Mexico Deal Buoys Hogs, Corn, But Commodities To Lag Without Canada, China
Investing.com | Aug 28, 2018 04:09
Prices of agricultural commodities—from hogs to cattle to corn—jumped on yesterday's US trade agreement with Mexico that aims to rewrite NAFTA, but US commodity markets as a whole will likely meander till the United States resolves its trade wars with Canada and China.
The US-Mexico Free Trade Agreement announced on Monday essentially rebrands the North American Free Trade Area with updated deals between the two nations on digital economy, automobiles, agriculture and labor unions, but keeps the core of the old NAFTA deal—which lets American firms operate in Mexico without tariffs. The question is whether the bilateral deal can become trilateral again with Canada’s inclusion. US President Donald Trump has threatened to keep the US's northern neighbor out of the deal and hit it with auto tariffs if it doesn’t “negotiate fairly.”
From a commodities perspective, it will be advisable for Washington to seal an agreement with Ottawa, which imposed tariffs on $12.5 billion of US goods, including steel, toffee, maple syrup, coffee beans and strawberry jam a response to Trump's threats to undo NAFTA. The US, for its part, has imposed a 25 per cent tariff on steel, 20 percent on lumber and a 10 per cent tariff on aluminum coming in from Canada.
But even more important than achieving a pact with Canada will be resolving the trade war with China, which worsened last week after the two countries confirmed additional tariffs of 25 percent on each other’s imports. The trade battle began in January and escalated last month after each side approved $34 billion worth of counter tariffs.
In the latest salvo, China hit $60 billion of American goods—from liquefied natural gas to some aircraft—with levies in retaliation to US duties on $200 billion of Chinese imports. While the Chinese response hasn’t been proportional in absolute dollars to the US taxes, percentage-wise it can be alarming. China’s tariff on US pork, for instance, is as high as 70 percent.
Trump, however, said on Monday “it’s note on soybeans.
Copper on the COMEX metals division of NYMEX, gained 0.2 percent. But for the year, it remains down 17 percent, with China targeting a 25 percent tariff on imports of copper ore and concentrate from the US, which shipped about 70,000 tons to the country last year.
West Texas Intermediate crude oil, traded on the New York Mercantile Exchange, climbed 0.4 percent. Brian Battle, Director at Performance Trust Capital Partners, told Bloomberg TV that he believed WTI could get to $70 per barrel with a China trade deal, though “the supply side is a little more complicated … because of Iranian oil, how the Russians are going to pump and if they can keep OPEC together.”
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