U.S. President Donald Trump has urged the European Union to impose tariffs of up to 100% on goods from China and India, according to officials from the U.S. and the EU. This move aims to apply pressure on Russian President Vladimir Putin by targeting two major oil consumers. Washington plans to impose similar tariffs if the EU agrees, suggesting a shift from the EU’s usual reliance on sanctions against Russia. Trump has been critical of Beijing and New Delhi for helping Russia’s economy by purchasing crude oil.

Increasing Tariffs

Earlier this year, Trump raised tariffs on India, but the most severe measures have not yet been enacted. He encouraged Europe to lessen its dependence on Russian energy while hinting at better U.S.-India trade relations, mentioning collaboration with Prime Minister Narendra Modi to break down trade barriers. Following this tariff threat, we expect increased market volatility. The VIX, which is currently near 19, could jump above 30, similar to levels during trade tensions in 2018 and 2019. Traders might consider buying call options on the VIX or volatility-linked ETFs to take advantage of this anticipated rise in uncertainty. Global equity indices are likely to decline if the EU pursues this proposal. We recommend buying put options on the S&P 500, Euro Stoxx 50, and emerging market ETFs that focus on China and India. This situation echoes late 2018 when fears led to a nearly 20% drop in the S&P 500. The energy markets may see a split in crude oil pricing. We expect Russian Urals crude prices to fall sharply, while Brent and WTI futures may rise as China and India search for new suppliers. This mirrors the market behavior following the 2022 sanctions, when Urals crude was discounted by over $30 per barrel compared to Brent.

Impact on Global Markets

In currency markets, we anticipate a shift toward safety that will strengthen the U.S. dollar. The Chinese yuan and Indian rupee are likely to face significant pressure, making long positions in USD/CNH and USD/INR appealing. The Euro may also weaken against the dollar due to the economic impact on European exporters, so we will be looking for chances to short the EUR/USD pair. This trade conflict will also affect industrial commodities and global shipping. We expect copper prices to drop, which serves as an important indicator of industrial health; shorting copper futures could be a smart move. Similarly, global shipping and logistics companies will likely experience reduced volumes, making put options on major shipping ETFs a wise hedge against a slowdown in world trade. Create your live VT Markets account and start trading now.

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