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Battle of the Titans: US, China trade spat and its impact on goods



By Hareesh V

Concerns about the trade war between the world's leading economies have led to large fluctuations in the global financial and commodities market.

The US imported several million imported goods from China last week, and the latter retaliated by charging a tariff on American products.

The US government imposed duties on metal imports from Europe, Canada and Mexico.

US President Donald Trump laid the foundation for the trade war's imposition of tariffs on Chinese products, claiming that the country unfairly transfers American technology and intellectual property, which are alarming for American jobs. American exports to China, which will be hit hardest by tariffs, are vehicles, aircraft, vegetables, plastics and chemicals.

In the meantime, heavy machinery such as machinery, mechanical equipment and electrical appliances on the Chinese side are likely to be affected. In the meantime, the US economy is against the decision to impose trade tariffs.

Washington's largest lobby groups have already warned that the imposition of tariffs would destroy US manufacturers, farmers and consumers.

The IMF has also warned that this trade war would lead to losses on both sides and have a serious impact on the economy, although the two countries continue to challenge each other.

The wars of war started in March after the US wanted to impose steel tariffs and aluminum imports. However, global commodity prices reacted mixedly to the news.

Steel prices weakened initially, but recovered later, especially in the important Chinese market. On the domestic side, the impact on domestic steelmakers was limited because our exports to the US are negligible.

The US imports steel mainly from Canada and Brazil. At the same time, large fluctuations in global aluminum prices were observed. The same trend has been observed with other base metals.

Bullion responded positively to the news because of its attractiveness as a safe haven. However, prices later corrected reports of waning concerns, a strong dollar and the outcome of the US Federal Reserve's FOMC meeting.

The already higher crude oil prices showed a subdued immediate reaction and continued their positive momentum. However, oil prices later retreated from peak levels for several months and are now consolidating with the looming concerns over China's ability to raise tariffs on US crude and the outcome of the bi-annual OPEC meeting.

China has now proposed limiting the import of US energy products such as crude oil, LNG and coal. China is the largest buyer of US crude oil and has imported around 31

9,000 barrels per day since January.

The country is the primary customer for the upswing of the US shale oil industry. The blockage of US oil to China will cause problems for US slate producers, as it is difficult to find new customers.

China can source oil and energy products from other countries, such as Russia and Saudi Arabia, even though they have to pay more.

The US dollar, which gained momentum following the introduction of tariffs, impacted commodity prices. Following the US government's decision to impose tariffs on imports, the greenback rose more than seven percent. A strong dollar usually makes the commodity price weak.

Looking ahead, tensions could continue to rise as the US intends to restrict Chinese investment to the country. Various reports indicate that the US plans to extend tariffs to more Chinese goods over the next few days.

As long as concerns persist on trade between counties, commodity prices are likely to be vulnerable, with the US and China top economies and leading consumers of a large number of commodities

Disclaimer : The author is Head Commodity Research at Geojit Financial Services. The views and investment tips expressed by the Investment Expert on Moneycontrol.com are his own and not those of the website or its management. Moneycontrol.com encourages users to consult with certified experts before making any investment decisions.


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