Earlier today, China announced tariff hikes on $75 billion worth of U.S. products as a retaliatory measure against President Trump’s latest tariff message. China has decided to apply tariffs ranging from 5% to 10% on the $75 billion worth of products in two rounds. The first round of tariffs will take effect on September 1, while the second round will commence on December 15. The state council released a statement saying, “In response to the measures by the U.S., China was forced to take countermeasures. The Chinese hopes that the U.S. will continue to follow the consensus of the Osaka meeting, return to the correct track of consultation and resolve differences, and work hard with China to end the goal of ending economic and trade frictions.” The stock market and bond yields fell sharply this morning following the announcement.
Oil markets have been trading lower all day today even after yesterday’s sell off on continued fears of a global economic slowdown exasperated by the trade war and unrest in Hong Kong.
President Trump recently threatened to tax, nearly $300 billion dollars of Chinese products, by 10%. The already volatile oil market, seems to have room for some extra volatility. The volatility would largely cycle around China’s response to the U.S. tariffs. If China responds by purchasing oil from Iran, analysts speculate crude could rapidly approach $30 per barrel. Trump could impose the sanctions on the Chinese imports as soon as September 1st. Trump also threatened that he could raise the tariff, if no progress has been made towards a trade deal.
Analysts are getting increasingly worried that the refining industry will not be prepared in time to meet the lower sulfur regulation under the new International Maritime Organization (IMO) set to begin January 1, 2020 and will subsequently increase diesel prices in relation to crude oil.
On May 2nd, the United States’ waiver period that granted eight nations to continue importing Iranian oil without penalty has ended. The countries who granted extensions that ended are China, India, Turkey, Greece, Italy, Japan, South Korea and Taiwan. As of today, only Italy, Taiwan and Greece have halted their purchases of Iranian produced oil. The United States now faces the dilemma of either granting further extensions to the waiver thus backing down from their threats, or risk creating further global tension by sanctioning the countries that continue to do business with Iran.