Trump Tariff drops Oil Prices
Financial markets swayed globally on Monday, May 5th, 2019 after United States President Donald Trump increased pressure on China to complete a trade deal. He stated that he would inflate U.S. tariffs towards Chinese products this week. Both China & America have been at wit’s end with each other, trying to reach a deal that will benefit them both. However, as long as these two global leaders continue to have a trade war than billions will be lost on both sides.
Chinese oil shares plunged by an average of 6% on Monday, while the United States only had a 1.6% drop. This caused the Chinese Yuan to drop dramatically, showing that the USA is still the main global leader.
Trump hasn’t stopped yet, as he has tweeted out that he is going to be raising tariffs from 10% to 25% on $200 billion worth of Chinese products/goods. If talks don’t start becoming faster, those tariffs will be applied to another $325 billion on Chinese products/goods.
These tweets have stopped any hope for an improved dual-economy between the United States and China. In retaliation to these tweets, China is considering cancelling trade talks that were scheduled for this week.
Rakuten Securities Analyst, Nick Twidale, commented on this news to U.K. Investing, “I think this has got the potential to be a real game-changer. There is still a question of whether this is one of the famous Trump negotiation tactics, or are we going to see some drastic increase in tariffs. If it’s the latter, we’ll see massive downside pressure across all markets,” he said.
Global Market Shares Plunge
The tweets made by Donald Trump caused for markets globally to be affected. We’ve listed the official figures for you down below.
- Asia-Pacific down by 1.9%
- Chinese Blue Chips plunge by 6%
- Australian Shares fall by 0.8%
- Japanese Financial Markets dives by 1.6%
- S&P 500 slid by 1.6%.
The Head of Investment Strategy for AMP Sydney, Shane Oliver, remarked on this news, “The risk for (Trump) is that the Chinese don’t play ball and don’t go ahead with the negotiation. It’s not in his interest for shares to go down as it would hit U.S. business confidence and investment, and that would shoot up unemployment. And that would be a risk for his re-election, too.”
Mr Oliver continued by saying, “Should trade tensions resume, we expect a quick reaction by China’s policy-makers, with policy implementation made more effective. The scope for fiscal and monetary growth is large. We believe the negative impact from additional tariffs will likely be managed better this time.”
The Upsides for Safe Havens & Oil Reserves
There is a silver lining to the tweets issued by Donald Trump. Traders with risky assets have shown immediate interest in safe havens like government treasuries, which are protected by the World Bank. On the same day as the tweet, the U.S. Treasury saw a 16% growth in user activity. The Chinese Treasury also jumped by 0.5%, though this is minimal is shows that Chinese traders are looking for a haven for their assets.
The most significant benefit is the tweets made by Trump allowed for oil prices to drop in the United States for the first time in weeks. Oil prices fell by 3.1%. However, it is expected they will bounce back relatively quickly. This is because the drop in prices has increased sale output, with an average of two million barrels being purchased each day this week.