This Commodity Surged 100% Under Trump

Dear reader,

I’ve been on the road over the last few weeks, attending various mining conferences along Australia’s East Coast.

One of the key discussion points has been Trump… How will his hard-hitting policies affect China, a key driver of commodity demand?

The industry has been on edge.

Clearly, the market is, too, given the steep sell-off in resource stocks since Trump’s re-election victory two weeks ago.

So, why is this happening?

Well, the market is betting that Trump will deliver on his pre-election promises when he takes office in January. His ‘America First’ agenda has sent the US dollar surging, which is bad news for commodities.

But there are some green shoots under a Trump re-election… As I’ll show you, commodities performed surprisingly well during his first term.

The US Dollar could be key

Just like today, the US Dollar rallied on the back of Trump’s victory in 2016. Again, that was based on expectations of what this real estate mogul could deliver for the US economy.

Surprisingly, though, the US dollar began a long-term slide once Trump took office in 2017. And stayed low throughout the bulk of his term in office. Check it out below:

Over his four-year term, from 2017 to 2021, the US Dollar dropped 9.85% against the Euro, shown in red above.

Meanwhile, against the Japanese Yen (yellow), it fell by 10.79%.

Could US Dollar weakness happen again under Trump’s second term?

Who knows, but it’s a clear example that Trump’s leadership doesn’t necessarily equate to a strong USD.

Why this matters for resource stocks

As I pointed out earlier, the strength of the US dollar has been one of the major forces driving weakness in metal markets over the last two weeks.

Commodities and the US dollar are typically negatively correlated… When one appreciates, the other tends to fall.

And perhaps that’s one of the reasons commodities surged during Trump’s first term in office.

To show you what I mean…

At the start of Trump’s presidency in 2017, copper traded for just US$2.50/pound.

But by the end of his term, copper prices had risen to US$3.50/pound.

A solid gain of around 40%. But get this…

Iron ore traded for just US$76/tonne at the start of 2017.

Four years later, it doubled to over US$155/tonne!

See for yourself, below:

So, what about the threat of tariffs on Chinese manufactured goods?

Indeed, this looms as a major threat to the Middle Kingdom’s manufacturing empire and commodity demand.

But it’s important to remember that tariffs are not a new threat to China.

According to the US and European Tax Foundation’s Tariff Tracker, the Trump administration imposed nearly $80 billion in tariffs from 2018 to 2019.

As US workers rejoiced in this seemingly ‘America First’ policy, little did they know that they were footing the bill!

Trump’s 2018/2019 tariffs resulted in one of US history’s most significant tax increases.

The real loser here wasn’t China but the American consumer.

Commodities can perform well despite tariffs

Anyway, it’s one example of why you shouldn’t abandon commodity investments based solely on Trump’s tariff threats.

China is already well-versed in navigating US and European trade barriers.

As Trump continues chest-beating on tariffs, I suspect it’ll be business as usual in the Middle Kingdom…

Remember, China has a firm foothold in emerging markets, which means it can quickly expand its manufacturing empire in overseas hubs like Southeast Asia.

Capitalising on cheap labour, China can drive down the prices of its manufactured goods and offset some of the penalties imposed by US sanctions.

But there’s perhaps an even bigger story playing out here…

America is set to ‘deglobalise’ under Trump.

Meanwhile, China continues to build its international footprint. Strengthening itself as the epicentre for international trade.

Last week, China signed over $10 billion in agreements with Indonesia, Australia’s closest neighbour. The focus was on expanding trade ties to support infrastructure, green energy, digital technology, and agriculture.

China is signing deals, building bridges, and securing trade routes across Asia, Africa, and South America. And emerging economies are entirely on board.

Meanwhile, the US is clamping up, shutting its borders and imposing penalties against nations that want to trade with it!

It’s why Trump’s ‘America First’ agenda has the potential to strengthen China’s position as a global leader while weakening America’s role.

Ultimately, that could erode the strategic advantage the American economy has held for decades as the traditional leader in international trade.

That’s what the market is missing as it pours into US-denominated assets following Trump’s election win.

But that’s perhaps the advantage for resource investors…

Picking up steeply discounted mining stocks or finding other avenues to pivot into sold-down emerging markets.