US Treasury Secretary Scott Bessent discussed the US response to China’s export controls, calling them provocative. The US is communicating with allies, including India, to gain support against these measures. Bessent noted that China might be willing to talk, but the US is ready to take stronger actions if necessary. He stressed that the US does not want to fully separate from China, even though it senses signs of a potential decoupling.

Maintaining Global Peace

The US seeks to keep a positive relationship with China while promoting global peace, criticizing China for funding conflicts. There is optimism about calming tensions, with 100% tariffs not seen as essential. After Bessent’s remarks, the US Dollar Index rose by 0.37%, settling at 99.22. The US is continually reviewing its economic plans concerning China’s actions and the global market. The Treasury’s statements create significant uncertainty, which is great for volatility trading. The market’s fear gauge, the VIX, is currently low, trading around 15.4, not fully reflecting the risk of failed US-China discussions. Buying VIX call options or straddles on major indices could be a good strategy to profit from upcoming price movements. We recall the trade disputes of 2018-2019 when similar tariff threats led to several S&P 500 corrections of over 10%. With the index near record highs, buying out-of-the-money put options on the SPY or QQQ ETFs can serve as a cost-efficient hedge against another downturn. The market seems too relaxed, underestimating the chance of a policy mistake from either side.

Pressure on EV and Semiconductor Industries

The initial strength of the US Dollar, which rose above 99 on the DXY, highlights its appeal as a safe haven. This trend is likely to continue if tensions rise, especially against currencies tied to China, like the Australian Dollar and the offshore yuan (CNH). The USD/CNH currency pair is a crucial battleground, and any sustained rise above its September high of 7.42 could signal serious stress. China’s announcement about controlling rare earth materials puts direct pressure on the EV and semiconductor sectors. There have been wild swings in the VanEck Rare Earth ETF (REMX) during past trade conflicts. Options on companies heavily exposed in these industries will be highly sensitive to news in the coming weeks. Though we are prepared for conflict, the chance of de-escalation makes these defensive trades risky. A sudden announcement about a successful diplomatic meeting could trigger a sharp rally, affecting short positions and bets on volatility. Therefore, we need to stay flexible and closely monitor any shifts in official statements from either Washington or Beijing. Create your live VT Markets account and start trading now.

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