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Frustrated by the OPEC's inability to help, US President Donald Trump may have inadvertently found a way to drive down gasoline prices: step up the trade war to reduce oil consumption. The disadvantage is that it may not work in time for the mid-term elections.
The threat of tariffs of 10% on an additional $ 200 billion of Chinese products helped propel Brent Brent, even before the new tariffs came into effect. China will react to this latest escalation as the president continues to worry about trade deficits, escalating a trade war that no one will win.
Unbalanced Trade
President Trump follows "unfair" trade balances of his country with major partners 19659005] Sources: Bloomberg, World Bank
The trade war affects demand and oil prices in two ways: one direct and immediate, the other indirect, but potentially deeper in the longer term.
the United States will increase the cost of imports, while the retaliatory levies imposed by China, Canada, Mexico and the European Union will affect major exports. China is already considering to apply a 25% tariff on imports of US crude oil
. The higher costs will inevitably reduce the flow of goods across the world's oceans and skies. With fewer goods moving around the world, a smaller number of ships, planes and trucks will be needed to move them, which will have an immediate and direct impact on oil demand.
for example, growth and livelihoods of people directly affected – Midwestern farmers or auto workers.
Higher tariffs mean that goods will cost more and reach consumers' pockets. With less money to spend, driving will inevitably be affected, which is always the case
Driving Backwards
2018 has seen the first drops of a year on the other of the number kilometers traveled in four years
Sources: Bloomberg, Federal Reserve
Depending on the duration of the trade war, the effect could be twofold. First, motorists will examine their driving habits, reducing the number of miles they drive. This year has already been marked by the first annualized decreases in the monthly number of vehicle-kilometers driven since 2014, suggesting that high gasoline prices at the beginning of the year have already had an impact on habits.
part of correction
Pump Pressure
US Source: Bloomberg
If drivers feel the pressure for too long, they will begin to consider the types of vehicles they use and may pass at more economical prices. models. According to data from the Global Initiative for Fuel Economy, the United States has the least efficient fleet of vehicles in the G-20 group of countries. On average, US drivers get 27.4 miles per gallon of their cars. Their European counterparts can travel about 60% more with the same amount of fuel
Motoring On
The US fleet is the least efficient among the G20 countries
Sources: Bloomberg, Global Fuel Economy Initiative
Of course, the impact of trade restrictions will only be felt over time. The supply constraints that have plagued the market and pushed up oil prices are much more immediate.
An announcement from Libya that the national oil company had regained control of the country's terminals and would immediately resume exports came a few hours before Trump & s. unveiling of additional import tariffs and contributed to the fall in prices on Wednesday. But Venezuelan oil production shows little signs of stabilization, let alone recovery, and the impact of the new sanctions on Iran is just beginning to be felt in lower export volumes.
Saudi Arabia and its allies are doing their best to pre-empt the decline – but even if they increase output to record levels, it will leave them little room for dealing with other disruptions unforeseen.
Thus, while Trump's trade war will take away some of the heat
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the editor responsible for this story:
Edward Evans [19659030] to [email protected]
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