The US is considering new restrictions on exports of software-controlled items to China, including laptops and jet engines. This move is seen as a response to China’s recent limits on rare earth exports.

Market Impact of Trade Restrictions

US Treasury Secretary Scott Bessent mentioned that any actions would likely happen alongside G-7 allies. Currently, the AUD/USD has dipped by 0.08%, sitting at 0.6480. A “trade war” is an economic struggle marked by high protectionism, often involving tariffs and countermeasures, which raise import costs and living expenses. The US-China trade war started in 2018 when the US enacted trade barriers against China, claiming unfair practices and theft of intellectual property. China retaliated with tariffs, escalating tensions until a Phase One trade deal in 2020 aimed at reforming China’s trade practices, but this was overshadowed by the pandemic. With Donald Trump winning re-election in 2025 and suggesting 60% tariffs on China, trade tensions are set to rise. This could disrupt global supply chains, lower investment, and affect consumer prices. Lallalit Srijandorn, a digital entrepreneur based in Paris and originally from France, wrote this article.

Hedging Strategies in a Volatile Market

The White House’s indication of new export limits on software is causing significant market uncertainty, indicating a risk-off environment may be on the horizon. We should brace for increased volatility, making VIX call options or futures smart hedges against this political risk. For example, the VIX spiked over 40% in May 2019 during a similar trade conflict, highlighting how quickly market sentiment can change. The Australian dollar’s quick drop to 0.6480 shows its sensitivity to China’s economy, our largest trading partner. With over 30% of Australia’s exports usually going to China, shorting the AUD/USD through futures or buying put options is a direct response to these renewed tensions. We should also keep an eye on the offshore yuan (USD/CNH), as pressure could push it back towards the 7.40 level seen earlier this year. US technology stocks are likely to face challenges, so we should think about purchasing put options on the NASDAQ 100 index or semiconductor ETFs. Many major US tech companies get around 20% of their total revenue from China, making them vulnerable to both US restrictions and Chinese counteractions. This opens doors for pair trades, like shorting the Hang Seng Tech Index while holding long positions in US industrial sectors less affected. Concerns about a global slowdown are likely to hit industrial commodities, making shorting copper futures a smart strategy. We must also consider the agricultural consequences from the last trade war; in 2018, US soybean exports to China plummeted over 70% due to retaliatory tariffs. Traders should monitor soybean prices closely, as China might turn back to suppliers like Brazil. Create your live VT Markets account and start trading now.

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