When Donald Trump recently floated the idea of implemeting tariffs on copper, it sent U.S. manufacturers and traders alike into a frenzy. Consequently, imports exploded and prices in China climbed dramatically. That buying frenzy began in earnest in February. On the U.S. side, traders panicked and began hoarding copper to avoid paying the tariffs, as well as anticipating future tariffs and price increases.
As U.S. traders aggressively purchased copper, they inadvertently drove up demand in China, the world’s largest consumer of the metal. This scramble to import copper caused Chinese market prices to spike due to the arbitrage opportunity. This unprecedented wave created a major mismatch, leading to serious shortfalls. These shortages were responsible for driving Chinese import prices through the roof. Ironically, we have begun calling the resulting higher landing costs for Chinese importers the “Shanghai premium,” a testament to the difficulties in sourcing this critical raw material.
The announcement of potential tariffs sent ripples through the international copper market, creating a wave of uncertainty that affected trading dynamics globally. Given China’s massive appetite for copper, the effects of U.S. trading conduct were felt well outside of U.S. borders. This surge in prices and availability within China affected local buyers directly, but helped shift the market trends globally.
American manufacturers and merchants anticipated the tariff and moved substantial amounts of additional copper prior to any real or threatened imposition of tariffs. Concerns about both runaway costs and the availability of key materials led to a panic buy of supplies. People rushed to get stuff done before the tariffs went into effect. The international copper market has been quite volatile lately. Traders are doing their best to avoid the minefield of confusion laid by the still continuing tariff talks.
The “Shanghai premium” demonstrates the effect of the damage Trump’s tariff threats have already caused. This case provides an example of how domestic policy decisions can cause complex, unintended consequences in international markets. The current state of Kenya’s container ports is an example of just how fragile and connected global trade can be. It further underlines the importance of China’s growing role as copper’s largest consumer.