Insights 
VT 
President Donald Trump criticised China for its protectionist trade measures, warning of potential trade restrictions if China imposes new rare earth mineral export controls and additional port fees for foreign container ships. Initially hopeful for improved trade relations, Trump soon threatened restrictions on goods demanded by China.
China’s avoidance of buying US soybeans was described as economically hostile. Trump mentioned the US might stop trading cooking oil and other goods with China, claiming self-sufficiency in producing such items. Regarding international relations, Trump discussed various countries and issues.
International Relations
He noted a fluctuating relationship with Xi Jinping and dissatisfaction with Spain, hinting at potential trade penalties. Trump commented on his relationship with Vladimir Putin, criticising Russia’s ongoing conflict and predicting an economic collapse. He also expressed dissatisfaction with the US government shutdown, suggesting it allowed for actions previously hindered and mentioned plans to propose a list of Democrat program closures by Friday.
The shifting tone on U.S.-China trade relations suggests we should prepare for an increase in market volatility. We saw this exact pattern during the trade disputes of 2018-2019, which led to sharp, unpredictable swings in equity markets. With the VIX, a key measure of fear, hovering at a relatively low 14.8 as of this week, buying options to protect against a sudden downturn appears cheap.
On the commodities front, the direct mention of soybeans presents a clear trading signal. November soybean futures have already slid 3% this week on this rhetoric, but we believe there is more room to fall if China follows through. We are looking at shorting soybean futures or buying put options on agricultural ETFs to capitalize on this targeted pressure.
Rare Earth Mineral Exports
China’s threat to control rare earth mineral exports directly targets the U.S. tech and defense industries. This situation creates a paired trade opportunity, suggesting long positions in non-Chinese producers like MP Materials (MP), while considering shorts on semiconductor ETFs that are heavily reliant on these imports. Back in 2021, similar threats caused a short-term spike of over 40% in some rare earth stocks outside of China.
In the currency markets, this level of geopolitical uncertainty typically strengthens the U.S. dollar. The offshore yuan is already testing the 7.45 level, and we expect it could weaken further if these trade restrictions are enacted. The scattered comments regarding Spain and Russia also create a bearish outlook for the Euro and the Ruble, making long U.S. dollar positions against those currencies attractive.
Finally, the threat of new Chinese port fees puts downward pressure on the global shipping sector. The Baltic Dry Index, which measures global shipping costs, has already declined 8% over the past two weeks, reflecting broader fears of a slowdown in trade. This environment supports taking short positions on major container shipping lines whose revenues are closely tied to U.S.-China trade volumes.
