How will China’s tariffs affect commodity markets?

In the last week, there has been a renewed escalation in trade tensions between the US and China. The US has announced that it is pressing ahead with tariffs and China has responded in kind. In particular, China is targeting US agricultural and energy commodities. In this Commodities Watch, we discuss the potential implications of these tariffs on commodities demand and prices. China’s decision to impose tariffs on US commodity exports appears to make sense. Commodities are a homogenous good by most standards and thus supply should be easy to source elsewhere. This is in contrast to more specific manufactured goods that might not even be available from other suppliers. However, we think the picture is a little more nuanced and that the tariffs will prove disruptive in the affected markets, particularly in the near term.