China has opposed the prospect of fresh US Section 301 tariffs while keeping diplomatic channels open. The Commerce Ministry said it “firmly opposes” reported US consideration of an additional 7.5% tariff on Chinese imports, framed as part of a Section 301 investigation into alleged overcapacity spanning 16 economies, and described the move as unilateral and protectionist.
Beijing said it will closely assess any further US measures and reserved the right to take “necessary measures” in response. In parallel, the Foreign Ministry said China and the US remain in contact over arrangements for possible leader-level interaction later this year, leaving scope for dialogue even as trade risks rise.
Market Volatility And Trading Opportunities Amid Trade Tensions
We expect the coming weeks to bring heightened volatility in the options market as China resists the proposed 7.5% U.S. tariffs while preparing for the Trump-Xi summit. Historically, during the peak trade tensions of 2018 and 2019, the Cboe Volatility Index (VIX) regularly spiked above 25 whenever tariff threats escalated. We advise derivative traders to closely monitor these diplomatic shifts, as even minor changes in rhetoric will trigger sharp swings in currency and equity options.
In the foreign exchange market, we recommend using long volatility strategies on the offshore Yuan (USD/CNH), which is highly sensitive to Section 301 developments. In previous tariff rounds, the Yuan weakened past key psychological levels like 7.20 and 7.30, and current options pricing suggests similar pressure could build if talks stall. Buying short-dated USD/CNH call options offers a cost-effective way to hedge against a sudden breakdown in trade negotiations.
Implications For Equities And Commodities Derivatives
We also see significant opportunities in Chinese equity derivatives, specifically through liquid vehicles like the iShares China Large-Cap ETF (FXI). When the U.S. previously threatened major tariff increases, the Shanghai Composite Index fell nearly 20% in 2018, demonstrating how vulnerable these assets are to policy shocks. To navigate this, we suggest traders buy protective puts or establish bear put spreads to guard against sudden downside moves before the bilateral summit.
Furthermore, we must not overlook commodity derivatives, particularly industrial metals like copper, which often act as a proxy for global trade health. In past tariff disputes, copper futures experienced sudden drops of over 10% as markets priced in slower manufacturing activity. We suggest taking tactical short positions or buying out-of-the-money put options on industrial metals to capitalize on potential downside if the tariff implementation proceeds.
