A senior US official has confirmed that there is no final decision yet on trade with China, making a trade agreement hard to pin down. Recently, Trump signed executive orders about tariffs that impact several countries. The orders raised the tariff on Canada to 35% from 25% and set a 39% tariff on Switzerland. The White House is also working on clarifying details, especially regarding China, which might involve possible temporary extensions.

Impact of New Tariffs

Taiwan now faces a 20% tariff as part of these new policies. These actions are part of a broader trade strategy by the US administration. With these changes, we can expect increased market volatility in the upcoming weeks. The CBOE Volatility Index (VIX) is likely to rise from its current stable state. In the 2018-2019 trade disputes, the VIX surged by over 60% during similar events, so we should prepare for levels nearing the high 20s. Buying put options on major market indices like the SPX can be a smart defensive strategy to protect against possible downturns. Sectors that rely heavily on international trade, like technology and industrials, are at greater risk from sudden tariff announcements. The new 20% tariff on Taiwan, a key player in semiconductor production, directly threatens chipmakers.

Opportunities in Currency Markets

There are clear opportunities in currency markets, especially as the US dollar strengthens against the Canadian dollar and the Swiss franc. In 2023, total US trade with Canada exceeded $900 billion, so the new 35% tariff will significantly affect the USD/CAD currency pair. A similar but smaller impact will be seen with the Swiss franc due to the 39% tariff. For traders uncertain about market direction, employing a long straddle or strangle on key exchange-traded funds may be effective. This strategy can benefit from any major price move, which seems likely given the mixed signals coming from the White House. The indication that no final decision has been reached regarding China adds to this uncertainty. The proposed “can-kick extension” for China suggests that this issue might not be resolved anytime soon. Therefore, considering longer-dated options, perhaps expiring in the next fiscal quarter, could be wise. This allows for time to wait out the anticipated short-term fluctuations and for a more definite policy to emerge, reducing the risk associated with short-term contracts. Create your live VT Markets account and start trading now.

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