China’s Commerce Ministry has urged the US to quickly change its practices, mentioning that ongoing threats and new restrictions are hurting proposals for talks. Despite these issues, both countries are still communicating through the China-US economic and trade consultation framework, which includes working-level discussions. The Australian Dollar rose by 0.02% against the US Dollar, trading at 0.6516. A trade war refers to a disagreement between countries that involves trade barriers, such as tariffs, which lead to higher import costs and a greater cost of living.

US-China Trade War Overview

The US-China trade war started in 2018 when the US imposed tariffs on China because of perceived unfair practices. In response, China placed tariffs on US goods. A Phase One trade deal was signed in January 2020 requiring China to make reforms, but plans shifted due to the pandemic. President Biden kept the existing tariffs and introduced new ones. When Donald Trump returned to the presidency in 2025, tensions rose again. He promised a 60% tariff on China, escalating the trade conflict. This situation disrupts global supply chains, reduces consumer spending—especially on investments—and contributes to inflation, as shown by the Consumer Price Index. As US-China trade tensions rise, market fear is growing. The CBOE Volatility Index (VIX), a key measure of fear, has jumped past 28, a level not seen consistently since early 2024. Traders should prepare for increased volatility across various asset classes, which makes long-dated options more expensive. The Chinese yuan has come under scrutiny as the offshore yuan (CNH) weakened past 7.40 to the dollar, reflecting economic strain. Strategies that benefit from a weaker yuan could be beneficial, while the Australian dollar may also face pressure. The AUD/USD may drop below the 0.6500 mark due to Australia’s heavy reliance on Chinese demand for commodities.

Impact on Markets

Equity markets are displaying signs of stress, especially in sectors like technology and industrials. Semiconductors were at the center of the 2018-2020 trade dispute, and that trend continues today. The Philadelphia Semiconductor Index (SOX) has already dropped over 9% this quarter, indicating that traders are buying put options on tech ETFs to prepare for supply chain disruptions. We should closely monitor the commodity markets since China is reacting here. Following the restrictions on gallium in 2023, China’s new export limits on dysprosium oxide have caused its price to rise more than 15% last month. This presents opportunities in commodity futures but also poses risks for manufacturers that rely on these materials. Given the back-and-forth nature of these announcements, defensive strategies are increasingly important. There is a growing demand for put options on major market indices like the S&P 500 to protect portfolios from a potential downturn. The current situation suggests that any market rallies may be brief unless there is clear de-escalation from either Washington or Beijing. Create your live VT Markets account and start trading now.

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