China’s Position of Power
Trump is considering imposing an additional 25% tariff on China due to its continued oil purchases from Russia. Although he was vague on details, he indicated this move might follow the 25% duties he recently announced for India for the same reason.
On Wednesday, Trump imposed a 25% tariff on Indian products, doubling an earlier levy. This action was in response to India’s continued oil trade with Russia, and Trump suggested other countries might face similar measures, with China as a possible target.
China holds a position of power and can potentially counter Trump’s threats. The situation underscores the ongoing tensions and complexities in international trade relations.
Given today’s date of August 6, 2025, these new threats against China are a clear signal to brace for market turbulence. We are looking at VIX options, as the CBOE Volatility Index could easily spike from its current low levels around 15. History from the 2018-2019 trade war shows that tariff talk alone can add 5 to 10 points to the VIX almost overnight.
We believe China’s most direct response would be to weaken its currency, making its exports cheaper to counteract any new duties. This means traders should watch the offshore yuan, with futures on the USD/CNH pair looking attractive. A move past the 7.35 level, which we haven’t seen since late 2023, could happen quickly if China decides to act.
Market Reaction Expected
For equity indices, the path of least resistance could be down, especially for the tech-heavy Nasdaq. Companies like Apple, which generated nearly 19% of its revenue from Greater China last year, are directly in the line of fire. We are considering buying out-of-the-money puts on the QQQ ETF as a hedge or a speculative bet on a sharp decline.
We also expect a response in the commodities market, with potential Chinese tariffs on U.S. agricultural goods. Soybean futures could see significant downward pressure, as China is the world’s largest importer and could easily pivot back to Brazilian suppliers as they did during the last trade war. In this environment of uncertainty, gold futures are likely to find support as a classic safe-haven asset.
The market should not dismiss these threats as mere talk, given what we just saw with India. When those tariffs were doubled last Wednesday, we saw India’s Nifty 50 index drop over 3% in two days and the rupee weaken against the dollar. This provides a recent playbook for how markets react to these sudden protectionist moves.
