The United States has introduced a new import tariff targeting Chinese products, specifically battery-grade graphite. The US Commerce Department intends to impose anti-dumping duties on these imports, with a final decision expected by December 5. Currently, the Commerce Department is led by Paul Dabbar, who has previously worked with JP Morgan & Co and the US Department of Energy. Tariffs are fees on imports that help support local industries by making them more competitive against similar foreign products.

Understanding Tariffs

Tariffs differ from taxes; they are paid at the port when goods arrive, not at the point of sale. Economists debate the pros and cons of tariffs. Some argue they help protect local markets, while others warn they may lead to higher prices and trade disputes. During his presidential campaign, Donald Trump stated he would use tariffs to strengthen the US economy and support local businesses. By 2024, Mexico, China, and Canada accounted for 42% of US imports, with Mexico alone totaling $466.6 billion. Trump plans to target tariffs at these countries and use the revenue to cut personal income taxes. We believe the December decision on graphite will cause short-term fluctuations in the electric vehicle and battery manufacturing industries. Traders might want to buy put options on companies that heavily depend on Chinese battery parts to protect against possible price increases and supply issues. This strategy aims to address how the Commerce Department’s duties might affect production costs for US manufacturers. Since China supplies over 65% of the world’s natural graphite, this tariff could cause major changes in global supply chains. This situation could benefit mining companies located outside of China, especially in allied countries. Thus, looking into call options for Canadian or Australian graphite producers may be a smart move for long-term investment.

Market Implications and Strategic Positions

The former president’s plan to implement broad tariffs, such as a proposed 60% on Chinese goods, indicates a more aggressive trade policy in the future. We recommend preparing for increased market volatility, which could be managed by purchasing VIX futures. This strategy is general and can provide protection against the uncertainties of a potential trade war. Reviewing the trade conflict from 2018-2019, we witnessed sharp declines in industrial and technology stocks while the VIX rose. History shows that as political talk around tariffs grows stronger, buying broad market index puts can be an effective defensive strategy. The market often responds to the threat of tariffs well before they take effect. With Mexico and Canada making up such a substantial share of US imports, any new tariffs will likely have significant effects on the North American economy. It’s essential to keep an eye on currency pairs like the USD/MXN, as trade tensions often weaken the currencies of exporting nations. Taking a long position on the US dollar against the peso could be a way to address this specific geopolitical risk. Create your live VT Markets account and start trading now.

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