A US Supreme Court ruling removed IEEPA-based reciprocal and fentanyl-related tariffs on China. These could be replaced by a lower 15% tariff under Section 122 of the 1974 Trade Act.
Before the ruling, US nominal tariffs on China totalled 30% under the second Trump administration. This included 20% reciprocal tariffs and a fentanyl-related tariff reduced from 20% to 10%, with consumer electronics exempt.
Tariff Reset And Trade Flow Outlook
If a 15% Section 122 tariff is applied and the consumer electronics exemption remains, China would face lower nominal tariffs than before. This is expected to support some recovery in direct US–China trade flows.
Chinese exports to the US were down by 20% in 2025 compared with 2024. Despite lower tariffs, both countries still have reasons to keep the wider trade truce in place.
The truce also covers non-tariff measures linked to technology supply chains. In October, the US and China agreed to delay tighter restrictions on US semiconductors and China’s rare earth exports by one year.
With the unexpected removal of IEEPA-based tariffs, we see an opportunity in the Chinese yuan. Looking back at 2025, the yuan weakened considerably against the dollar as the 30% tariffs hit exports, but the currency has stabilized in early 2026 around the 7.25 mark. We should consider buying call options on the yuan, or on yuan-backed ETFs, anticipating a move toward 7.10 as trade flows begin to normalize.
Market Trades And Risk Positioning
This shift directly impacts Chinese equities, which have been undervalued for some time. The Hang Seng Tech Index, which suffered greatly last year, has already seen an 8% lift in the past month, and January’s manufacturing PMI data showing a slight expansion to 50.8 confirms a bottom may be in. We believe long-dated call options on China-focused ETFs offer a favorable risk-reward profile to capture this potential recovery.
The 20% decline in Chinese exports to the US during 2025 created significant headwinds for the global shipping and logistics sector. With tariffs now potentially halving to 15%, we anticipate a rebound in container volumes out of ports like Shanghai and Shenzhen by the second quarter. Traders could look at buying call options on major maritime shipping companies that saw their stock prices fall significantly last year.
For US companies, this is a positive development for those with significant sales exposure to China, such as large automakers and tech firms. We saw their earnings suffer last year due to both tariffs and a weaker Chinese consumer, but recent reports from January 2026 show a modest uptick in luxury good sales in the region. This suggests that a less confrontational trade environment could restore consumer confidence, benefiting these specific US stocks.
Overall market volatility should decrease as a major point of geopolitical tension is reduced. The VIX, which spiked above 25 multiple times during the tariff disputes of 2025, has since settled back into the mid-teens. We see an opportunity in selling VIX futures or writing put options on the S&P 500, positioning for a calmer market environment in the coming weeks.
However, we must remain cautious, as this tariff relief does not resolve the underlying technology rivalry. The agreement from last October to postpone tighter restrictions on semiconductors and rare earths is still a major point of friction. Any negative news on that front could quickly erase tariff-related gains, making it wise to hedge long positions with puts on key semiconductor ETFs.
