Insights 
VT 
The United States has announced a new import tariff directed at Chinese goods, focusing on battery-grade graphite. The US Commerce Department plans to apply anti-dumping duties on these imports, with a final decision expected by 5 December.
Currently, the Commerce Department is under the leadership of Paul Dabbar, previously associated with JP Morgan & Co and the US Department of Energy. Tariffs serve as customs duties on imports to bolster local industries by offering a competitive advantage over similar foreign products.
Understanding Tariffs
Unlike taxes, which are paid at purchase, tariffs are paid at the port of entry by importers. The potential benefits and drawbacks of tariffs are debated among economists, with some arguing they protect local markets, while others caution they might lead to higher prices and trade conflicts.
Donald Trump, during his presidential bid, expressed his intention to utilise tariffs to boost the US economy and local producers. In 2024, Mexico, China, and Canada made up 42% of US imports, with Mexico leading at $466.6 billion. Trump plans to focus tariffs on these countries and use the revenue to reduce personal income taxes.
We believe the upcoming December decision on graphite will create short-term volatility in the electric vehicle and battery manufacturing sectors. Traders should consider purchasing put options on companies heavily reliant on Chinese battery components as a hedge against potential price spikes and supply disruptions. This move anticipates that the Commerce Department’s duties will directly impact production costs for US-based assembly.
Given that China currently produces over 65% of the world’s natural graphite, this tariff could significantly shift global supply chains. We see this as a potential catalyst for mining companies outside of China, particularly in allied nations. Therefore, exploring call options on Canadian or Australian graphite producers could be a strategic play on this long-term realignment.
Market Implications and Strategic Positions
The plans outlined by the former president to impose broad tariffs, including a reported 60% on Chinese goods, suggest a more aggressive future trade policy. We advise preparing for increased market-wide volatility, which could be hedged by buying VIX futures. This strategy is not sector-specific but a broader protection against the uncertainty of a potential trade war.
Looking back at the 2018-2019 trade conflict, we saw sharp downturns in industrial and technology stocks, alongside a rising VIX. History indicates that as political rhetoric around these measures intensifies, broad market index puts can be a valuable defensive tool. The market often reacts to the threat of tariffs well before they are ever implemented.
With Mexico and Canada representing such a large portion of US imports, any new duties would have significant ripple effects across the North American economy. We think monitoring currency pairs like the USD/MXN will be crucial, as trade friction often weakens the currencies of exporting nations. A long position on the US dollar against the peso could be a way to trade this specific geopolitical risk.
