China’s commerce minister stated that the economic and trade relationship between China and the U.S. has faced many challenges, but it is still crucial for both countries. Since 2018, the U.S. has used more unilateral and protectionist measures, leading to increased tensions. The minister emphasized that mutual benefits are essential for U.S.-China trade. He believes that attempts to separate the two economies are unlikely to succeed, as this goes against economic growth. He admitted there are unavoidable differences and frictions but encouraged open dialogue to address these issues.

Irreplaceable Aspects of the Relationship

He also mentioned that some parts of their relationship are irreplaceable in the short term. He stressed the importance of respecting each other’s core interests. Agreements like the Geneva agreement and the London framework have helped stabilize trade ties and reduce tensions. From the minister’s comments, we think that traders should expect managed tensions rather than a complete breakdown. Even though two-way goods trade fell 13.6% to $575 billion in 2023, the overall trade volume reflects strong economic ties. This indicates that while major shocks are being controlled through discussions, some underlying frictions will remain. In the coming weeks, we see an opportunity in strategies that benefit from stable price movements since dialogue is likely to prevent extreme outcomes. With the CBOE Volatility Index (VIX) near multi-year lows around the 13-14 level, bearish bets may be costly and ineffective. We suggest taking advantage of any dips propelled by rhetoric to buy call options on sectors like technology and consumer goods, expecting a recovery towards expected levels.

Market Opportunities and Strategies

We recall the 2018-2019 time when tariff announcements sent the VIX above 25, causing significant market upheaval. Now, the situation appears different, with a lower chance of unilateral actions, making long-term protective put options less attractive. Our strategy will focus on short-term trades in indices and ETFs that heavily rely on the Chinese supply chain, like the iShares Semiconductor ETF (SOXX). The main point from his views is that efforts to decouple are seen as ineffective, which supports the stability of global supply chains for now. Although we wouldn’t recommend large speculative positions for downside risks, we suggest hedging your long portfolios against sudden market changes, especially in an election year. Given the current low volatility, buying out-of-the-money puts on broad indices like the S&P 500 is a smart and cost-effective way to protect against unexpected policy changes. Create your live VT Markets account and start trading now.

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