Commodities opened the new week under pressure after a weekend when trade tensions with China heightened following a President Trump tweet. The President is not happy with how the talks are progressing and he tweeted that tariffs on $200 billion of Chinese goods will move from a ten percent rate to twenty-five percent. The jump is scheduled for Friday.
Arlan Suderman with INTL FCStone says if it happens this week it doesn’t directly add more pain to the agriculture sector. Why? “Because China has already retaliated with tariffs on ag, but even that doesn’t matter because China has basically told its buyers you will not buy from the United States,” he explained. “Only government buyers will do that buying. So, the private buyers, even when they’ve wanted to pay the tariff, know that they better not do that. So that doesn’t directly add any more pain to us.”
Side effects also include trade talks breaking apart. That removes the possibility of a trade deal that includes significant grain being sold to China. It also adds more stress to many economies, here and throughout the world.
“The Chinese economy to the U.S. economy to the world economy, and when the global economy starts to come under added stress, demand for commodities goes down. So, the impact is indirect. Today’s (Monday’s) market impact was largely because of the computer traders, we call them the algorithmic traders, simply reading the headlines and dumping solo orders across the spectrum, and for the most part the human element stayed out of their way.”
Suderman said there are plenty of rumors that China tried to renegotiate previously agreed upon areas of the deal last week during Beijing meetings, possibly trying to test President Trump’s resolve.
“The talks have escalated up and moved forward each time they faced a threat like this,” he said. “Whenever President Trump has held off and said we will delay implementation of tariffs, then the trade negotiations have slowed down. So right now my bias is that this will move the talks forward, but you never know with China.”
From equity markets, agriculture, tech and consumer goods and energy markets, he says no sector is being untouched by this latest back and forth.