Chinese Vice Premier He Lifeng is leading trade talks with the US, taking a tougher approach than his predecessor, Liu He. This shift may complicate efforts to lower trade tensions, especially as people hope for less conflict while Trump is still in office. According to Xi Jinping, China is better prepared for negotiations now than during the trade war of 2018-2019. He has put together a team ready to take a firm stance, moving away from the unequal agreements of the past, often referred to as the ‘century of humiliation.’

Potential New Agreement

There is a chance for a new agreement similar to the Phase One deal. Under this arrangement, China would agree to buy US products in exchange for benefits, but China expects equal commitments in return. The current negotiations show a tougher position from Beijing, guided by Lifeng, who has replaced Liu He. The discussions are sharper now, emphasizing that past imbalances will no longer be tolerated. Xi’s team appears more organized and is less inclined to rush to a settlement. While a structure like the Phase One agreement may return, it will not be on the same terms. China sees itself as an equal partner in these talks and wants enforceable reciprocity, not just vague promises. Given this firmness, we need to change how we view cross-border economic negotiations. We can no longer assume that diplomatic gestures will quickly lead to clear outcomes. In the coming weeks, sharp headlines may not closely match price movements, but they still matter. This suggests a shift that could lead to more strategic management of positions—being less reactive and more selective.

Implications of China’s Firmness

If China continues its current negotiating approach and introduces more financial or policy elements, we might see bursts of volatility instead of a steady spread throughout trading sessions. This means timing becomes even more critical for entering new trades or adjusting existing ones. The main focus remains on trade. However, we need to pay attention to how expectations adjust due to these changes. Shifts in tone from leaders may not immediately impact big indicators, but they influence sentiment, which affects liquidity around trades and index-linked assets. We have already seen some compression in implied volatility across key contracts, which seems misaligned with current headlines. This often unravels quickly when sentiment aligns with fundamentals. Trades that used to reliably signal policy direction are becoming less predictable. Observing a quick drop in long-dated exposure volume is notable—investors aren’t committing deeply. Now, the focus is shifting to whether the return to structured purchases will be seen as a starting point or a demand. If it’s the former, the usual indicators in agriculture and tech should become active again. If it’s the latter, traders will likely be more cautious, taking shorter positions and hedging more aggressively. This creates an uneven reaction—steady expectations in official statements may slow forward pricing, while surprising softening can lead to rapid recoveries. This pattern isn’t unusual, but it’s now more actionable than before. Beijing’s preparedness suggests less risk of misinterpreting tough talk as concessions. This limits reactive pricing to actual order data or customs reports. Despite increased focus, many assets still show lower realized volatility outside of major catalysts. This is where patience is essential. There’s an opportunity here for those looking to benefit from expectation gaps—just be mindful when changes arise. Volume trends provide insights. Shorter-term positions show more confidence, while longer ones hesitate. This likely reflects a lack of trust in the durability of these positions under policy strain. This changes how we view market ramps. Movements often start slowly and then accelerate once confirmed. We need to adapt our strategy accordingly. The first trade usually doesn’t follow through fully—it’s often the second move that provides a clearer opportunity. This indicates a market that is still navigating uncertainty but is ready to pivot. As we analyze flow direction and net positioning, we are observing the gap between how headlines are interpreted and how instruments respond. That gap is likely to close once traders adjust to this new negotiation rhythm—one that speaks less but carries greater weight when it does. Create your live VT Markets account and start trading now.

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