US trade representatives Greer and Bessent recently met with Chinese officials. Discussions included details on a potential pause in tariffs on Chinese goods, with a 90-day extension being one option for consideration by Trump.
Further discussions did not result in changes to export controls. If Trump decides not to extend the pause, tariffs could revert to April 2 levels or another level of his choosing. The U.S. expressed concerns over China’s purchase of 90% of Iranian oil, though topics such as TikTok and a surplus in Chinese manufacturing were not addressed.
Stock Market Reactions
Stock markets showed a decline; the Dow Industrial Average fell by 0.42%, the S&P by 0.21%, and the NASDAQ by 0.26%. In the U.S. Treasury market, yields neared their lows, with the 2-year at 3.887% (down by 3.3 basis points), the 5-year at 3.920% (down by 6.2 basis points), the 10-year at 4.344% (down by 7.6 basis points), and the 30-year at 4.881% (down by 8.3 basis points).
The decision on tariff pauses lies with Trump, which will influence whether tariffs remain on hold or revert to previous levels. A future meeting with China is likely in 90 days.
Based on these latest comments, we see a fog of uncertainty hanging over the market. With the August 12 tariff deadline approaching, the lack of a clear agreement from the talks creates significant risk. The final decision rests with the President, leaving traders on edge for the coming weeks.
This kind of uncertainty is exactly what drives volatility, which is where derivative traders should focus. We are watching the CBOE Volatility Index (VIX), which has been hovering near a relatively calm 15. This suggests the market may not be fully pricing in the risk of tariffs returning next month.
Market Protection Strategy
Therefore, we believe it is prudent to consider buying protection over the next two weeks. Purchasing put options on major indices like the S&P 500 (SPX) or the Nasdaq 100 (NDX) can act as insurance. These positions would profit if the market sells off on negative tariff news after the deadline.
The fundamental disagreements mentioned, like the manufacturing surplus, remain a major headwind. Recent data from the U.S. Census Bureau shows the trade deficit in goods with China was over $72 billion in the first quarter of 2025. This ongoing imbalance reinforces the administration’s tough stance.
We only need to look back to the 2018–2019 period to see how this can play out. During that trade war, the S&P 500 saw several sharp corrections of over 10%, with volatility spiking above 30. A similar “boomerang” of tariffs could easily trigger a repeat performance.
With treasury yields falling, the bond market is already signaling a flight to safety. This move strengthens the case for defensive positioning in equities. The drop in yields shows that big money is preparing for a potential economic slowdown if trade tensions escalate.
This situation also has clear implications for the currency markets. A risk-off move would likely boost the US dollar as a safe haven. We would expect to see weakness in currencies tied to global trade and China, such as the Australian dollar (AUD).
