Insights 
VT 
US President Donald Trump recently expressed a desire for China to resume purchasing soybeans at pre-trade war levels. Trump is confident a deal on soybeans will be reached, potentially leading to reduced tariffs if China fulfils certain conditions.
Currently, there are developments regarding potential beef purchases from Argentina and tariffs on Colombia set to be addressed. Trump indicated that Russia holds approximately 78% of the Donbas region, and India faces hefty tariffs if it purchases Russian oil.
Trade War Impact
In market news, the AUD/USD observed a slight increase, trading 0.09% higher at 1.1664. The article describes a trade war as a conflict created by trade barriers, such as tariffs, leading to increased import costs and a higher cost of living.
The US-China trade war began in 2018 with tariffs imposed by Trump on Chinese goods, resulting in retaliatory tariffs from China. A Phase One trade deal in 2020 aimed to stabilize the situation.
With Trump’s return to office, the trade war tensions have reignited as he plans to implement 60% tariffs on China, contributing to global economic disruptions and impacting the Consumer Price Index inflation.
Given the renewed focus on US-China trade, we expect significant volatility in agricultural commodities. The uncertainty around a potential soybean deal means traders should prepare for sharp price swings in either direction. We can look at options strategies like straddles on November soybean futures (ZS) to profit from a large move, regardless of whether a deal materializes or talks collapse.
Market Strategy
The broader market’s “fear gauge,” the VIX index, is likely to climb from its current low levels. We saw the VIX spike above 30 multiple times during the trade escalations of 2018-2019, and the threat of 60% tariffs could easily repeat that. Buying VIX call options or futures can serve as an effective hedge against a potential downturn in our equity positions in the coming weeks.
The Australian dollar’s slight rise is deceptive and presents a potential opportunity for bearish positions. The AUD is highly sensitive to Chinese economic health, and with Australia’s iron ore exports to China already slowing, its strength seems fragile. We should consider buying puts on the AUD/USD, betting that any escalation in trade tensions will weaken the currency.
Talk of tariffs related to India’s oil purchases introduces new risks for the energy markets. We know from recent history that India became a primary buyer of Russian crude after the 2022 sanctions, importing over 1.5 million barrels per day. Any disruption to this flow would tighten global supply, making long call options on Brent crude a calculated risk on higher prices.
The specific mention of rare earths is a direct threat to the technology and electric vehicle sectors. China’s dominance in this area is well-documented, as it controls nearly 90% of the world’s processing capacity. We should look to hedge our exposure by purchasing puts on semiconductor ETFs, which are particularly vulnerable to these specific supply chain disruptions.
