A senior administration official has confirmed that the US-EU trade framework did not conclude on aircraft tariffs. The ongoing aircraft investigation means tariffs will remain at zero until the analysis is complete.
There is a possibility that aircraft might avoid tariffs, but the final decision depends on the probe’s outcome. Meanwhile, the steel tariff remains firm at 50%.
Temporary Relief For Aerospace Sector
We view the delay on aircraft tariffs as a temporary relief, not a resolution. This reduces the immediate tail risk for major aerospace companies, but the ongoing investigation means uncertainty will return. The official’s comments suggest a positive outcome is likely, but we will not position for that until the probe formally ends.
This lingering threat of future tariffs keeps a lid on potential upside for the aerospace sector. Historically, tariff announcements in the long-running WTO dispute have caused sharp, single-day drops of 3-5% in stocks like Boeing and Airbus. We believe selling slightly out-of-the-money call options on aerospace ETFs offers a way to generate income from this capped potential.
The continuation of steel tariffs maintains a significant headwind for domestic industrial and automotive manufacturers. These sectors continue to face elevated input costs, which compresses their profit margins. Data from the American Iron and Steel Institute shows imports remain a key factor, and this policy ensures European steel will not alleviate domestic price pressures.
Opportunities In Trade Volatility
For traders, this means the performance gap between raw material producers and industrial consumers will likely persist. We see opportunities in pair trades, going long steel producers while remaining cautious on manufacturers that have specifically cited material costs as a drag on earnings. This underlying cost issue for consumers is not going away in the near term.
This mixed trade policy signals that broad market volatility could be mispriced. While the CBOE Volatility Index (VIX) has recently traded below 15, representing significant market calm, these unresolved trade issues are known catalysts for sudden spikes. The lack of a comprehensive deal leaves the door open for future trade friction.
Given the current low cost of options, we think it is prudent to build protective positions. Buying medium-term put options on broad market indices like the SPY provides a cheap hedge against a negative surprise from the aircraft probe’s conclusion. This is a low-cost insurance policy against renewed trade tensions.
