Oil prices plunged on Friday after China unveiled new tariffs on $75 billion worth of American goods, a move that reignited fears about a global economic slowdown.

China’s higher tariffs hit American soybeans, pork, beef, and interestingly, crude oil as well. China had become a major buyer of U.S. shale oil in recent years and has refrained from hitting crude with tariffs up until now. Beijing will put a 5 percent levy on American oil, which could depress the U.S. benchmark relative to Brent.

Some of the measures will take effect on September 1, while others, such as the 25 percent levy on American automobiles, will go into effect in December. The timeframe mirrors that of the U.S. – President Trump recently decided to delay some of the tariffs until December to avoid the impact on American consumers during the holidays.

Beijing’s tariff announcement sunk global stocks and commodities. In Chicago, soybean prices sank by 1 percent. Copper fell in London. WTI was down more than 3 percent.

On the same day, U.S. Federal Reserve Chairman Jerome Powell gave a highly-anticipated speech in Jackson Hole on Friday, where he addressed market concerns. He said that “fitting trade policy uncertainty” into the Fed’s framework is “a new challenge,” and that setting trade policy is “the business of Congress and the Administration, not that of the Fed.”

However, he said, trade policy uncertainty obviously affects how the Fed responds. “Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Powell said. He has come under withering pressure from President Trump to cut interest rates.

“The three weeks since our July FOMC meeting have been eventful, beginning with the announcement of new tariffs on imports from China,” Powell said. He also pointed to unrest in Hong Kong, the dissolution of the Italian government, and the economic slowdown in both Germany and China. “Financial markets have reacted strongly to this complex, turbulent picture. Equity markets have been volatile.” The U.S. economy has held up better though, at least to date. Related: Is Renewable Hydrogen A Threat To Natural Gas?

And then Powell go to the part that financial markets had been holding their breath for. “Based on our assessment of the implications of these developments, we will act as appropriate to sustain the expansion,” Powell said. It may sound a bit mundane, but traders took the statement as a sign that the Fed may cut interest rates again if things get worse. Stocks regained some lost ground after the speech.

The global economy continues to show growing cracks. India’s auto sales have declined for nine straight months, and automakers there are laying off more workers and idling production, according to Reuters. Global trade fell for the eighth consecutive month in June, according to new data.

But higher tariffs present yet another threat. President Trump’s top trade advisor Peter Navarro downplayed the impact of China’s new tariffs on Friday. “This was a move that was well-signaled,” he told CNN’s Jim Sciutto in an interview. “It's breaking news I guess, but it was well anticipated.” Instead, he blamed the Federal Reserve for the slowing economy.

He may publicly shrug off the impact of the trade war, but the Trump administration seems increasingly appreciative of the domestic political threat that the standoff is causing. Indeed, the decision to delay some tariffs until December is a recognition of the economic fallout stemming from the U.S.’ own tariffs on Chinese goods, let alone the retaliation from Beijing.

But while financial markets rebounded after the Fed’s comments, encouraged by a seemingly flexible and somewhat accommodating posture, their hopes were quickly dashed after Trump took to twitter to denounce China. Financial markets sank all over again on expectations that the trade war will only get worse from here. Related: Oil Prices Plunge As China Retaliates With Tariffs On U.S. Goods

Meanwhile, on a separate but relevant issue, the Trump administration has infuriated American farmers, and not just because of the trade war. The EPA’s waivers for oil refiners, allowing them to get out of ethanol blending requirements, have devastated the market for ethanol and biofuels credits. “They screwed us...when they issued 31 waivers,” Republican Senator Chuck Grassley (IA) told Iowa Public Television. “Compared to less than 10 waivers during all the Obama years...What’s really bad isn’t a waiver, it’s that it’s been granted to people who aren’t in hardship,” he said, referring it oil refiners.

The issue has become such a political threat that President Trump reportedly held two lengthy meetings with cabinet members in the past week to find ways to assuage concerns from corn and ethanol groups.

The vulnerability hampers President Trump’s campaign to confront China. He has now boxed himself into a political corner. He can press on with the trade war, further alienating American farmers (and consumers more broadly), while also increasing the odds of a recession. Or, facing mounting political and economic threats, he can back down and try to cut a deal with Beijing. Surely, China recognizes his predicament and will try to wait him out.

By Nick Cunningham of Oilprice.com

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