Global Markets Face Headwinds: Trade Disputes Intensify, Political Risks Mount in Japan and Brazil

Trade tensions between China and Canada have intensified significantly, with China's Ministry of Commerce launching an anti-dumping investigation into Canadian canola imports. This move is largely perceived as a retaliatory measure following Canada's recent imposition of 25% tariffs on steel products containing Chinese-melted steel, effective before the end of July. China asserts that Canada's steel duties violate World Trade Organization (WTO) rules and disrupt the international trade order. The canola probe, covering imports from January 1 to December 31, 2023, is expected to conclude by September 9, 2025, with a possible six-month extension.

Japanese markets (N225) are on high alert for potential instability, dubbed a "triple whammy" involving declines in stocks, currencies, and bonds, should opposition parties secure a substantial victory in the upcoming Upper House election this weekend. Analysts suggest that aggressive tax cut proposals from the opposition could trigger market turmoil akin to past crises. Political concerns have already weighed on the market, with the TOPIX index experiencing a 1.2% decline in July, ending a three-month rally. Historically, a ruling party losing its parliamentary majority has led to the TOPIX taking an average of 35 to 75 days to bottom, with an average total decline of around 8%.

In Brazil, political developments are adding to market uncertainty as former President Jair Bolsonaro has been ordered by the Supreme Court to wear an ankle monitor and is facing a trial for allegedly plotting to overturn the 2022 presidential election. Federal police also raided his home and party headquarters. This comes amidst threats from Donald Trump to impose 50% tariffs on Brazilian goods if Bolsonaro is not granted legal reprieve, further complicating the political and economic landscape. Bolsonaro has denounced the measures as a "supreme humiliation" and a "witch hunt."

Canada's decision to impose additional steel tariffs is reportedly a measure to protect its domestic steel industry, which has faced challenges due to US 50% tariffs on imported steel. Despite an agreement in June to improve bilateral ties, China and Canada continue to be embroiled in trade disputes. China was Canada's second-largest trade partner last year, with bilateral trade reaching C$120 billion (US$87.48 billion).

The Chinese Ministry of Commerce initiated the canola anti-dumping probe, citing preliminary evidence that Canadian canola was exported to China at prices below "normal value," causing significant harm to China's domestic industry. China is the world's largest oilseed importer and the primary destination for Canadian canola. In 2023, Canada's canola exports to China amounted to 5.5 million metric tons, valued at $3.72 billion, representing 94% of China's total canola imports.