The Tariff Man

If there ever was any doubt about Donald Trump’s self-proclaimed status as a “Tariff Man”, the President certainly put these to rest as he increased tariffs from 10% to 25% on Chinese exports worth USD 200 billion after the parties failed to agree on a trade deal. As the trade war playbook goes, China was quick to respond with tariffs of its own as the nation wowed to fight “to the end”. For those of us who struggle to keep track of the events, an updated timeline on the trade war can be found here.

While the Tariff Man locked his grip on China, there was a more lenient line towards traditional allies. The United States lifted levies on metal imports from Mexico and Canada and delayed tariffs on car imports from Japan and Europe. In exchange for the lifting of metal tariffs, Mexico and Canada agreed to remove their tariffs on US pork, cheese and milk imports. Time will show whether this is a genuine olive branch or merely the President’s realization that he cannot fight everyone at once.

While the trade war (for now) may recede in terms of geography, there are ample concerns that the trade spat between China and the Unites States could affect other areas. Most recently, President Trump warned that China would implement monetary stimulus to mitigate the negative impact of US tariffs on its economy and urged the Federal Reserve to match such stimulus for an easy victory. Arguably, the trade war is a part of larger rivalry between the world’s two largest economies – something the rest of the world should be worried about.

Whereas the United States’ rivalry with China remains peaceful, tensions with Iran have recently flared on the back of President Trump’s withdrawal from the nuclear deal. While the United States reimposed sanctions on Iran back in November 2018, it granted six-month waivers to eight countries (incl. India and China) to continue Iranian oil imports. The announcement that the waivers would not be renewed promptly sent oil prices to a six-month high. Consequently, citing considerable uncertainty about global supply, the International Energy Agency warned that a supply deficit in the oil market was “highly likely”.

Trouble is also brewing in the market for pork meat. China has been hit with an outbreak of African Swine Fever. While the disease does not affect humans, it is deadly to pigs and there is no vaccine (as of now). Despite best efforts from the Chinese authorities, the disease has spread rapidly within China and to neighboring countries also. In the worst case, the fever may kill up to a third of China’s pigs – which is almost as many that are farmed in the Europe and the United States. The result: lower inventory and higher prices as illustrated in the charts below. Expect pricier bacon!