How The Trade War Impacts The Oil Industry

The ongoing trade war with China is impacting many industries. Market volatility is being exacerbated by President Trump's pattern of vacillating between threats and cease-fires on the topic.

At the beginning of August, the markets were sent into a tailspin by President Trump’s threat to impose tariffs on another $300 billion of Chinese imports. The markets were broadly impacted, but the energy sector was hit especially hard. Crude oil prices suffered their largest drop in over four years.

President Trump subsequently backed off, citing concerns about retail spending headed into the holiday season. As if to further emphasize the risk, the yield on the 10-year U.S. Treasury bond recently fell below the yield on the 2-year U.S. Treasury. This yield curve inversion happens when investors are flocking to safety and it's historically a strong recession indicator.

What could possibly cause a recession? Most economists think the economy is still pretty healthy, but trade wars cost consumers money. When consumers have less money to spend, they buy fewer goods. The overall economy slows down. That could push the U.S. and the entire world for that matter into recession.

Fears of a slowing economy have an impact on the oil industry which is why the oil markets sold off so sharply on President Trump's tariff threat. But he wasn't finished. In a series of tweets last Friday, President Trump said he would retaliate against China's response to the tariffs that we had imposed:

China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30%. Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%

Source: Forbes
Date: Aug 26, 2019