Insights 
VT 
United States Treasury Secretary Scott Bessent reported ongoing negotiations with 17 trading partners but noted China is not currently involved. Bessent mentioned potential announcements of trade deals with major partners in the near future.
The US Dollar Index experienced a decrease, dropping by 0.4%, reaching 99.37. This decline occurred despite Bessent’s comments.
Understanding Tariffs
Tariffs are customs duties on merchandise imports, designed to aid local producers by offering price advantages. While both tariffs and taxes generate revenue, tariffs are paid by importers at entry ports, unlike taxes paid at purchase time.
Economists are divided on tariffs; some believe they protect domestic industries, while others think they could raise prices and trigger trade wars. Former US President Donald Trump emphasized tariffs to boost the US economy, focusing on nations like Mexico, China, and Canada.
In 2024, these countries accounted for 42% of US imports, with Mexico leading at $466.6 billion. Trump’s plan included using tariff revenue to cut personal income taxes.
What the initial reporting shows is a shift—or perhaps a recalibration—in the direction of American trade policy, particularly when it comes to its relations beyond China. Bessent’s remarks point to an expanding patchwork of bilateral dealings, ideally to be concluded shortly, aimed at strengthening economic ties with select nations. It is telling, however, that China remains outside this current discussion, suggesting either a tactical pause or unresolved tension.
Despite these efforts, the reaction in currency markets betrays little confidence—at least for now. The US Dollar Index falling by 0.4% to 99.37 does not inspire an optimistic interpretation. Normally, optimism around expanded trade, especially from a major economy, should translate into stronger currency demand. Instead, what we witnessed is a dip, which hints that investors are either underwhelmed by the details shared or sceptical of the near-term benefit to the broader economy. From our end, this sort of movement tends to follow an underlying worry about either inflation dynamics, deficit impacts, or the credibility of future deal enforcement.
The Role of Tariffs in Trade Strategy
What has been quietly but firmly placed underneath the announcement is a rekindling of tariff-based strategy. The explanation serves to remind audiences of the basics—tariffs are not consumer-facing taxes but charges levied before goods even enter the domestic market. They shield certain industries by skewing price advantages in their favour. But that is only one side of the story.
Where economists stand remains split. There’s the view that industries can stay afloat under the protective pressure of import duties. And there’s the counterpoint: that such moves, while helpful to one part of the economy, often raise input costs for others, pulling inflation upwards and endangering purchasing power. Some of us will remember the last administration’s resolve to use tariffs as blunt instruments—on neighbours and rivals alike—in an attempt to generate fiscal space for domestic tax cuts.
Interestingly, by 2024, Mexico had outpaced China and Canada as America’s top import source, racking up nearly $467 billion in trade. This aligns with prior strategy but also adds pressure on trade frameworks to stay functional and predictable. Any tweaking of tariffs, or even the suggestion of going back to a more insulated system, could once again fray commercial ties unless carefully orchestrated.
With negotiations heating up and certain blocs now more consequential, volatility in pricing for futures, especially those linked to transport, energy, and industrial commodities, could be more pronounced than in previous quarters. Trading firms with exposure to exchange-rate dependent products may see further differentiation in premiums and discount structures. Meanwhile, option flows are likely to tilt in favour of hedging mechanisms over outright directional plays, given the uncertainty over which deals reach final form and what fine print they might carry.
Risk models should be updated to reflect this asymmetry: if tariffs do return as a major policy plank, early visibility on which sectors face higher fees could mean the difference between straddling risk and walking into it. Our teams are adjusting ratio spreads accordingly and watching for any clear correlation shift between dollar movement and major imported good pricing. Timing reactions to announcements will matter more than usual.
In short, where clarity is absent, we plan for divergence. And in a backdrop where trade talk builds but yields little market lift, pricing in resilience takes precedence over betting on transformation.
