The US Treasury Secretary expressed hopes for a rare earths agreement between the US and China by Thanksgiving. After a meeting in Korea between Presidents Trump and Xi, there is a level of confidence that China will keep its promises. Right now, the US Dollar Index has increased by 0.08%, trading at 99.37. A trade war is ongoing, driven by economic protectionism, leading to trade barriers and higher costs.

History of the US-China Trade Conflict

The US-China trade conflict started in 2018 when the US imposed tariffs on China, accusing them of unfair practices and intellectual property theft. In response, China enacted its own tariffs. In 2020, a Phase One trade deal was made to reduce tensions, although the pandemic shifted focus elsewhere. President Biden kept the existing tariffs and added some new ones. If Donald Trump returns as President in 2025, tensions are expected to increase again, with proposals for a 60% tariff on China. This ongoing trade war affects global supply chains, limits consumer spending, and influences inflation in the Consumer Price Index. With a rare earths deal possibly happening by Thanksgiving, there’s a clear opportunity for trading. The 60% tariffs from Trump in January 2025 created uncertainty, so any sign of cooperation could significantly impact the market. The word “hopefully” introduces enough doubt to create a trading opportunity based on the outcome.

Potential Market Reactions

We anticipate a notable increase in market volatility, so strategies that benefit from price fluctuations could be beneficial. For example, the VIX index soared over 40% in a week in May 2019 after unexpected tariff news. We could see a similar spike if the current talks break down, making options like a strangle on a broad market index a viable strategy. For a direct bet on the deal, consider call options on the VanEck Rare Earth/Strategic Metals ETF (REMX). China processes over 85% of the world’s rare earth materials, and any agreement to secure US supply would greatly benefit the sector. We saw shares of US producers like MP Materials jump at any hint of de-escalation during the first trade war. The currency markets will also react, especially the exchange rate between the US dollar and the offshore yuan (CNH). Historically, positive trade developments lead to a stronger yuan, signaling a more stable Chinese economy. A confirmed deal could push the USD/CNH pair lower, creating an opportunity in currency futures. This potential agreement is crucial for tech and electric vehicle industries that rely on rare earth materials for their magnets and batteries. A successful deal could alleviate supply chain worries that have weighed down the Nasdaq 100 for the year. Buying short-dated call options on the QQQ ETF could be a smart move to capitalize on this potential upside. Create your live VT Markets account and start trading now.

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