China’s top trade negotiator, Li Chenggang, expressed hopes for the US to establish conditions favourable for cooperation following discussions with a US agricultural delegation. Both countries are key agricultural partners, and there is an expectation for an improved collaborative environment.

The US-China trade relationship experienced shifts when US President Trump put formal emphasis on fentanyl controls and mutual tariff reductions. China announced it would remove certain tariffs on US agricultural products starting 10th November. China also noted the detrimental effects of unilateral protectionist measures on the global economic order.

Understanding Tariffs

Tariffs, which are duties on imported goods, aim to boost local competitiveness, contrasting with taxes that fund government services and are paid at purchase. Economists debate tariffs’ impact; some see them as protective, others as costly and conflict-inducing. In the lead-up to the 2024 elections, Trump articulated plans to use tariffs to bolster the US economy, targeting Mexican, Chinese, and Canadian imports, which made up 42% of US imports, with Mexico contributing $466.6 billion. Trump aims to use tariffs to lessen personal income taxes.

This article provides insights into the mechanics and global implications of tariffs, as well as future policy directions under Trump’s proposed economic strategy.

With China signalling a desire for cooperation and a plan to lift tariffs on US agricultural goods from November 10, we are seeing a clear, short-term opportunity. This is a significant shift, especially considering President Trump’s strong tariff stance during the 2024 campaign. The next few days leading up to that date will be critical for positioning.

We should look at call options on agricultural commodities, particularly soybeans, which are a major US export to China. We remember how soybean futures fell sharply during the 2018-2019 trade war, and this move could signal a reversal. Recent data from the CME Group shows a spike in call option volume for January 2026 soybean contracts, suggesting the market is already anticipating higher prices.

Market Implications

In the currency markets, this de-escalation makes long positions on the Australian dollar attractive, as it often acts as a liquid proxy for Chinese economic sentiment. Looking at recent performance, the AUD/USD pair has already bounced off its lows from last month when tariff rhetoric was at its peak. We can use options to manage risk while betting on further upside as trade relations improve.

This news should also dampen overall market volatility, which has been elevated. We have seen the VIX index, a key measure of market fear, dip below 15 this week for the first time in two months. Selling VIX futures or buying puts on volatility ETFs could be a prudent strategy if this positive tone continues.

This is also a positive signal for equities in the US agribusiness sector, such as machinery producers and grain traders. With US agricultural exports to China surpassing $28 billion in 2024 according to the latest Census Bureau data, a reduction in tariffs directly improves their bottom line. We anticipate upward revisions in earnings forecasts for these companies in the coming quarter.

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