New reciprocal tariffs are set to start this Friday. Countries that haven’t yet received notifications will get an Executive Order or a letter by tonight. Recent talks, especially with South Korea, have gone well. Progress is also happening in discussions with China, with direct communication ongoing.

Expecting Market Volatility

New reciprocal tariffs beginning this Friday will likely cause a sharp rise in market volatility. This uncertainty usually drives the VIX higher, so we plan to buy August VIX call options as a hedge. The VIX has been moving steadily around 15 for the past month, making these options fairly inexpensive before the news breaks. We need to pinpoint sectors that are most affected by these new trade barriers. Companies in the industrial and technology fields, especially those with complex global supply chains, face the greatest risk of squeezed profit margins. Considering put options on ETFs like XLI or semiconductor-focused funds could protect us from a sudden market drop. Conflicting messages regarding China, indicating both progress and new tariffs, create a confusing situation. This could lead to a big shift in Chinese stocks once details of the tariffs are released. A straddle on an ETF like FXI could help us profit from significant price changes, regardless of their direction.

Impact on Asian Markets

The positive news with South Korea positions it as a likely winner in this scenario. We could set up a pair trade, going long on the South Korean market through the EWY ETF while shorting an index of other Asian markets that might face new restrictions. We should also keep an eye on the Korean won’s strength compared to other regional currencies. This news arrives during a sensitive time for the economy. Recent data for Q2 2025 shows US GDP growth slowing to just 1.6%. We remember how trade disputes in 2018 and 2019 led to an economic slowdown. Tariffs act as a tax on businesses and consumers, which could threaten the fragile growth we’ve seen since inflation eased in 2024. Create your live VT Markets account and start trading now.

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