US President Donald Trump announced a new 100% tariff on all goods exported from China to the US. This decision is in response to China’s stricter export licensing requirements on rare earth minerals. Implementing the tariff will be challenging, as the US government is shut down due to funding disagreements.

American markets remain closed for the Columbus Day weekend, but a shift in sentiment is expected when they reopen. Treasury yields increased before the weekend closure. Tariffs are levies placed on imports to give local producers a competitive edge, differentiating them from taxes. Tariffs are prepaid at entry points, while taxes are paid upon purchase and collected from individuals and businesses.

Economist Views On Tariffs

Economists are divided on tariffs: some view them as necessary to protect domestic industries, while others think they increase prices and risk trade wars. Trump aims to use tariffs to bolster the US economy and lower income taxes. In 2024, Mexico, China, and Canada comprised 42% of US imports, with Mexico being the largest exporter. Trump’s focus is on these nations for future tariffs.

With markets reopening Tuesday, October 14th, we should anticipate a massive spike in volatility. The CBOE Volatility Index, or VIX, which closed near 18 last week, will likely gap above 30 as institutional traders rush to hedge their portfolios against this new tariff threat. This is similar to the spikes we saw during the 2019 trade war escalations, where the VIX jumped over 40% in a single week.

We should be looking to buy put options on indices with heavy exposure to Chinese supply chains and sales, particularly the Nasdaq 100. Tech giants like Apple and semiconductor firms reported in 2024 that over 75% of their manufacturing and assembly remains in China, making them exceptionally vulnerable to a 100% tariff. Selling futures on the E-mini S&P 500 is another direct way to position for the expected downturn.

In the currency markets, we expect the offshore Chinese Yuan (CNH) to weaken significantly against the dollar, likely testing the 7.50 level from its close around 7.28. The Australian dollar, often used as a liquid proxy for the Chinese economy, is also a prime candidate for short positions. We anticipate a flight to safety, strengthening the US dollar and the Japanese Yen against most other currencies.

Commodity Market Outlook

Commodities are directly in the line of fire, and we can look to history for guidance. When retaliatory tariffs were implemented back in 2018, China specifically targeted US agricultural goods, causing soybean futures to collapse by over 20%. Given that US soybean exports to China had just recovered to their pre-2018 highs in the first half of 2025, we should expect a similar painful response and consider shorting agricultural futures.

This is a time to own volatility itself, not just use it to hedge. Buying call options on the VIX or going long VIX futures offers direct exposure to rising market fear. The cost of options will increase dramatically on Tuesday morning, so executing these trades early in the session will be critical to getting ahead of the repricing of risk.

We must also consider the uncertainty created by the ongoing US government shutdown mentioned in the announcement. This makes the immediate implementation of a new 100% tariff difficult, which could lead to sharp market swings as traders weigh the credibility of the threat. This suggests that any positions taken should be managed actively, as political headlines could cause rapid reversals.

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