How does US tariff policy affect the relationship among crude oil, the US dollar and metal markets?

Abstract

This study aims to investigate two questions: a) what are the relationships among crude oil and metal markets with respect to fluctuations in the US dollar (USD) index? and b) have these relationships changed in response to the US trade tariff policies on aluminum and steel imports (on March 8, 2018)? The structural break test shows that after the institution of the import tariff policy, there was a significant change in the behavior of the aforementioned markets, especially in the metal markets. The spillover effects were measured using the vector autoregressive moving average asymmetric generalized conditional heteroskedasticity (VARMA-AGARCH) model along with the quantiles and frequencies methods. The analysis period being from April 1, 2016 to December 30, 2019. The findings revealed that there was a spillover effect from the USD index and crude oil market to the aluminum and steel markets. After the tariff policy, the negative spillover from the USD index into the aluminum and steel markets changed to positive, and its impact increased in the post-break period. Furthermore, the positive impacts of the crude oil price on aluminum and steel decreased after the tariff policy. According to the quantile regression results, metals could act as a safe haven and hedge against the USD index under different investment horizons (short-, mid-, and long-term) and market conditions (bearish, normal, bullish).