A US Supreme Court ruling removed IEEPA-based reciprocal and fentanyl-related tariffs on China. These tariffs could be replaced with a lower 15% tariff under Section 122 of the 1974 Trade Act. Before the ruling, total US nominal tariffs on China were 30% under the second Trump administration. This included 20% reciprocal tariffs and a fentanyl-related tariff that was cut from 20% to 10%. Consumer electronics were exempt.

Tariff Reset And Trade Flow Outlook

If the US applies a 15% Section 122 tariff and keeps the consumer electronics exemption, China would face lower nominal tariffs than before. This should support a partial recovery in direct US–China trade. Chinese exports to the US fell 20% in 2025 versus 2024. Even if tariffs drop, both countries still have incentives to keep the broader trade truce in place. The truce also includes non-tariff measures tied to technology supply chains. In October, the US and China agreed to delay stricter curbs on US semiconductor exports and China’s rare earth exports by one year. Because the IEEPA-based tariffs were removed unexpectedly, we see a potential opportunity in the Chinese yuan. In 2025, the yuan weakened sharply against the dollar as the 30% tariff level hit exports. In early 2026, the currency has stabilized near 7.25. We should consider buying yuan call options, or call options on yuan-backed ETFs, targeting a move toward 7.10 as trade flows normalize.

Market Trades And Risk Positioning

This change also affects Chinese equities, which have looked undervalued for some time. The Hang Seng Tech Index, which fell heavily last year, is up 8% over the past month. January manufacturing PMI data also showed a small expansion to 50.8, suggesting the market may be forming a bottom. We believe long-dated call options on China-focused ETFs offer attractive risk-reward if the recovery continues. The 20% drop in Chinese exports to the US in 2025 was a major drag on global shipping and logistics. If tariffs fall to 15%, we expect container volumes from ports like Shanghai and Shenzhen to rebound by the second quarter. Traders could consider call options on major maritime shipping firms whose shares fell sharply last year. For US companies, this is positive for firms with meaningful sales exposure to China, including large automakers and tech companies. Their earnings were pressured last year by tariffs and weaker Chinese demand. However, January 2026 reports show a modest rise in luxury goods sales in the region. A less confrontational trade backdrop could improve consumer confidence and support these US stocks. Overall volatility should ease as a key geopolitical risk fades. The VIX spiked above 25 several times during the 2025 tariff disputes, but has since settled back into the mid-teens. We see an opportunity in selling VIX futures or writing put options on the S&P 500 to position for a calmer market in the coming weeks. Still, caution is needed. Lower tariffs do not solve the broader technology rivalry. The October agreement to delay tougher semiconductor and rare earth restrictions remains a major friction point. Negative headlines there could quickly reverse tariff-related gains, so it may be prudent to hedge long positions with puts on key semiconductor ETFs. Create your live VT Markets account and start trading now.

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