China’s Commerce Ministry called on the US to remove unilateral tariffs on its trading partners. It said China will protect its interests and is reviewing what a recent ruling could mean. The ministry said US actions—such as reciprocal tariffs and fentanyl-related tariffs—break international trade rules and US law. At the time of writing, AUD/USD was down 0.14% at 0.7075.

How Tariffs Work

Tariffs are fees charged on imported goods, either on specific products or entire categories. Governments use them to support local producers by making imports more expensive. Tariffs are often used alongside other trade limits, such as barriers and import quotas. Tariffs and taxes both raise money for public services, but they are collected in different ways. Tariffs are paid by importers at the port of entry. Taxes are paid by individuals and companies at the point of purchase. Ahead of the November 2024 US presidential election, Donald Trump said he would use tariffs to support the US economy and domestic producers. In 2024, Mexico, China, and Canada accounted for 42% of total US imports. Mexico exported $466.6 billion to the US, according to the US Census Bureau. We take the latest warnings from China’s Commerce Ministry seriously. They align with the rising trade tension we expected after the new administration began in 2025. This is more than messaging. It suggests a new stage of potential retaliation that could increase market volatility. Today’s backdrop also reflects the tariff approach promoted during the 2024 election campaign.

Positioning For Volatility

Derivatives traders should be ready for sharp moves in the coming weeks. Policy headlines—not economic data—are likely to be the main driver. In 2025, the VIX (a key “fear” gauge) jumped above 25 three times, each time after new tariff announcements. Buying volatility with options on major indices like the S&P 500 may be a sensible way to prepare for expected turbulence. Currency markets—especially commodity-linked currencies—are likely to feel the impact first. AUD/USD is often treated as a proxy for China-related trade sentiment. It fell from around 0.72 in early 2025 to test support below 0.68 this month. Traders may want to consider options strategies that prepare for further weakness, as any direct response from China could pressure the Australian dollar. Commodity markets also need close attention, because they are often early targets in tariff disputes. For example, Chinese retaliatory duties on agricultural products in mid-2025 pushed soybean futures down 15% over a single quarter. Hedging risk in agricultural and industrial metals markets is now especially important for traders with exposure in these areas. These measures are also adding to domestic inflation pressures, which complicates the Federal Reserve’s path. January 2026 CPI data showed core inflation holding at 3.2%, with higher import costs cited as a key driver. Persistent price pressure adds uncertainty for interest-rate derivatives and bond futures. So far, the tariff push to rebalance trade has produced mixed outcomes and ongoing uncertainty. US Census Bureau data from late 2025 showed the trade deficit with China narrowed by 8%, but the overall US trade deficit rose by 3% as imports shifted to other routes. This makes it more likely the administration will continue its approach rather than reverse it. Create your live VT Markets account and start trading now.

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