Insights 
VT 
US President Donald Trump anticipates reducing tariffs on Chinese goods if Beijing commits to limiting exports of fentanyl precursor chemicals. He aims to discuss various topics with China, including farmers and fentanyl, while uncertain if Taiwan will be addressed with President Xi.
The AUD/USD pair rose by 0.13% to 0.6593. Tariffs are customs duties imposed on imports to make local goods more competitive by giving them a price advantage over imports. Distinct from taxes, tariffs are paid at the point of entry by importers, unlike taxes, which individuals and businesses pay at purchase.
Debate on Tariffs
Economists are divided on tariffs: some believe they protect domestic industries, while others claim they increase prices and may lead to trade wars. Trump’s tariff strategy is intended to support the US economy and domestic producers, focusing on Mexico, China, and Canada, which made up 42% of US imports in 2024. Mexico was the leading exporter at $466.6 billion. Revenue from tariffs may be used to reduce personal income taxes.
The President’s comments about lowering certain tariffs on Chinese goods mark a significant shift from the tough rhetoric we have seen since the 2024 election. This suggests a more pragmatic approach to trade policy, potentially easing tensions that have been a drag on the market. We are now watching to see if this talk translates into actual policy de-escalation in the coming weeks.
Market volatility has been a key theme in 2025, with the VIX index consistently trading above 18 due to uncertainty over trade policy and its impact on inflation. We saw US CPI data for September 2025 tick up to 3.8%, partly attributed to the tariffs imposed earlier in the year. A tangible reduction in tariffs could cause implied volatility to fall, presenting an opportunity for traders to sell volatility through options strategies.
Currencies sensitive to global trade, like the Australian dollar, have reacted positively to this news. The AUD/USD pair has been under pressure for months, struggling to maintain gains amid fears of a trade-induced global slowdown. This potential breakthrough could provide a catalyst for further strength, making call options on the Aussie an interesting play on continued positive developments.
Impact on Specific Sectors
We should also focus on specific sectors that have been hit hard by supply chain disruptions. Tech stocks and industrial manufacturers, which have underperformed the broader S&P 500 throughout 2025, could see a significant relief rally. Traders might look at call options on semiconductor ETFs or specific companies like Nvidia, which was explicitly mentioned, as a direct way to trade this potential policy shift.
However, we must remember this is a targeted negotiation, not a complete reversal of the administration’s broader protectionist stance. The general tariff plan on goods from key partners like Mexico, which government data confirms was our top import source in 2024, remains a major background risk. Prudent traders should therefore consider maintaining some hedges, such as put options on broad market indices, in case this specific US-China deal falters.
