Insights 
VT 
US President Donald Trump recently stated that China’s economy “will be fine” and expressed a desire to assist rather than harm China. While tariffs on China remain planned for 1 November, Trump noted this date as “an eternity” and expressed optimism about future relations with Chinese President Xi Jinping.
US Vice President J.D. Vance described Trump as a reasonable negotiator with China, while China’s Commerce Ministry expressed readiness for talks, despite being unafraid of a tariff war. Market reactions included a decline in the US Dollar and subsequent gains in US equity futures, viewed as a “Trump Always Chickens Out” scenario.
Understanding Tariffs And Their Impact
Tariffs, which are customs duties on certain imports, aim to make local producers more competitive. They differ from taxes, with tariffs paid at entry ports and taxes during purchases. Economists debate the benefits, as tariffs may protect industries or lead to trade wars and higher prices. Trump’s tariff strategy, particularly focusing on Mexico, China, and Canada, aims to bolster the US economy and lower personal income taxes using tariff revenue. In 2024, these three countries accounted for 42% of US imports, with Mexico being the largest exporter.
We are seeing the market react positively to the mixed messaging, pricing in a scenario where the president softens his stance on tariffs. The rebound in US equity futures and the dip in the US dollar show that traders are betting on a repeat of past events where tough talk did not lead to the most severe action. This creates a potentially fragile environment as we approach the November 1 deadline.
The current market calm has pushed the CBOE Volatility Index (VIX) down to around 14.5, which is low by historical standards for a period with so much policy uncertainty. We see this as an opportunity, as the low VIX makes it cheaper to buy protection using options. Derivative traders should consider that the cost of insuring against a market downturn is currently on sale.
Looking back at the 2018-2019 period, we remember how quickly market sentiment could shift based on a single policy announcement or tweet regarding China. The current belief that this is another “TACO” instance ignores the potential for an unpredictable outcome. We believe the market may be underestimating the risk of tariffs actually being implemented this time.
Leveraging Market Strategies Amid Tariff Tensions
Therefore, a prudent strategy is to purchase put options on major indices like the S&P 500 and Nasdaq 100 with expirations in early or mid-November. These positions act as a direct hedge, offering significant upside if the administration follows through with the tariff plan and markets correct sharply. The current low volatility environment provides an attractive entry point for such protective plays.
The currency market also presents opportunities, as the US dollar weakened on the conciliatory remarks. A surprise implementation of tariffs would likely trigger a flight to safety, strengthening the dollar. Traders could look at buying call options on the US Dollar Index (DXY) or against currencies of trade-dependent nations.
We cannot ignore the scale of what is at stake, with US imports from China totaling over $430 billion in 2024. Key sectors like technology and consumer retail remain highly exposed to supply chain disruptions and price increases from tariffs. Options strategies focused on ETFs representing these sectors could provide a more targeted way to navigate the coming weeks.
While the “eternity” comment suggests flexibility, the November 1 date remains a critical catalyst. We advise structuring trades to capture volatility around this specific timeline. The next few weeks are not a time for complacency, but rather for strategic positioning to protect against a sudden shift in policy.
