Copper stocks, like Freeport-McMoRan Inc (NYSE:FCX) and Teck Resources Ltd (NYSE:TECK), may face another turbulent period if Donald Trump returns to office.
JPMorgan analyst Bill Peterson warns that Trump 2.0's trade policies could deal an even more significant blow than his first term.
Trump 1.0 Vs. Trump 2.0: Higher Stakes, Bigger Tariffs
During Trump's presidency, the 2018 trade war slapped a 25% tariff on Chinese imports, leading to a sharp downturn in metal prices and causing global mining stocks to fall by over 10%.
Copper, a key indicator of global economic health, was hit hard as fears of slowing demand and higher costs rippled through the markets. The United States Copper Index Fund ETV (NYSE:CPER) serves as a performance barometer for copper as a commodity. The Global X Copper Miners ETF (NYSE:COPX) tracks the equity of copper miners, with its top holdings including KGHM Polska Miedz SA (OTCPK:KGHPF), First Quantum Minerals Ltd (OTCPK:FQVLF), Teck Resources and Freeport-McMoRan.
Peterson said that if Trump returns to the White House, his proposed Trump 2.0 policies could increase tariffs on Chinese imports to 60%, a significant escalation that would amplify trade tensions.
He suggests that while China's share of U.S. imports has dropped from over 21% in 2018 to under 14% in 2023, the sheer size of the tariff increase could lead to even more significant disruptions in global copper demand, potentially increasing the impact by 40%.
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The Great Copper Rollercoaster: Boom, Bust, Repeat?
Comparing the two periods, Trump's 2016 election win initially buoyed copper stocks, with investors optimistic about deregulation and infrastructure spending.
However, the optimism quickly faded as the trade war unfolded in 2018, causing copper prices and related stocks to plunge. A similar pattern could unfold under Trump 2.0: a post-election boost followed by another painful downturn if tariffs escalate, according to the analyst.
Adding further uncertainty, Peterson points to upcoming Federal Reserve rate cuts.
History's Lesson: Copper Tariffs Are Trouble
Historically, industrial metals like copper have underperformed following rate-cutting cycles, with the Bloomberg Industrial Metals Index typically falling 6% on average within nine months of cuts.
Despite being long-term bullish on copper due to structural demand, Peterson advises caution in the near term, as macro risks remain significant.
The lesson from Trump 1.0 is clear: tariffs led to a steep decline in copper equities, and Trump 2.0's aggressive stance could trigger a similar or even worse outcome for the sector.
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