President Trump has more than three decades of consistent messages around the harm that unfair trade terms create for US workers, and he is wasting no time getting the changes started before the midterm elections in two years.1
Is Trump’s view justified?
In 2003, Warren Buffett, the CEO of Berkshire Hathaway, offered a simplified explanation of global trade's economic effects, raising concerns about the lack of balanced trade.2 It is well worth the time to read. In a textbook example of comparative advantage, one country trades a good with a productive advantage to another country in exchange for a product in which they have an advantage.
What happens when the US buys wine and cereal from Italy and, instead of trading a product, it offers only its wealth in exchange?
The US sends cereal to Italy in return for wine; for example, both countries benefit, and the living standards of both rise. But what happens when the US buys wine and cereal from Italy and, instead of trading a product, it offers only its wealth in exchange?
When writ large, the US depletes its wealth by sending capital outside the country and increasing its debt. US assets are used to grow the Italian economy and improve the standard of living of Italian citizens. In the US, the draining of assets can increase debt levels, lower the value of the US dollar, raise income inequities among citizens, and increase the cost of living. Eventually, the electorate will be economically unhappy and vote for politicians who promise to make better trade deals.
Which tools will the administration rely on for change?
Tariffs offer one way for the executive branch to effect change quickly.
Broad tariff threats like those offered against Canada and Mexico immediately garnered attention, and policy changes were announced within 24 hours on issues like cross-border flows of guns, drugs, and illegal immigration.
The next phase will likely involve the US issuing reciprocal tariffs to combat disadvantages to US products, such as the 10% tariffs on US autos imported into Europe, a UK value-added tax that disadvantages imports, or Ireland's unequal tax haven status. The World Trade Organization's data shows the US has one of the lowest average tariff rates of major trading partners.3
In a recent New York Times opinion article, Robert Lighthizer, former Trump US Trade Representative, argues tariffs are one tool in a range of tools, including government subsidies, market access limits, skewed health and safety standards, and directed banking systems that lend at below market rates to manufacturers, labor laws that keep wages low, currency manipulation, predatory tax systems, lack of essential regulation in areas like the environment.4 We expect these inequities to be a target of the administration.
Current state of the commodity markets
Oil
Oil demand is strong, continuing to expand at the same growth rate of the last 35 years (roughly +1.5% yearly). It has even made up for the volume declines during the pandemic lockdowns to return to pre-pandemic trend.5
US supply is unlikely to expand for a host of reasons. Higher costs for material, labor, services, and capital provide headwinds. Still, the key factor preventing supply expansion comes from senior management of oil and gas companies, where compensation is now based on profit, not production. The compensation change marks a transformation from the first Trump term when "drill, baby, drill" flooded the market with product supply regardless of price.6
Furthermore, we don't see a Russia-Ukraine peace agreement as dramatically changing the Russian oil supply to the market. The prior administration allowed Russian fuel to ship to China and India in opposition to the stated sanctions as it helped lower US fuel prices, but little supply was disrupted. The only meaningful drop in Russian oil supply occurred in January 2025 when the prior administration sanctioned tankers carrying Russian oil.7 Tanker sanctions proved effective, but at only a month long, they were in effect for too short a time to be dramatic.
Natural gas
Natural gas is recovering after the US experienced its warmest winter in history during 2023–24, driving natural gas prices to the lowest average annual price when adjusted for inflation.8,9
Europe may be in an emerging energy crisis that we have monitored for several years. Europe relied on cheap energy via Russian natural gas to offset costly labor to remain globally competitive. The destruction of NordStream I and II in 2022 reduced the supply, and the saving grace of low demand during very mild winters over the last three years has prevented a crisis from emerging before now.
As of January 1, three of the four pipeline systems bringing Russian natural gas into Europe are shut off, leaving only the Turkstream pipeline through Turkey but with limited capacity.10 However, a Russia-Ukraine peace agreement may meaningfully change European natural gas prices, not US prices. European natural gas averaged 17 Euros per megawatt (MWh) in the five years before 2020, and current prices are 51 Euros/ MWh.11
Precious metals
Precious metals remain buoyed by a multi-year trend of strong, consistent central bank purchases of gold and increasing investor attention to silver. There is a narrative in the market that US tariffs may potentially apply to gold if blanket tariffs are imposed, causing some degree of investor interest in the futures and options markets. We are not in the camp that believes tariffs would apply to US gold imports, as it does not serve any advantage. Central bank purchases, which have been very strong over the last three years as a diversifier of risk in the event of tariffs and sanctions, are unlikely to stop now that the tariffs and sanctions are being put in place.
Industrial metals
Industrial metals, typically a China economic growth story, are supported by increasing demand for copper in China, where electrification is in full swing. EV demand drives increased copper use, and solar panel production growth drives silver use. Additionally, the threat of tariffs is tangible in the industrial metal space, as aluminum imports to the US were under a 10% tariff, now increased to 25% with several exclusions removed, contributing to a local price rise in the US.12 An announced $500 billion AI investment will be particularly copper-intensive for data center infrastructure and energy needs. It is not inconceivable that copper could see tariff attention.
Agricultural
Agricultural grain prices are digesting the switch from El Niño to La Niña, which has resulted in dramatically higher grain prices in three of the last four occurrences.13 The change in Pacific Ocean temperatures that define El Niño and La Niña often create drought conditions in the US and parts of South America, hampering crop production.
Agricultural soft commodity prices have dramatically increased over the last year as tropical growth regions in Columbia, Brazil, and Vietnam all experienced droughts that caused dramatic shortages of coffee even as coffee demand returned to pre-COVID highs. Pre-pandemic prices for coffee were approximately $1.00 per pound and recently hit $4.35 per pound.14 Suppliers have seen emerging market consumers reject those prices, and some developed market consumers are doing the same.15
Platinum and palladium
Platinum and palladium are gaining more attention as automakers reverse commitments to all-electric vehicles (EVs) in favor of more popular hybrid power trains or outright return to internal combustion engine (ICE) powered vehicles.
Porsche is the latest to announce significant capital expenditure spending to expand ICE and hybrid offerings at the expense of pure battery models.16
Platinum and palladium have had weak prices in recent years despite tight supplies as industrial consumers drew down above-ground stockpiles.
In Western countries, EV affordability and charger access are limiting consumer uptake. These issues do not exist in China, where EVs are technologically superior, significantly cheaper to buy and charge, and chargers are plentiful despite significant consumer EV purchases.
Final thoughts
One way to potentially reduce volatility in a commodity portfolio is to purchase futures further out on the commodity curve. Commodity portfolios typically purchase one to three-month futures contracts, but buying four to six-month contracts can potentially avoid a degree of price volatility. If a pipeline explodes, it disrupts supply until it is repaired, in most cases in a week or two. Prices in the front-month contract could spike higher on the drop in supply, but longer-dated contracts may not move at all because supply will not be disrupted that far into the future. The same may be said about a dynamic tariff environment where tariffs are large enough to cause price movements either up or down over the short term but are too extreme to remain in effect for too long. A number of products use this forward dating mechanism, including those based on the Bloomberg Commodity Index, the most widely utilized commodity benchmark.
1 "Trump Forged His Ideas on Trade in the 1980s—and Never Deviated." The Wall Street Journal, November 2018. https://www.wsj.com/articles/trump-forged-his-ideas-on-trade-in-the-1980sand-never-deviated-1542304508.
2 "America’s Growing Trade Deficit Is Selling the Nation Out From Under Us. Here’s a Way to Fix the Problem—And We Need to Do It Now." Fortune, November 2003. https://www.berkshirehathaway.com/letters/growing.pdf.
3 "U.S. tariffs are among the lowest in the world – and in the nation’s history." Pew Research Center, March 2018. https://www.pewresearch.org/short-reads/2018/03/22/u-s-tariffs-are-among-the-lowest-in-the-world-and-in-the-nations-history/.
4 "Want Free Trade? May I Introduce You To The tariff." The New York Times, February 2025. https://www.nytimes.com/2025/02/06/opinion/tariff-free-trade-new-system.html.
5 Bloomberg data: IEA global crude demand 12/31/1990–12/31/2024
6 "North America E&Ps to focus on capital discipline." S&P Global, January 2018. https://www.spglobal.com/commodityinsights/es/market-insights/latest-news/oil/012418-north-america-eampps-to-focus-on-capital-discipline.
7 "Treasury Intensifies Sanctions Against Russia by Targeting Russia’s Oil Production and Exports." U.S. Department of the Treasury, January 2025. https://home.treasury.gov/news/press-releases/jy2777.
8 "U.S. climate winter recap and summary for February 2024." NOAA National Centers for Environmental Information, March 2024. https://www.climate.gov/news-features/understanding-climate/us-climate-winter-recap-and-summary-february-2024#.
9 "Spot Henry Hub natural gas prices hit a historic low in 2024." Today in Energy. U.S. Energy Information Administration, January 2025. https://www.eia.gov/todayinenergy/detail.php?id=64184.
10 "Ukraine halts transit of Russian gas to Europe after a prewar deal expired." AP News, January 2025. https://apnews.com/article/russia-ukraine-war-gas-transit-supplies-gazprom-7775fea34a7be9723b991d835a7ebd6f.
11 Bloomberg data: TTF price 12/31/2014–12/31/2019; TTF price 2/12/2025
12 "Trump steps up his 2018 tariffs on steel and aluminum, risking inflation on promise of more jobs." AP News, February 2025. https://apnews.com/article/trump-tariffs-steel-aluminum-china-canada-mexico-0a91ceaf3aa3c1756c339817d1d58076.
13 Bloomberg data: Bloomberg Agricultural Grains Subindex rose 79% 12/31/2006–2/29/2008; rose 56% 12/31/2009–2/28/2011; rose 48% 12/31/2019–4/30/2021; rose only 12% 12/31/2015–10/31/2016.
14 Bloomberg data: Coffee 12/31/2016–12/31/2019; Coffee price 2/12/2025.
15 "Your Arabica Coffee Will Get Even Pricier as Beans Soar to Record $4 a Pound." Bloomberg, February 2025. https://www.bloomberg.com/news/articles/2025-02-05/coffee-soars-to-record-4-mark-as-supply-fears-power-rally.
16 "Porsche Is Pivoting Back to Combustion. It Will Cost Them Dearly." Motor.com, February 2025. https://www.motor1.com/news/750016/porsche-pivoting-combustion-cost-dearly/.
Important information
An investor should consider the investment objectives, risks, charges and expenses of the Funds carefully before investing. To obtain a prospectus containing this and other important information, call 844-ETFs-BUY (844-383-7289) or visit www.abrdn.com/usa/etf. Read the prospectus carefully before investing.
Fund Risk: There are risks associated with investing including possible loss of principal. Commodities generally are volatile and are not suitable for all investors. There can be no assurance that the Fund’s investment objective will be met at any time. The commodities markets and the prices of various commodities may fluctuate widely based on a variety of factors. Because performance is linked to the performance of highly volatile commodities, investors should consider purchasing shares of the Fund only as part of an overall diversified portfolio and should be willing to assume the risks of potentially significant fluctuations in the value of the Fund.
The Fund employs a “passive management” – or indexing – investment approach designed to track the performance of the Index. The Fund will generally seek to hold similar interests to those included in the Index and will seek exposure to many of the commodities included in the Index under the same futures rolling schedule as the Index. The Fund will also hold short-term fixed-income securities, which may be used as collateral for the Fund’s commodities futures holdings or to generate interest income and capital appreciation on the cash balances arising from its use of futures contracts (thereby providing a “total return” investment in the underlying commodities).
Through holding of futures, options and options on futures contracts, the Fund may be exposed to (i) losses from margin deposits in the case of bankruptcy of the relevant broker, and (ii) a risk that the relevant position cannot be closed out when required at its fundamental value. In pursuing its investment strategy, particularly when rolling futures contracts, the Fund may engage in frequent trading of its portfolio of securities, resulting in a high portfolio turnover rate.
As a “non-diversified” fund, the Fund may hold a smaller number of portfolio securities than many other funds. To the extent the Fund invests in a relatively small number of issuers, a decline in the market value of a particular security held by the Fund may affect its value more than if it invested in a larger number of issuers. The value of shares may be more volatile than the values of shares of more diversified funds.
During situations where the cost of any futures contracts for delivery on dates further in the future is higher than those for delivery closer in time, the value of the Fund holding such contracts will decrease over time unless the spot price of that contract increases by the same rate as the rate of the variation in the price of the futures contract. The rate of variation could be quite significant and last for an indeterminate period of time, reducing the value of the Fund.
Changes in the laws of the United States and/or the Cayman Islands, under which the Fund and the Subsidiary are organized, respectively, could result in the inability of the Subsidiary to operate as intended and could negatively affect the Fund and its shareholders.
To the extent the Fund is exposed directly or indirectly to leverage (through investments in commodities futures contracts) the value of that Fund may be more volatile than if no leverage were present.
In order to qualify for the favorable U.S. federal income tax treatment accorded to a regulated investment company (“RIC”), the Fund must derive at least 90% of its gross income in each taxable year from certain categories of income (“qualifying income”) and must satisfy certain asset diversification requirements. Certain of the Fund’s investments will not generate income that is qualifying income. The Fund intends to hold such commodity-related investments indirectly, through the Subsidiary. The Fund believes that income from the Subsidiary will be qualifying income because it expects that the Subsidiary will make annual distributions of its earnings and profits. However, there can be no certainty in this regard, as the Fund has not sought or received an opinion of counsel confirming that the Subsidiary’s operations and resulting distributions would produce qualifying income for the Fund. If the Fund were to fail to meet the qualifying income test or asset diversification requirements and fail to qualify as a RIC, it would be taxed in the same manner as an ordinary corporation, and distributions to its shareholders would not be deductible by the Fund in computing its taxable income.
Investors buy and sell shares on a secondary market (i.e., not directly from Trusts). Only market makers or “authorized participants” may trade directly with the Trusts, typically in blocks of 25k to 100k shares.
Bloomberg®, Bloomberg Commodity Index Total ReturnSM, Bloomberg Commodity Index 3 Month Forward Total ReturnSM and Bloomberg Industrial Metals Subindex Total ReturnSM are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by abrdn Inc. Bloomberg is not affiliated with abrdn Inc., and Bloomberg does not approve, endorse, review, or recommend abrdn Bloomberg All Commodity Strategy K-1 Free ETF, abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF and abrdn Bloomberg Industrial Metals K-1 Free ETF. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Bloomberg Commodity Index Total ReturnSM, Bloomberg Commodity Index 3 Month Forward Total ReturnSM and Bloomberg Industrial Metals Subindex Total ReturnSM.
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ETF002313 9/30/25
AA-140225-189386-1