The Chinese Commerce Ministry announced China and the US are enhancing efforts to implement London framework outcomes. China is currently reviewing export licence applications for controlled items as per legal standards.
The US communicated its intention to cancel restrictive measures against China, indicating steps towards improved economic and trade relations. The London framework is seen as a product of diligence, emphasising dialogue and cooperation.
Market Response To Developments
The Chinese proxy, the Australian Dollar, showed little response, trading 0.08% lower at 0.6570. A trade war is described as economic conflict marked by trade barriers like tariffs, raising costs and impacting living standards.
The US-China trade war began in 2018 with US-imposed trade barriers due to claims of unfair practices. Tariff measures remain in place under President Biden, despite an initial Phase One trade deal in 2020 aimed at stability.
Donald Trump’s 2025 presidency signaled renewed economic tensions, with proposed 60% tariffs and tit-for-tat policies poised to affect global economic dynamics, underscoring possible impacts on consumer prices and investment.
While headlines of improved ties are encouraging on the surface, market reactions have been quieter than what one might expect. Despite a formal statement from Beijing and Washington pointing towards a renewed working relationship—especially concerning export licence reviews and a possible easing of restrictions—markets have yet to move with any meaningful conviction. For example, the Australian Dollar, often used as a stand-in for sentiment around China, barely flinched. It briefly dipped but carried on broadly unmoved. That kind of price reaction tells us something: traders aren’t pricing in fast-moving changes.
It should be stated plainly. We are not looking at a fresh détente. The US still maintains broad tariffs originally put in place back in 2018, and they’ve been largely preserved through multiple administrations. Biden’s team might be discussing cooperation more openly than predecessors, but the tariff architecture hasn’t meaningfully shifted. It’s like window dressing until something more definitive appears.
Impact Of Proposed Tariffs
More pressing is the forward guidance implied by Trump’s campaign discourse. The proposed tariff structure of up to 60% would be a step change. That’s not minor tweaking—it’s a sharp escalation compared to where things stand now. Markets are highly sensitive to these threats, because they alter everything from margin assumptions to supply chain strategies. For us, this doesn’t merely suggest growing tensions; it calls for scenario mapping, pricing stress, and volatility curve adjustments.
Volatility premiums will likely remain sticky on China-sensitive assets. Equity derivatives linked to Chinese tech names might not budge dramatically yet, but vol skew readings should be monitored—we’re already seeing higher demand for downside protection expiring late 2024 into Q1 2025.
From our seat, there’s a clear takeaway. No matter what PR optics emerge from international dialogues, the underlying risk remains skewed towards disruption. Tail hedging shouldn’t be overlooked, and rolling short-dated risk reversal positions offers a prudent stance heading into the later quarters of the year. That’s especially the case if campaign rhetoric morphs into policy.
It would be shortsighted to interpret the regulatory cooperation as a reliable pivot towards easing. The recent overtures might merely buy time. We should consider the possibility that these reviews from China are less about thawing relations and more about demonstrating procedural compliance while preparing for alternate channels. If those reviews stall or start reflecting protectionist leanings, commodity-linked currencies could show more reactive downside.
We need to be aware of positioning, especially around the US Dollar basket versus Asian FX, where ambiguity around tariffs is being underpriced. Historical precedents show traders overestimate correlation sentiment and underestimate real policy lags.
The importance lies not in statements, but in policy timelines and execution. Interventions can be announced, but until they hit import ledgers or customs systems, they may not flow through risk assets. Those trading options should consider this when selecting strike ranges. Delta hedging strategies might need to be more dynamic in adjusting to headline risk days, particularly during bilateral meetings or unexpected regulatory commentaries.