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Since the July 13 assassination attempt on Donald Trump in Pennsylvania, there’s been a proliferation of ‘Trump Trade’ ideas circulating across the media.
Up until last week, a Trump re-election in November was seemingly baked in. Investors rushed to align their portfolios for a Republican victory.
But now that US President Joe Biden has withdrawn from the presidential race, Vice-President Kamala Harris, a younger candidate, looks set to inject new vigour into the scuttled Democratic Party.
With that, the ‘Trump Trade’ is cooling.
Early polls already hint that a Harris vs. Trump election will be tight. That’s according to Reuters on Wednesday.
So, what does that mean?
Investors are now as clueless as ever regarding who might win in November.
It comes back to what Warren Buffett says about mixing politics with your investment strategies… Don’t do it!
And it looks like the Oracle of Omaha was spot on again.
In Australia, we’re somewhat sheltered from the spectacle unfolding in the States. But as commodity investors, we can’t ignore it altogether.
The world’s largest economy leads the Western rhetoric on war, geopolitics, renewables, nuclear power, and trade tariffs. All of these ‘big issues’ impact the commodity market.
Take lithium. A Democratic win will likely lead to further development of renewables, EVs, and lithium-ion batteries. That could cause a rally in lithium stocks on the ASX.
However, under a Republican administration, fossil fuel companies would flourish, given Trump has been a vocal supporter of domestic oil and gas production.
Echoing former Alaskan Governor Sarah Palin, Trump’s energy policy can be summarized in three words: “Drill, baby drill!”
Trying to guess who might win in this coming election and aligning your portfolio accordingly is a fool’s game.
Each candidate has diverging policies with varying implications for commodity markets, particularly those linked to energy.
Yet, through the fog, some political agendas look far more certain regardless of who wins in November.
At the Republican National Convention last week, Trump and his newly minted running mate, JD Vance, ramped up the “America First” narrative. Not surprisingly, both politicians were keen to parade China as the bad guy.
There’s little doubt that a Trump-Vance leadership would seek to intensify trade wars against China, something Trump initiated when he took office in 2017.
Nothing rallies a nation like a common enemy, and Trump looks set to juice this strategy again. But amping up hostilities could be very good for one area of the commodity markets — critical minerals.
China holds a firm grip on supply of rare earths, graphite, and cobalt thanks to its mining and processing dominance. So, why would these types of stocks do well under rising tensions?
Critical minerals remain China’s most effective tool against Western trade hostilities. For the most part, it’s kept this ace up its sleeve.
However, as pressure mounts on the Middle Kingdom, the probability of China weaponizing its trade dominance over these key materials grows. These minerals are crucial for modern-day manufacturing, from defence, tech and renewables.
After a 12-month hiatus, stocks tied to this group of commodities could return with a vengeance if Trump raises the temperature on US-China relations.
The key stocks to watch will be companies already in production or capacity to supply the West with an alternative supply within three to five years.
A few names pop out here, including Lynas (ASX: LYC), Arafura Rare Earths (ASX: ARU) or the advanced graphite developer Renascor (ASX: RNU).
This is where you don’t need to apply much political guesswork.
The hardline stance against China is one of the few bipartisan policies among Republicans and Democrats.
While the world barely knows what to expect from Harris, so far, it looks as though she’ll follow along with Trump’s China-bashing style.
Here’s an extract from one of her speeches in late 2022 after visiting Japan:
“China is undermining key elements of the international rules-based order. China has challenged the freedom of the seas. China has flexed its military and economic might to coerce and intimidate its neighbours.”
“We will continue to fly, sail, and operate undaunted and unafraid wherever and whenever international law allows.”
And in 2019, she co-sponsored the Hong Kong Human Rights and Democracy Act, which aims to promote human rights in Hong Kong and sanction officials involved in “undermining Hong Kong’s fundamental freedoms and autonomy.”
These statements certainly aren’t winning any friends in Beijing.
As far as I can tell, the US’s ramp-up against China is as close to a sure bet as you can get, regardless of who wins.
— James Cooper is a geologist based in Australia who runs the commodities investment service Diggers and Drillers. You can also follow him on X @JCooperGeo.
