Insights 
VT 
An agreement with China on a 90-day pause has been reached, decreasing tariff levels by 115%. Both sides are committed to this period, recognising the trade embargo was unsustainable. A mechanism for continued talks has been established, as neither side desires a decoupling.
The aim is more balanced trade and greater openness to US goods in China. Potential purchase agreements may arise as negotiations progress. Positive discussions are anticipated with the new mechanism in place.
Significant Developments
This represents a considerable step back from a trade embargo but depends on developments over the next 90 days. This timeline may be extended unless talks falter. Meanwhile, the US has seen the highest effective tariff levels since the 1940s, now regarded positively even with the latest reductions.
The agreement to pause further hostilities for 90 days has taken the urgency out of an increasingly volatile impasse. Tariff rates, which had soared to new heights earlier this year, have been rolled back sharply—by over a hundred percent. This scale of reduction reflects a shared understanding that neither economy benefits from a continued stand-off. In effect, both parties have agreed to hold their fire, at least temporarily, and see if something more stable can be built.
A formal structure has now been put in place to facilitate regular engagements. With this, negotiators have more to work with than just good intentions. Notably, the emphasis has shifted: it’s no longer just about getting leverage, but about maintaining trade flows that were visibly starting to buckle. While there is no formal pledge to improve specific tariff lines yet, the commitment to ongoing dialogue marks a break from what had become a reactionary cycle of retaliation and one-upmanship.
Traders will have been watching the rollback in tariffs with keen interest—not because of what they reverse immediately, but because of the implications for positioning in the weeks ahead. The earlier uncertainty, which kept volatility higher and risk premiums inflated, may recede briefly. This offers a window—albeit a narrow one—for activity calibrated more around direction than disruption.
Short Term Impact
The reference to potential purchase discussions from the Chinese side suggests targeted sectoral gains could lie downstream, especially for certain US exporters. That said, such agreements are likely to materialise slowly, and only if broader cooperation holds. The pressure on both finance ministries to show results without reigniting tensions will shape what gets signed—and what remains aspirational.
We should also be watching the short-term impact of what remains the highest effective tariff loading since the Second World War. While levels have come down, the overall tariff environment is still above historical norms. For valuation models, this means forward earnings assumptions in key export-heavy equities continue to need adjustments. There’s a temptation to assume we’re heading back to status quo ante, but policy environments do not reset overnight.
Hawley, by suggesting this pause could be used to shift focus to internal reform, has implied that the financial architecture around tariffs may be repurposed—rather than stripped away altogether. That opens up choices for how spreads are priced in certain futures contracts, especially where demand elasticity remains high.
For now, pricing in derivatives markets will need to reflect two truths: first, the escalatory path has been dialled down; second, the last 12 months have left scars that will not heal easily. Positioning into the new year should take into account the potential for renewed tact—not necessarily a full drawdown.
We are modelling various outcomes in these talks, with particular attention to where risk premiums may compress. If the mechanism mentioned delivers even modest progress, we believe implied volatility in options across some benchmark indices may soften. However, we remain watchful for any language from either capital that points to hardline stances returning under pressure.
The 90-day window, short as it is, may become a rolling gauge of trust, tested week by week. Reactivity will remain a feature—just differently expressed.
