US President Donald Trump stressed the importance of a fair trade deal with China, raising concerns about sustainability with a suggested 100% tariff. He feels hopeful about talks with Chinese President Xi Jinping, but the final results are still uncertain. After Trump’s remarks, the US Dollar Index (DXY) held steady around 98.50. US stock index futures were mixed; Dow Futures rose by 0.15%, while Nasdaq Futures fell by 0.2%.

The US-China Trade Conflict

The US-China trade conflict started in 2018, focusing on claims of unfair trade practices and intellectual property issues, leading to reciprocal tariffs. The situation continued until the US-China Phase One trade deal in January 2020, aimed at improving economic relations. Though the pandemic shifted attention, many tariffs remained during President Joe Biden’s term. Trump’s return to the presidency in 2025 marked a renewal of trade tensions, with a suggested 60% tariff on China. These actions could impact global supply chains and economic stability, potentially raising the Consumer Price Index inflation rate due to lower investment and spending. Trump’s softer approach to China tariffs is easing immediate market fears, which might lead to a drop in implied volatility soon. This change means that the extreme protections traders previously set may now be adjusted. We should prepare for uncertainty rather than certain conflict. In terms of market indicators, the CBOE Volatility Index (VIX) seems to have decreased from its recent highs, similar to trends we saw in 2019 when trade discussions showed promise. This could create opportunities to sell short-term options, but the upcoming meeting between the two leaders remains a significant risk. Therefore, buying volatility for options that expire after the meeting could be a smart way to hedge against unexpected negative outcomes.

Trends in Currency and Commodity Markets

In currency markets, we are witnessing a predictable shift away from safe havens like the Japanese Yen and toward the US Dollar. The Australian dollar, which reflects Chinese trade, has stabilized. Demand for put options on this currency has likely dropped. Traders are closely monitoring the offshore Yuan (CNH), which has likely strengthened from last month’s lows when fears of a 100% tariff peaked. Commodity markets reacted quickly, with gold prices falling by 2% as traders sold off safe haven positions. Notably, agricultural futures like soybeans have climbed, recovering some of the heavy losses seen after the imposition of 60% tariffs in early 2025. This shift suggests potential upside for call options on commodities crucial for US-China trade if a deal seems more likely. In the coming weeks, the strategy should be to reduce highly directional bets and focus on volatility plays leading up to the meeting. Selling options expiring before the summit could capitalize on the current stability. However, as we discovered from 2018 to 2020, market sentiment can change rapidly, so it’s essential to maintain some form of portfolio protection. Create your live VT Markets account and start trading now.

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