How a potential Trump return to power could impact commodity prices and global markets

When Donald Trump announced his first bid for the US presidency in June 2015, the world was a decidedly different place.

Back then, political analysts considered Trump a long shot. But his “America First” platform — which saw the presidential candidate appealing to US miners and steel producers — proved far more convincing than many expected. 

Also in 2015, commodity producers were in the throes of a brutal crash, the worst since the global financial crisis. During Trump’s first two years in the White House, commodities rallied, thanks in part to the president’s protectionist policies.

But while Trump’s possible return to the seat of power could give certain commodities a boost — especially given his stance on climate change — one thing looms far larger over the price outlook — the presidential hopeful’s sworn enemy, China.

Data from polling aggregation website FiveThirtyEight suggests Trump is running a tight race against the incumbent, President Joe Biden. While the Democratic candidate was polling at 40.5% earlier this week, Trump had a slight edge with 41.5%. 

More importantly, Trump appears to have an advantage in all seven of the swing states that could decide the election, namely Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin.

With six months to go before the November election date, there is still a possibility that Trump’s fortunes will change. 

Not surprisingly, opinion polls also suggest that the state of the US economy — as well as rising living costs — will be a key deciding factor in the elections. 

Of the Americans surveyed for a recently released ABC News/Ipsos poll, more said they trusted Trump than Biden on these issues and felt they were better off financially under the Republican president.

With another Trump presidency in sight, many fear that he will dismantle Biden-era climate policies.

Trump has called the Inflation Reduction Act — the centrepiece of Biden’s economic programme — “the biggest tax hike in history”. The legislation, which contains $500 billion in new spending and tax breaks, is aimed at revitalising US industry through massive investments in clean energy. In doing so, it should bolster the economy against inflationary shocks, such as the supply-chain challenges created by sanctions on Russia.

Among other things, the Act supports electric vehicle manufacturing, giving US carmakers an edge in the transition away from internal-combustion engines. 

The Act goes against Trump’s anti-renewable inclinations, which during his presidential campaign in 2015 and 2016, had him promising to bring back coal jobs. 

During his time in office, Trump withdrew from the Paris Climate Accord. 

In 2017, he had this to say: “The Paris Climate Accord is simply the latest example of Washington entering into an agreement that disadvantages the United States to the exclusive benefit of other countries, leaving American workers — who I love — and taxpayers to absorb the cost in terms of lost jobs, lower wages, shuttered factories, and vastly diminished economic production.”

Protecting American jobs remains the focal point of Trump’s economic strategy. During his first term, this became the justification for the tariffs his administration imposed on imports, most notably from China.

In October 2018, S&P Global considered what the ratings agency called a “Trump premium” — describing the hotter commodity prices during the first two years of his presidency.

According to S&P’s analysis, steel, aluminium and coal benchmark prices all averaged higher during this period (20 January 2017 to 30 September 2018) than during Barack Obama’s two terms in office.

The ratings agency attributed this to Trump’s aggressive trade policy, including tariffs on steel and aluminium imports to the US. 

While coal prices in the US have not benefitted from such tariffs, S&P noted, the commodity was buoyed by Trump’s pro-coal ideology. 

S&P’s analysis came with this caveat: “Although fundamentals and a range of other factors have greater influence on commodity prices than US presidential policy alone, the exercise is intended to shed light on how prices and politics often intersect, where they’ve been, and perhaps to get a handle on where they might be going.”

In other words, sentiment drivers — such as political changes — have a far less acute effect on commodity prices than economic ones. And, despite efforts to bolster America’s influence, its economic adversary in the East still has a deciding role in commodity price movements.

A Trump presidency could be positive for platinum group metals (PGMs), which have recently been hit by sharply lower prices, said Seleho Tsatsi, an investment analyst at Anchor Capital.

If Trump rolls back Inflation Reduction Act-related tax incentives on electric vehicles, he could usher in the return of the internal-combustion engine, in which PGMs are used to reduce harmful emissions. 

The World Bank’s recent Commodity Markets Outlook report, released last month, suggests that growing demand for electric vehicles has pushed global oil consumption towards its peak.

As South African platinum miners, such as Sibanye-Stillwater and Anglo American Platinum, languish under lower prices, Trump 2.0 could be a saving grace. 

That said, China’s dominance in the electric vehicle export market will probably have a greater effect on PGM prices. Meanwhile, the Asian superpower’s internal economic ructions will continue to sway demand for other commodities.

Momentum Investments economist Sanisha Packirisamy expects traditional industrial commodity prices to take a hit this year. 

“With China being quite a big overriding factor, we would say we are probably in an environment in which China’s growth will be in the lower single digits,” Packirisamy said.

“With that the growth model starts to shift. So there could be less of a reliance on building factories and properties, which was very intensive for things like iron ore. 

“Within that model there was also quite a big push for less-renewable commodities, like coal.”

China’s economy has recently been hit by overlapping headwinds, including government-mandated Covid-19 lockdowns and a real estate crisis. 

China’s flagging property industry has not hurt commodity demand to the extent that many expected, according to the World Bank’s report. However, the government’s reoriented economic programme does stand to change which commodities are in demand and which are not.

Packirisamy noted that China’s new growth model is very focused on digital technology, artificial intelligence and renewables. 

“So if you’re a country like Brazil, you can still benefit because you’re producing things like aluminium … 

“But South Africa is going to be on the back foot.”

Asked why China’s policies appear to have a greater influence on global commodity prices than America’s, Minerals Council South Africa chief economist Hugo Pienaar noted that the intensity of the former country’s economic stimulus appears to move the needle a lot more quickly.

Another factor that could lead to commodity price increases is if Trump inflames trade tensions between the US and China. The Republican candidate has already vowed to raise tariffs on Chinese goods even further.

Biden’s first term has pressed on with his opponent’s trade war, instead of reversing it. So, in some ways, a Trump premium is already priced in.

That said, Trump might have a heavier hand during his second go. 

Packirisamy said that, in order to create the same kind of market shockwaves that Trump did back when he had the benefit of being on Twitter, he will have to double down on his promises.

“Under a Trump regime, I think he will hammer it quite hard … In a second term, he can basically run with whatever promises he has made, not having to worry about winning another term,” she said.