What would happen to commodities in a US-China trade war?

Singapore's portSingapore's port

Trade war fears may have eased a bit on Tuesday after Chinese President Xi Jinping repeated his pledges to open new sectors and lower tariffs, but analysts were still calculated what would happen if talks with the U.S. turn pear-shaped.

Barnabas Gan, an economist at OCBC, said that if the trade war rhetoric turns into action, some commodities would take a hit.

“Growth-related commodities could potentially trend similarly to a growth-recessionary year (crude oil, base metals: down 10 percent to 30 percent), while safe haven demand into gold will lift the yellow metal beyond US$1,600 an ounce,” he said in a note on Tuesday. “Impact on agricultural will likely be mixed, as crude palm oil could find favor with Chinese importers, while soybean prices could potentially fall as demand slackens.”

Palm fruits can be considered a “viable substitute” for soybeans, both for cooking oils and animal feed, he noted.

When it comes to crude oil, Gan said it was unlikely that China would impose tariffs on oil imports from the U.S., given the small trade balance impact and China’s rising demand.

But he added that crude oil prices are “intricately correlated” with risk appetite and global growth prospects and any inhibition of world trade will hurt global growth prospects and eventually oil prices. He estimated prices could fall 10 percent to 30 percent in a full-blown trade war scenario.