Commodity Insite

Trump Tariffs & Chinese Retaliation

After the Trump tariffs, aimed at China were put in place in early March, China retaliated this week. The result has been historically volatile price swings with the US commodity markets, US stocks and cryptocurrencies such as bitcoin. And because I do not understand what makes bitcoin rise or fall, let’s see how that mysterious market has performed this week amid the China vs. U.S. trade war.

The first three months of 2018, bitcoin endured its greatest loss in its history, shedding more than 40 percent. But two other cryptocurrencies, Ripple and XPR lost 77 percent. This week, Bitcoin slipped as low as $6480 well below the high of $17,600 set in early January. But that is enough about cryptocurrencies because I do not understand what makes that market rise or fall. Or, why anyone would invest hard earned money in such things.

However, when China slapped a tariff on soybeans this week, I know good and well that is what caused the hairy legume to drop sharply. When news of the soybean tariff hit the wires, front month soybean futures fell as much as 5.2%, the largest one-day decline in history. Plus, volume of trade was the largest in history for futures and options on futures. A huge percentage decline amid record volume is generally viewed bearish based on history.

Once the initial shock of the soybean tariff was fully digested most grain markets rallied to regained half the losses. As did a goodly number of other markets as well. Nonetheless, there is a trade war underway with the US and China and history shows in such a war there are no winners.

Here are just a few of the headlines about China retaliating against the United States due to the Trump tariffs. From Reuters News. “CHINA TARIFFS ON SOY, SORGHUM SPREAD FEAR IN U.S. FARM COUNTRY.” From the St. Louis Post Dispatch. “Vulnerable U.S. agriculture 'on the tip of the spear' amid China's retaliatory tariff threats.” From Bloomberg News. “Midwest Farmers Have Trump to Thank for Their Latest Export Woes.” And this editorial headline from the St. Louis Post Dispatch. “Editorial: “Trump's trade war will inflict heavy agriculture-sector casualties here.”

The Chinese specifically targeted 106 US products with a 25% tariff. They did so less than 11 hours after President Trump targeted 1300 Chinese industrial technology, medical products and transport with a 25 per cent tariff. China is matching the US, tit-for-tat with tariffs. And that is no surprise because I stated several times the past month in this column that China would not sit idly by if they were singled out for trade violations, real or imagined.

The trade war between the US and China has spawned uncertainty. History shows that uncertainty is always bearish. The tendency with market and participants, investors, speculators or ag- producers is to shoot first and ask questions later. The markets are now convinced, and rightfully so, there is a great deal of uncertainty everywhere. And no one knows what the consequences will be from one week to the next. Or, one day to the next for that matter.

From the St. Louis Post Dispatch. “Across Missouri — and in much of the American heartland — anxiety is especially high among farmers, who fear they stand to bear the brunt of the retaliatory tariffs proposed by China, after President Donald Trump’s initial moves to curb key Chinese imports, like steel.”

“It’s an awful day for Missouri agriculture,” said Blake Hurst, president of the Missouri Farm Bureau, who expressed particular concern about China’s proposed tariffs on soybeans, pork and cotton. “Three really important products to Missouri are no longer competitive in the Chinese market if these go into place.”

It remains to be seen how this trade war between the US and China will shake out. But as I have been saying for some time, history shows there are no winners in a trade war. Thus far, the so called war has spawned two major market moving scenarios. One, there is uncertainty with all markets not simply the ag-markets. The other force is unprecedented volatility because no one knows what is going to unfold from one day to the next.

If you want to read about the history of markets go to, and check out my one-of-a-kind book, Haunted By Markets. With a purchase, you recieve 1 month free of my twice a day newsletter.

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