries, including China.
As expected, Beijing did not back down and instead escalated the trade conflict, making it clear that it was not willing to negotiate under Trump’s aggressive trade stance. This bold action raised fears that the escalating trade war could dampen global economic growth, leading to a reduction in demand for key commodities.
Bjarne Schieldrop, the chief commodities analyst at SEB, commented, “This is the first very explicit escalation from China, they are not backing down, they are upping the game.” Schieldrop also anticipated further retaliation from President Trump, who remarked that China “played it wrong” and vowed not to change his policies.
The possibility of a full-blown trade war between the two largest economies in the world led to panic across financial markets, especially in commodity markets, as investors feared the negative repercussions on trade, global supply chains, and economic growth.
Commodities Take a Hit: Oil, Copper, Soybeans
The most immediate casualty of the trade conflict was oil. U.S. West Texas Intermediate (WTI) crude futures dropped by $4.93, or 7.36%, settling at $62.02 per barrel. Similarly, Brent crude futures plunged $4.53, or 6.46%, to $65.63 a barrel. Both oil benchmarks hit their lowest levels since the height of the COVID-19 pandemic in April 2021. The global energy market took a direct hit as concerns over slowing economic activity due to the trade conflict led to a decrease in oil demand, particularly from China, a major buyer of U.S. oil.
In addition to oil, base metals such as copper experienced sharp declines. London Metal Exchange three-month copper fell by 3%, marking its biggest daily drop since the early days of the pandemic in 2020. The price of aluminum also dropped by 3%, reaching its lowest level since September 2021. The metals sector has been under pressure due to weakening demand, especially from China, which is a major consumer of industrial metals.
Soybeans and Other Agricultural Products: A Trade Standstill
The agricultural sector wasn’t spared either. Soybean futures on the Chicago Board of Trade fell by over 3% as traders feared that the tariffs would bring trade between the U.S. and China, the world’s largest soybean buyer, to a halt. With the imposition of tariffs, China is expected to shift its soybean purchases to rival supplier Brazil. The price of soybeans ended down 3.4% at $9.77 per bushel, marking its lowest price since late December 2021.
Meanwhile, wheat prices fell 1.3% to $5.29 per bushel, while corn bucked the trend and rose by 0.6%, closing at $4.60-1/4 per bushel. Corn prices benefited from the exclusion of Mexico, a major corn importer, from the U.S. tariffs. This helped support corn’s positive performance in an otherwise negative market for agricultural products.
The Global Market Selloff: Equities and Safe-Haven Assets
The impact of the trade war was not limited to commodities. Wall Street benchmarks experienced a heavy selloff, with the Dow Jones Industrial Average set to reach a correction and the Nasdaq heading toward a bear market. The broader equity market was hit hard by concerns over the potential economic fallout from the trade dispute.
In addition to equities, safe-haven gold also suffered a setback. Spot gold prices dropped by 3% as traders liquidated their bullion positions amid the broader market selloff. Despite gold traditionally being a safe-haven asset, it was not immune to the negative sentiment that gripped the market on Friday.
Recession Fears and the Broader Economic Outlook
The sharp declines in commodities and equities, along with the continued escalation of the trade conflict, fueled fears of a global recession. Analysts warned that if the trade war were to escalate further, it could lead to a significant slowdown in economic growth, particularly in China and the U.S., which would have a ripple effect across the global economy.
The market selloff highlighted the fragility of the global economic recovery, as investors became increasingly concerned that the trade conflict could derail the positive momentum built up in the wake of the pandemic. Many traders are now looking to central banks for signs of action, particularly in the form of rate cuts or other monetary policy measures to mitigate the economic fallout from the trade war.
Conclusion
The trade tensions between the U.S. and China have triggered a massive selloff in global commodities and equity markets, with oil, copper, soybeans, and gold all suffering significant losses. The imposition of tariffs, coupled with escalating fears of a global trade war, has weighed heavily on investor sentiment, driving concerns over economic growth and commodity demand.
As the trade conflict between the two global superpowers intensifies, the broader market will likely remain volatile, with investors closely watching for any signs of further escalation or potential resolution. In the meantime, commodities and equities will continue to feel the effects of the ongoing trade war, and global economic growth will be in the spotlight as the situation develops.
Frequently Asked Questions (FAQs)
- Why did oil prices drop significantly? Oil prices dropped due to escalating trade tensions between the U.S. and China, which caused concerns about reduced demand for energy, particularly from China, a major oil importer.
- How has China’s retaliation affected the commodities market? China’s retaliation with higher tariffs on U.S. goods led to a broad market selloff, impacting key commodities like oil, copper, soybeans, and gold. The fear of a global trade war and reduced demand drove these price declines.
- What is the impact of the U.S.-China trade war on global trade? The trade war has resulted in higher tariffs, which have disrupted trade flows, particularly in agricultural products like soybeans and metals. The tariffs have created uncertainty in global markets and could harm economic growth.
- How does the trade war affect the price of soybeans? The imposition of tariffs by both the U.S. and China has led to a reduction in soybean trade between the two countries. As China seeks alternative suppliers, U.S. soybean prices have fallen significantly.
- What role does gold play in the current market conditions? Gold, traditionally a safe-haven asset, saw a drop in prices due to widespread market selloffs. As traders liquidated positions in gold, its value decreased despite global uncertainty.
Disclaimer:
The content in this article is for informational purposes only and does not constitute financial, investment, or trading advice. Always conduct your own research or consult a qualified financial advisor before making any investment decisions. The views expressed are solely those of the author and do not necessarily represent the views of any institution or entity.
