The commodity market is on the verge of large-scale events that could affect the dynamics of currency prices. The fact is, last Friday, the US Department of Commerce proposed to introduce tariffs on the supply of aluminum and steel imported into the country.
In general, this is not news: the corresponding report on the impact of imports of these products of raw materials on national security has been submitted to Donald Trump for more than a month. The US president must respond to it within 90 days by making a decision. But now the main scenarios of possible variants have materialized. And all of them can unleash a full-fledged trade war.
Let's start with aluminum. The first option involves the introduction of tariffs (24%) on the products of only a few countries. Among them - China, Russia, Venezuela, Hong Kong and Vietnam. An alternative scenario includes duties for all countries (about 8%). And the last option is limitations or quotes for all countries in the amount of 87% of their exports to the US last year.
As for steel, here, US officials propose to introduce a duty of 24% on all supplies, or up to 50% on imports from 12 countries. In this list, again there is China and Russia, as well as India and South Korea. The third option is the total supply quota (63% of the level of the previous year).
As you can see, any distribution of restrictive measures primarily hits the main exporters of steel products. According to preliminary estimates, the measures taken will reduce the import of steel in the US by 13-14 million tons, and aluminum by 600-750 thousand tons per year. To understand the scale of the changes, it should be noted that last year the Americans produced about 700,000 tons of aluminum, while they acquired over four million abroad.
So, the Ministry of Trade of the United States said its word: now the decision is up to Donald Trump. It is expected that the president will voice his position in April (in the 20th numbers). Despite the fact that before the "X-hour" two more months, traders of the commodity market are already discussing the possible consequences of the actions of Americans. And there will undoubtedly be consequences.
Here it is worth noting that China is not the largest steel exporter in the US. In the first place in this ranking (according to the results of the last year) was South Korea, Japan took the second place, Germany in third place. This suggests that possible restrictive measures on imports are a challenge to the whole world, and representatives of many countries have already expressed their discontent.
In particular, Germany's Minister of Economy and Energy Brigitte Zypries stated that there are no objective grounds for imposing such tariffs, since European imports do not threaten the national security of Americans. A similar statement was made by the Russians. The trade representative of Russia in the United States, Alexander Stadnik, noted that protectionist measures will only increase the cost of large-scale infrastructure projects, recently announced by Trump.
The Chinese did not stand by. The Department of Planning and Metallurgical Industry of the People's Republic of China has already stated that it is studying the introduction of possible countermeasures to protect domestic steel companies. So far, representatives of China have refrained from voicing specific scenarios, but each time reminded that Trump's protectionism will not remain unanswered. According to some experts, China, in particular, can refuse to purchase American planes from Boeing.
The European Union can also respond to Trump's decision. If the access of Chinese raw materials to the US market is reduced in April, China can send it to European countries, which means that Brussels will be forced to strengthen existing trade protective measures. "Domino effect" will have an impressive nature, which will undoubtedly affect the dynamics of the commodity market.
Thus, the probability of a full-scale trade war is gradually increasing. And if you recall the problem of the US budget deficit and the current account of the balance of payments, it becomes clear that Trump will most likely choose the "hard" option from all the proposed ones.
It is not for nothing that the White House refers to the rarely used section 232 of the Trade Law of 1962: it allows the head of state to introduce tariffs without the approval of the Congress. The last time this law was used 17 years ago, during the reign of George W. Bush Jr. Back then the administration suspected importers of iron ore and semi-finished products that they undermine the national security of the country. After a while, this statement was refuted, but at that time Bush managed to introduce temporary restrictive measures.
Today, Trump also has "untied hands" on the matter (the Congress would hardly approve the White House initiative), therefore in the coming months the commodity market will be in anticipation of large-scale changes. In the context of the currency market, the most affected currency will be the Australian dollar, as the Australian economy largely depends on China's economy. Therefore, considering long-term trade in the AUDUSD pair, it is worth considering short positions, especially when approaching the 81st figure. The weakness of the US dollar will not be able to ensure the growth of the pair if a full-fledged trade war is unleashed between the US and China.
