The US Trade Representative’s office announced that new tariffs will be imposed on Chinese semiconductors. Initially set at 0%, these tariffs are expected to rise within 18 months, although the future rate is yet to be disclosed.
Despite the announcement, there was minimal impact on the stock market. The S&P 500 Index fell slightly by 0.07%, while the Nasdaq Composite decreased by 0.2%, settling at 25,411.40 at the time of the report.
US Economic Performance
The US economy showed growth in the third quarter of 2023, expanding at an annualised rate of 4.3%. This result surpassed the anticipated 3.3% forecast and increased near-term demand for the US Dollar.
In contrast, the GBP/USD pair fell below 1.3500 due to a modest recovery in the US Dollar. Additionally, gold prices saw a surge to $4,497 but eased following the economic growth report.
Bitcoin and other cryptocurrencies faced selling pressure, with Bitcoin trading above the $87,000 support level. This decline was part of a broader downturn affecting various altcoins, including Ethereum and Ripple. Dogecoin also saw a decrease, affected by low derivatives market activity.
The market is shrugging off the new semiconductor tariff announcement, but we see this as a mistake caused by thin holiday trading. The 18-month delay on implementation is creating a false sense of security. This is an opportunity to position for future volatility before the rest of the market wakes up in the new year.
Investment Strategy
We should look at buying long-dated options on semiconductor ETFs, such as the SOXX. A long straddle, which involves buying both a call and a put option with the same strike price and expiry, could be effective for mid-2026. This strategy profits from a large move in either direction, as we anticipate significant disruption when the tariff details are finalized.
Historically, we saw the VIX index jump over 80% during the peak of the 2018 trade war, and we expect a similar pattern to emerge. With the VIX currently trading near a two-year low of 13, buying VIX calls for the second quarter of 2026 is a cheap way to hedge against a broader market sell-off. The market’s current complacency is a key entry signal for us.
This isn’t just a US-China issue; it will force a supply chain realignment that creates new winners and losers. We’ve seen companies increasingly shift manufacturing to Vietnam and Mexico over the past few years to mitigate these exact risks. Derivatives on companies with diversified supply chains may outperform those heavily reliant on China.
The US Dollar is currently soft, but this tariff action could reverse that trend if it sparks a global risk-off move. Recent Bureau of Economic Analysis data from November 2025 showed a surprisingly resilient US economy, which could lead to a flight to safety benefiting the dollar. We should be cautious about being short the dollar heading into 2026.
