Commerce Secretary Howard Lutnick discussed various trade and economic topics on CNBC. He mentioned that China’s chip sales were included in an agreement about rare earth magnets, aiming for the US to stay ahead in technology by ensuring continued sales to China.
Lutnick emphasised the US effort to promote its standards for artificial intelligence globally. He clarified that the US doesn’t charge tariffs on raw steel imports, only on finished products, as part of ongoing tariff policies.
Reversing The Tariff Impact
Historically, tariffs affected the US, leading industries to move overseas, but Lutnick noted that Trump’s administration is attempting to reverse this trend. He highlighted efforts under Trump’s guidance to secure beneficial deals for Americans.
Lutnick’s comments lay out a clear playbook, and our job is to price in the friction. The strategy is to keep China on the back foot, technologically dependent and paying for the privilege. This isn’t a “free trade” environment; it’s a managed conflict, and every derivative position needs to reflect that.
We see the strategy: force-feed them our high-end tech to maintain leverage on other fronts, like rare earths. Look at the numbers. China’s semiconductor imports in the first quarter of 2024 actually rose 2.8% in value, even as volumes fell. They’re being forced up the value chain, buying the very chips from companies like Nvidia that we control. The play here is clear: long-dated call options on key US chip designers who benefit from this forced dependency, but hedged with short-term puts to play the inevitable geopolitical headline risks that flare up.
His point on steel isn’t subtle. It’s a roadmap for protecting domestic producers of finished goods. We just saw the White House propose hiking tariffs on certain Chinese steel and aluminum to over 25%. This isn’t theoretical. The last round of Section 232 tariffs in 2018 directly boosted pricing power for U.S. Steel and Nucor. With the ISM Manufacturing PMI recently slipping to 48.7, signaling contraction, the political will to protect these industries is high. We should be looking at volatility plays on the Materials Select Sector SPDR (XLB). Buying straddles on domestic producers ahead of further trade announcements seems prudent, as they’ll move sharply in either direction on policy news.
Volatility In Trade Deals
And when he says Trump gets “the best deals,” we hear one thing: volatility. We all traded the 2018-2019 period. Markets didn’t move on earnings; they moved on policy announcements. A single statement could swing the S&P 500 by 2%. This environment makes the CBOE Volatility Index (VIX) our primary hedge. We should be buyers of VIX futures or call options as a portfolio-wide insurance policy. The cost of protection is cheap relative to the potential downside of a trade negotiation that goes sideways overnight.
The focus on US standards for AI is the long game. Whoever writes the rules, owns the ecosystem. The moves by the National Institute of Standards and Technology to establish a global AI framework directly support this. The derivative play here is less about next week’s price action and more about owning the companies embedded in that ecosystem. This means LEAPS (Long-Term Equity Anticipation Securities) on the tech giants and cybersecurity firms that will build, implement, and police these new American-led standards.
