Commerce Secretary Howard Lutnick discussed various trade and economic issues on CNBC. He pointed out that a deal involving rare earth magnets also covers China’s chip sales, with the goal of keeping the US ahead in technology and ensuring that sales to China continue. Lutnick stressed that the US is working to promote its artificial intelligence (AI) standards worldwide. He also clarified that the US only imposes tariffs on finished steel products, not on raw steel imports, as part of its ongoing tariff policies.

Reversing The Tariff Impact

Tariffs have historically impacted the US by pushing industries to move abroad. However, Lutnick noted that the Trump administration is trying to reverse this trend. He mentioned that under Trump’s leadership, efforts are underway to secure better deals for Americans. Lutnick’s remarks offer a clear strategy, and our role is to account for potential friction. The plan is to keep China technically reliant on us and making them pay for it. This isn’t a “free trade” situation; it’s a managed conflict, and every investment position should reflect this understanding. The strategy is to provide them with our advanced technology to maintain leverage in areas like rare earth minerals. The statistics show that China’s semiconductor imports increased by 2.8% in value in the first quarter of 2024, even though the volume decreased. They are being pushed to buy high-value chips from companies like Nvidia, which are under US control. The clear move is to invest in long-term options for key US chip designers that benefit from this dependency, while also using short-term options to hedge against political risks. Lutnick’s comments on steel signal a strategy to protect domestic makers of finished goods. Recently, the White House suggested raising tariffs on certain Chinese steel and aluminum to over 25%. This is not just theoretical; the last round of Section 232 tariffs in 2018 helped US Steel and Nucor increase their pricing power. With the ISM Manufacturing PMI dropping to 48.7, indicating contraction, there is strong political motivation to support these industries. We could consider trading strategies that target the Materials Select Sector SPDR (XLB). Buying straddles on domestic manufacturers ahead of further trade announcements could be wise since their stock prices will likely fluctuate significantly with policy news.

Volatility In Trade Deals

When Lutnick says Trump secures “the best deals,” we know to expect volatility. We all experienced this during the 2018-2019 period. Markets shifted not based on earnings but on policy statements. A single comment could move the S&P 500 by 2%. In this kind of market, we should use the CBOE Volatility Index (VIX) as our main hedge. It would be wise to buy VIX futures or call options as a safeguard for our portfolios. The cost of this protection is low compared to the risks of a trade negotiation that could quickly turn negative. Focusing on US standards for AI represents a long-term objective. Whichever country sets the rules controls the ecosystem. The National Institute of Standards and Technology’s efforts to establish a global AI framework will help support this. The opportunity here is not just about immediate price changes but about investing in companies that will drive this new ecosystem. This means looking at LEAPS (Long-Term Equity Anticipation Securities) for major tech firms and cybersecurity companies that will develop, implement, and enforce these new American-driven standards. Create your live VT Markets account and start trading now.

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