Why copper tariffs are different
Why isn’t there a Taco trade in copper?
The copper market does not appear to think Trump is going to chicken out on his 50 per cent tariffs on the red metal. The copper price rose 13 per cent when the levy was announced — reflecting, presumably, a rush to build US inventories ahead of the tariff’s implementation — and has stayed there. And that’s even after rising steadily for months:
The sharp move makes a striking contrast with equity and currency markets, which have been notably calm to threats against imports from Japan, Korea and Brazil.
What explains this? We see three explanations:
* Trump has stuck with his tariffs on steel and aluminium, which hit 50 per cent earlier this month. Industrial metals are especially important to the president, probably for symbolic and political reasons.
* The copper tariff seems relatively simple, and markets are more likely to price in things they think they understand. National tariffs cover a range of goods and will affect different companies differently. Exposures are complex and hard to calculate. The impact of the copper tariff is easier, in theory if not in practice: figure out how much copper is coming into the country (or company) and multiply by 1.5 to find the new price. The reality is that copper supply chains are quite complex, crossing back and forth across the US border, but reality is not always the main factor in markets.
* The copper tariffs make more sense than some others. There is a reasonably good national security case for the US having native copper supplies and smelting capacity, given copper’s importance in energy generation and Chinese dominance in smelting. And there are copper reserves in the US that higher prices might make more profitable to extract. That does not make the tariff economically efficient, but it is way less dumb than a tariff on, say, Brazilian coffee or Chinese toys.
The Unhedged view remains that Trump, when faced with real pressure from CEOs, markets, or voters, will give up his tariffs quite quickly. That said, however, the Taco trade is not monolithic.