Charting the Trump train’s global economic trajectory

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 United States president-elect Donald 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 U.S. 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.

US dollar could be key

Just like today, the 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 U.S. economy.

Surprisingly, though, the 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 dollar dropped 9.85% against the euro, and against the Japanese yen it fell by 10.79%.

Could 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 dollar has been one of the major forces driving weakness in metal markets over the last two weeks.

Commodities and the 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.

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

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

A solid gain of around 40%.

However, iron ore traded for just US$76 per tonne at the start of 2017.

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

So, you might say, sure, but what about the threat of tariffs on Chinese manufactured goods?

Surely, this looms as a significant threat to the Middle Kingdom’s manufacturing sector and commodity demand?

Well, tariffs are nothing new for China.

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

As U.S 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 the most significant tax increases in U.S. history.

Meaning the real loser here wasn’t China; it was the American consumer.

Commodities amid tariffs

It’s an example of why you shouldn’t abandon commodity investments based solely on Trump’s tariff threats.

China is already well-versed in navigating U.S. 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.

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

Bigger story building

America is set to ‘deglobalize’ under Trump.

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

Last week, China signed over US$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 U.S. is clamping up, shutting its borders and imposing penalties on 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.

In my mind, that’s what the market is missing as it pours into U.S.-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 emerging markets.

James Cooper is a geologist based in Australia who runs the commodities investment service Diggers and Drillers. You can also follow him on X @JCooperGeo.