Trump announced on Truth Social that a deal with China is complete and just needs final approval from himself and President Xi. The agreement allows China to supply full magnets and essential rare earth elements, while the US will accept more Chinese students in its colleges and universities. According to the deal, the US will impose a total tariff of 55%, while China’s will be only 10%. Trump’s announcement doesn’t provide details about other parts of the agreement, leaving some terms unclear.

Market Reaction

Following the announcement, financial markets have shown some volatility, but overall remain stable compared to before. The cautious market response may stem from uncertainty around the specifics, especially since the US has recently lowered its tariff rate to 30%. We might hear more details from Chinese officials or other sources as the situation develops. Trump’s announcement, shared via social media, suggested changes to the exchange of key materials and students between two major economies. A significant point is the uneven tariff structure— the US set a duty of 55%, while China would only impose 10%. This 45-point difference is substantial, especially given that the US had just cut its tariff rate to 30%. This shift brings new challenges for importers and adds uncertainty for those involved in US-China trade. The markets showed initial uncertainty but stabilized, indicating caution rather than confidence. The lack of a strong directional bias means many are still analyzing the implications and waiting for clearer terms from Chinese officials before making adjustments. When announcements are more focused on diplomacy than specific legislation, it often leads to tighter liquidity in futures, particularly concerning equities and industrial commodities. That seems to be happening here.

Investment Strategy Considerations

These market conditions present good opportunities for gamma strategies, especially due to expected price fluctuations in response to policy changes. With limited short-term clarity, implied volatility remains flat or undervalued, making it attractive for long-vol exposure if combined with disciplined risk management. This type of agreement, focused on trade and educational exchanges, has implications across different assets. The link between rare earth imports and companies in the electronics and electric vehicle sectors is direct. After this announcement, options trading in semiconductor and battery technology companies surged, indicating positioning before clearer confirmations. Tariff differences are important not just for commodities but also for multinational businesses involved in East Asian supply chains. Companies should prepare for possible changes in input costs. Hedging through macro products with tight deltas—those that react quickly to trade comments—might be more effective than broad positions in indices. As bid-ask spreads tighten and risk assumptions shift, we have gradually reduced directional exposure and moved into strategies focused on convexity. There’s little advantage in guessing news flow throughout the day, but derivatives can help us express outcomes based on probabilities while keeping capital at lower risk. This approach makes even more sense when neutral deltas are difficult to read due to rapidly changing interpretations. With varying influences and unpredictable policies, staying flexible is wise. Discretionary signals, especially from Beijing regarding tariff terms, will likely influence short-term trading. It’s essential to let actual market movements confirm any convictions before making significant position changes. Consistency is more important than speed when responding to vague agreements. Create your live VT Markets account and start trading now.

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