Gold bar
iStockphoto/mevans

Commodity markets could be one of the many casualties of increasingly costly and fractious global trade, Desjardins Group said on Wednesday.

In a new report, economists at Desjardins said that the prospect of a global trade war could drive higher prices in certain commodities, ultimately curbing demand, and reducing global economic output.

“The main impact of imposing or simply threatening tariffs is a slowdown in economic activity, even if the goal is to increase local production,” the report said.

For instance, during Trump’s first term, U.S. tariffs on steel, iron and aluminum reduced total U.S. manufacturing output by about 0.8% between December 2018 and July 2019, it said.

“Even though tariffs helped boost U.S. aluminum and steel production, higher prices dented total demand. The result was a net loss for the U.S. economy,” it said.

This time around, the imposition of U.S. tariffs could disrupt global supply chains, driving commodity prices higher. Over time, this will result in lower demand, allowing prices to ease again, it suggested.

In energy markets, “the global oil market should once again be faced with a surplus starting in the first quarter of 2025,” it said. “Although we expect demand to grow, the implementation of U.S. tariffs could undermine potential gains.”

At the same time, trade conflicts “may stunt potential growth in demand for industrial metals,” the report said.

“Metal prices are expected to temporarily spike over the very short term as companies pre-emptively stock up before tariffs are imposed. Our forecasts for what happens after that vary based on the type of metal. Copper prices will likely start trending back upward, but iron prices may drop,” it said.

As for precious metals, the intensified global economic uncertainty has boosted gold prices.

“Given the president’s haste in announcing new tariffs, we now expect gold prices to accelerate over the short term and even exceed US$3,000 per ounce. But we expect prices to stabilize or even drop slightly as the year draws to a close and the world adapts to this new reality,” it said.