The US threat of 100% tariffs on Chinese imports has raised tensions. The US Dollar has reacted calmly, with a slight increase in EUR/USD, suggesting hopes for a deal between the US and China. However, risks have increased due to China’s strict rules on rare earth exports, a key issue in these disputes. ### The Impact of US Actions The US government is ready to implement measures that could hurt its own economy, despite the negative effects on China’s exports and US importers who would pay the tariff costs. While AI growth helps hide this issue, the uncertainty from tariffs causes more damage than the tariffs themselves. Although some US trading partners have made deals to avoid tariffs, the US government’s stance has harmed relationships. These negotiated agreements seem unreliable, which could lead to the US being isolated and could also diminish the US dollar’s status as a global reserve currency as other nations look for different trading partners. The US’s actions have not built trust with international partners, possibly reshaping global trade ties. The FXStreet Insights Team gathers expert market opinions, providing insights from numerous analysts. With the possibility of 100% tariffs, we should prepare for increased market volatility. The VIX index, which measures market fear, has jumped over 35% in the last week, reaching about 24.5—its highest level since the banking concerns of 2024. This shows that options premiums are increasing, making hedging strategies more essential, yet more costly. While the US dollar’s reaction has been muted, there are growing signs it might weaken. Implied volatility on major dollar pairs, like EUR/USD and USD/JPY, has risen as traders anticipate potential economic fallout from these aggressive tariffs. This uncertainty is heightened by recent US Treasury data from August 2025, indicating that foreign central banks are gradually diversifying away from dollar assets. ### New Concerns for Equity Markets In equity markets, the current AI boom has hidden weaknesses, but this new trade threat could change that. The SOX semiconductor index, which is very reliant on Chinese supply chains, has already dropped 7% this month. We are also seeing a sharp rise in put option purchases on tech-focused ETFs, with put-to-call ratios hitting levels not seen since the early 2024 market correction. China’s control over rare earth elements is a major concern. Beijing’s tighter regulations on these exports represent a significant leverage point in ongoing disputes. Futures contracts for crucial elements like neodymium have surged over 15%, creating both risks and opportunities in the commodities market. The broader concern is that these actions might isolate the United States within the global economy. We recall how trade conflicts in the late 2010s led to new partnerships that bypassed America. Recent trade data from the third quarter of 2025 shows a 12% year-over-year trade increase between the EU and ASEAN blocs, suggesting a long-term shift that could weaken the dollar’s dominance. Create your live VT Markets account and start trading now.

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