US Commerce Secretary Howard Lutnick announced that tariffs will start on August 1, with no extensions available. For President Trump to reconsider the 30% reciprocal tariffs, the European Union must open its markets to U.S. exports. Lutnick mentioned that Trump is open to a deal, but the chances are even at 50-50, depending on what the EU offers. President Trump is set to meet with European Commission President Ursula von der Leyen before the tariff deadline. It is estimated that tariff revenue could reach $700 billion each year, totaling around $7 trillion over the next decade. Recent estimates from Scott Bessent forecast this year’s revenue at $300 billion, with June collections reaching $27 billion.

Revenue And Tariff Impact

To reach the $700 billion revenue goal with expected imports of $3.295 trillion in 2024, the average tariff rate will need to be about 21.24%. Mexico, China, Canada, Germany, and Japan account for over 50% of U.S. goods imports, showing their significant trade impact. As of August 1, the actual tariff rates will clarify if reaching the $700 billion revenue target is realistic. It is still unclear who will pay the tariff costs—foreign exporters, U.S. importers, or consumers through higher prices. We believe that traders should prepare for increased market volatility as the August 1 deadline approaches. Lutnick’s stated 50-50 chance of a deal creates significant uncertainty, which tends to spook financial markets. During the 2018-2019 trade tensions with China, the CBOE Volatility Index (VIX) jumped over 50% in one month, and we expect a similar effect if a deal with the EU does not happen.

Market Strategies And Considerations

We suggest buying long-dated options to protect against or profit from sharp price changes in major indices like the S&P 500. Purchasing call options on the VIX is a direct way to profit from increased fear, especially since the index is currently trading near 13, much lower than its historical averages. This strategy defines risk while offering significant upside if the meeting between Trump and von der Leyen fails to result in an agreement. We expect increased volatility in the foreign exchange markets, especially with currencies from the top U.S. trading partners. If tariffs are imposed, currencies like the Euro, Mexican Peso, and Japanese Yen may weaken against the U.S. dollar, reflecting potential economic stress on their export-driven economies. Traders might want to position themselves for a stronger dollar against these currencies as the deadline approaches. Opportunities also exist in sector-specific derivatives, especially in industries most affected by international trade, as indicated by the import data. The automotive sector, with Germany and Japan among the top five importers, may be particularly sensitive to new import duties. Buying put options on automakers or related ETFs could help protect against negative news from the negotiations. We should also think about the inflationary effects since the potential revenue estimate implies higher costs for consumers and businesses. Recent U.S. CPI data already indicates persistent inflation at around 3.3%, and new tariffs may complicate the Federal Reserve’s decisions. This could add more uncertainty to interest rate futures as the market adjusts to the combined effects of trade policies and monetary responses. Create your live VT Markets account and start trading now.

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