Where will Trump and China drive commodities in 2025?: Russell

Donald Trump’s return to the U.S. presidency and China’s spluttering economy will shape global commodity markets in 2025.

With no predictable mould for how this will work, the only certainties will likely be volatility and numerous factors working in opposing directions.

Making predictions about prices for major commodities such as crude oil, liquefied natural gas, iron ore, coal and metals like copper will therefore be more fraught than usual in 2025.

For example, consider Trump’s signature campaign promise: tariffs. The president-elect’s array of threatened tariffs, including up to 60% on China and 20% on all other nations, could derail global economic growth, force a realignment of trade flows, boost inflation and lead to tighter monetary policy.

But it’s equally possible that none of these things will occur if the tariff threats turn out to be nothing more than negotiating tactics. In this scenario, Trump may forgo any damaging policy actions if he believes he has scored enough “wins” in his dealings with other countries.

For commodities most exposed to the global economy, such as copper and iron ore, this means traders will likely take a wait-and-see approach. Price volatility based on daily news headlines is thus apt to be the norm until the broader policy picture becomes clearer. A lesson from Trump’s first term in office is that it’s more important to focus on what his administration actually does rather than the almost non-stop, and often confused, messaging from the president and his allies on social media. Trump’s first term also showed that he typically considers the act of making a deal more important than the actual content of that deal.

Just look at his first round of tariffs against China. He continues to champion them, even though they failed in almost every respect.

They didn’t lower the U.S. trade deficit with China, they didn’t spark a manufacturing renaissance in the United States, they didn’t raise much revenue, and China came nowhere near meeting its obligations to massively ramp up imports of U.S. crude, coal and LNG.

It’s possible that Trump’s team has learnt from this experience, but if the lesson they’ve gleaned is that they need to take a harder line, then the risks of a trade war and the attendant global economic weakness will rise.

Much has been made of the view that China is far less equipped to withstand a trade war with the United States now than it was in 2018, due to the slow growth of the world’s second-biggest economy.

There is an element of truth to this, but China also has a variety of tools available to help it successfully navigate a trade war.

It could hurt the U.S. economy by disrupting supply chains, sell a massive amount of U.S. Treasuries, devalue its own currency, boost stimulus spending and advance its leadership in renewable energy technologies and installations.

China may also seek to compensate for any loss of access to U.S. markets by boosting trade and investment in Europe and what’s broadly termed the “global south”.

Again, it’s far from certain that these tactics will be employed, with much depending on what actual policies Trump’s administration puts in place once he is sworn in on Jan. 20.

However, it’s worth looking at the existing and likely trends that could play out in 2025.

TARIFFS, STIMULUS

First, it’s almost certain that Trump will impose some form of tariffs on imports into the United States.

Just how large and damaging they will be remains to be determined, but it’s probably safe to say that any tariffs will be a negative for the global economy, and thus put downward pressure on commodities such as crude oil, iron ore, and LNG.

Second, China’s economy is showing some signs of improvement, with factory activity expanding at the fastest pace in five months in November. If Beijing keeps injecting stimulus in a measured way, the recovery is likely to continue.

This would be positive for iron ore, copper and LNG. It may not be as positive for crude oil, given that China’s rapid shift to electrification of light vehicles is cutting gasoline demand and its move to LNG for trucks is starting to hurt diesel demand.

One trend that is very likely to continue is China’s increasing price-sensitivity as a commodity buyer.

This was evident this year in crude oil, as China’s imports dropped 2.1% on a barrels per day basis in the first 11 months, despite expectations of strong demand growth by organisations such as OPEC and the International Energy Agency.

While China’s soft economy and increased electrification account for some of this decline, China’s refiners also simply cut back on imports because of their view that OPEC+’s output cuts were keeping prices too high.

The overall picture for 2025 is that the year starts with a high degree of uncertainty, which makes it vital to largely ignore Trump’s rhetoric and focus on actual policies being implemented and what the data show.

The views expressed here are those of the author, a columnist for Reuters.