Insights 
VT 
The United States and China are set to impose additional port fees on each other’s shipping companies, affecting goods from toys to crude oil. The US plans to begin this on October 14, while China has already started charging fees on US-linked vessels but exempts Chinese-built ships.
China’s Commerce Ministry announced countermeasures against five subsidiaries of the South Korean firm Hanwha Ocean, citing support of US investigations. These developments have contributed to the AUD/USD pair trading 0.53% lower at the time of reporting, at 0.6480.
Understanding Trade Wars
The concept of a trade war involves economic conflict due to protectionist measures, such as tariffs, leading to increased import costs. The US-China trade war began in 2018 over issues like trade practices and intellectual property, resulting in tariffs and counter-tariffs until a trade deal in 2020.
Donald Trump’s return to the US presidency has reignited tensions, with plans for 60% tariffs on China. This resurgence of trade hostilities affects the global economy by disrupting supply chains and increasing inflation, impacting consumer spending and investment.
The fresh port fees signal a new, unpredictable phase in the trade dispute. We are seeing volatility rise, with the VIX volatility index climbing over 8% this past week to breach the 21-point level. Traders should consider buying options to hedge against or speculate on sharp market swings in the coming weeks.
The Australian dollar is already showing strain, dropping below 0.6500 as a proxy for Chinese economic risk. We see similar pressure building on the offshore yuan (CNH), which is nearing the 7.35 mark against the dollar. Based on what we saw back in 2019 when similar tensions caused the yuan to weaken, further escalation could make long US dollar positions attractive.
Impact on Shipping and Commodities
These port fees directly target the shipping industry, which has been a major source of inflationary pressure. Global container freight rates, which had fallen nearly 90% from their pandemic peaks, have now jumped 15% in anticipation of these fees over the last month. We expect companies like Maersk and COSCO to face compressed margins, making put options on shipping and logistics ETFs a logical play.
Concerns over slowing industrial activity in China are weighing on commodities. WTI crude oil has slipped below $80 a barrel, and copper prices are down 4% this month alone. As China is the world’s largest consumer of raw materials, we believe selling futures or buying puts on industrial metals could be a prudent strategy.
US companies with heavy reliance on Chinese manufacturing or sales are particularly vulnerable right now. We are watching firms like Apple, which consistently derives nearly 20% of its revenue from China, and chipmakers who depend on the region’s supply chains. These stocks could see significant downside, making them candidates for protective put strategies or outright short positions.
