4 Commodity ETFs Worst Hit By Ongoing Trade Turmoil

Trade tensions, especially between the world’s two largest economies, have been taking a toll not only on the equity world but also on the commodity space. In fact, the escalating tit-for-tat tariff threats pushed the Bloomberg Commodity Index, which measures the returns on 25 raw materials down by 8.9% from the latest peak in late May.

Notably, the index dropped as much as 2.80% on Jul 11, the most since 2014 after the United States threatened to impose 10% tariffs on further $200 billion in products imported from China, leading to further escalation in the U.S.-China trade conflict. China's commerce ministry called the U.S. actions "completely unacceptable" and warned of retaliatory moves.

The latest round of tariff threats came following warnings by Trump to impose additional tariffs on $500 billion in Chinese goods, should Beijing retaliate against U.S. tariffs that were implemented on Jul 5. Trump imposed 25% import duties on $34 billion in Chinese goods and China hit back with the same scale and strength. Each side is also planning tariffs on further $16 billion in goods, which will take the total worth of goods to $50 billion.

If the situation worsens and turns out to be a full-blown trade war, it would affect the real economy and put the brakes on global economic growth. In particular, Industrial metals like copper and zinc took the heaviest hit over worries that the dispute could dent China's commodity-hungry economy, while agricultural products are bearing the pain of new tariffs or higher duties on crops like soybeans and corn.

Investors should note that China is the top consumer of raw materials and any slowdown in its economy would definitely hurt commodities. Further, increasing trade frictions has resulted in a strengthening dollar, which has, in turn, made dollar-denominated assets expensive for foreign investors, potentially diminishing demand for the commodities.

That said, we have highlighted four commodity ETFs that have been worst hit over the past one-month since trade war tensions escalated.

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