Adedapo Adesanya
By Adedapo Adesanya
Oil prices crashed on Thursday immediately after U.S President Donald Trump announced another round of tariffs on China.
Mr Trump said he would put a 10 percent tariff on the remaining $300 billion worth of Chinese imports that, to date, have not been covered by the levies. The new tariffs, which the United States President said will take effect on September 1, come in addition to the existing 25 percent tariffs on $250 billion of imports.
In other words, at the start of next month, just about everything the U.S. imports from China will be subjected to tariffs.
This announcement plunged oil prices in crisis by more than 8 percent, pushing WTI below $55 per barrel and Brent down to $61.
As the time of this report, the West Texas Intermediate (WTI) Crude was traded at $54 per barrel, indicating a 6.89 percent drop in price, while the Brent Crude crashed by 6 percent to trade at $61 per barrel, from a previous $64.
The tariff announcement was ill-timed for the oil market, which was already heading south due to the disappointing result from the U.S. Federal Reserve.
The central bank cut interest rates but warned that it wouldn’t mark the beginning of an extended period of enhanced monetary easing.
Also, while the oil market is tightening up just a bit, a recent wave of oil reports all predicted an expected big supply surplus in 2020, which is the result of demand growth at a time of surging supply.
By speculation, traders took comfort in the fact that the U.S. and China appeared to agree not to escalate things further after Trump and Xi Jingping met in Japan in late June.
Which is exactly why Trump’s announcement on Thursday caught everyone by surprise. It may be a high-risk strategy by American negotiators to ratchet up the pressure in hopes of forcing China to make major concessions.
By announcing a September 1 implementation date, Trump has given Beijing a month to fix the matter.
But experts think there is little evidence to suggest that China would buckle under the pressure. If anything, the Chinese government has dug in its heels, taking a firmer line the harder the U.S. pushes.
With China’s economy slowing, Xi is certainly under pressure, but appearing weak by giving in to Trump’s demands is arguably a greater political risk than standing firm in letting tariffs go up
