The Chinese Commerce Ministry said that China and the US are working together to implement the outcomes of the London framework. China is currently reviewing export license applications for controlled items according to legal standards. The US has announced plans to lift some restrictions on China, which could improve economic and trade relations. The London framework is viewed as a result of hard work, focusing on dialogue and cooperation.

Market Response To Developments

The Australian Dollar, often seen as a proxy for China, reacted slightly, trading down 0.08% at 0.6570. A trade war is an economic conflict characterized by trade barriers like tariffs, which increase costs and affect living standards. The US-China trade war started in 2018 when the US imposed trade barriers claiming unfair practices. Despite reaching a Phase One trade deal in 2020, tariff measures still exist under President Biden. With Donald Trump hinting at a presidential run in 2025, economic tensions may rise again. He suggested imposing tariffs of up to 60%, which could significantly impact global economies and affect consumer prices and investments. Although reports of improved relations are positive, market reactions have been less enthusiastic than expected. Despite official statements from Beijing and Washington indicating a renewed relationship—especially regarding export license reviews and potential easing of restrictions—markets have not shown strong movement. For instance, the Australian Dollar, often reflective of sentiment towards China, barely reacted. This indicates that traders aren’t anticipating rapid changes. In clear terms: we are not experiencing a fresh thaw. The US still maintains extensive tariffs that have mostly remained in place since 2018, despite changes in administration. While Biden’s team may discuss cooperation more openly, the fundamental tariff structure has not changed significantly. It feels more like a show until something concrete happens.

Impact Of Proposed Tariffs

What’s more pressing is Trump’s campaign rhetoric regarding future tariffs. The suggested structure of up to 60% would be a major shift—not a minor change. This raises alarm in the markets, as it impacts everything from profit expectations to supply chain strategies. This situation signals not only rising tensions but also the need for thorough planning, including assessing pricing risks and adjusting volatility strategies. Assets sensitive to China will likely experience persistent volatility premiums. While equity derivatives tied to Chinese tech may not move much now, watch for the increasing demand for downside protection, especially for late 2024 into early 2025. From our perspective, there is a clear message: Regardless of how diplomatic discussions are framed, the risk of disruption remains high. Tail hedging should be prioritized, and it’s wise to roll short-term risk reversal positions as we head into the year’s later quarters, especially if campaign talk translates into real policy. Interpreting recent regulatory cooperation as a sign of easing is shortsighted. These gestures might only buy time. The reviews from China could be about showing compliance while setting up alternative plans. If these reviews stall or lean towards protectionism, currencies linked to commodities may show increased downside risk. It’s crucial to consider market positioning, particularly with the US Dollar compared to Asian currencies, where uncertainties about tariffs aren’t fully priced in. Past trends show that traders often misunderstand policy delays and overestimate correlation sentiment. The key lies in policy timelines and execution, rather than just statements. Announced interventions will only affect risk assets once they are implemented in import processes. Traders dealing with options should keep this in mind when choosing strike prices. Delta hedging strategies may need to adapt quickly to news, particularly during key meetings or unexpected regulatory announcements. Create your live VT Markets account and start trading now.

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