The US Trade Representative’s office has announced new tariffs on Chinese semiconductors. These tariffs, which were initially set at 0%, are expected to increase within the next 18 months, but the specific rate is still unknown. Despite this announcement, the stock market reacted minimally. The S&P 500 Index decreased slightly by 0.07%, while the Nasdaq Composite dropped by 0.2%, ending the session at 25,411.40.

US Economic Performance

In the third quarter of 2023, the US economy grew at an annual rate of 4.3%. This was higher than the expected growth of 3.3% and boosted short-term demand for the US Dollar. Meanwhile, the GBP/USD exchange rate fell below 1.3500 as the US Dollar made a modest recovery. Gold prices rose to $4,497 but later eased after the economic growth report. Bitcoin and other cryptocurrencies faced selling pressure. Bitcoin remained above the $87,000 support level. This decline was part of a wider drop affecting several altcoins, including Ethereum and Ripple. Dogecoin also saw a decrease, largely due to low activity in the derivatives market. While the market seems unconcerned about the new semiconductor tariffs, we believe this reaction is misguided due to low trading volumes during the holiday season. The 18-month delay in implementing the tariffs may create a false sense of security. This is a chance to prepare for potential market volatility before the new year begins.

Investment Strategy

We recommend considering long-dated options on semiconductor ETFs, like the SOXX. A long straddle—buying both a call and a put option with the same strike price and expiration—could work well for mid-2026. This strategy would benefit from major price movements in either direction, especially when more details about the tariffs are released, which we expect to cause significant disruption. In the past, the VIX index spiked over 80% during the height of the 2018 trade war, and we anticipate a similar trend. With the VIX currently at a low of 13, purchasing VIX calls for the second quarter of 2026 is an inexpensive way to protect against a broader market decline. The market’s current calmness signals a good entry point for us. This situation isn’t just about US-China relations; it could cause a supply chain shift that produces both winners and losers. In recent years, we have seen companies move manufacturing to Vietnam and Mexico to avoid these specific risks. Companies with diversified supply chains may perform better than those heavily dependent on China. The US Dollar is currently weak, but these tariffs could change that if they trigger a global risk-off sentiment. Recent data from the Bureau of Economic Analysis in November 2025 showed the US economy’s surprising resilience, which could lead to a safety-driven demand for the dollar. We should be careful about taking short positions on the dollar as we approach 2026. Create your live VT Markets account and start trading now.

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