Trump has stated that a 10% tariff is the starting point in discussions, suggesting that future trade negotiations might not focus on reducing this rate. This 10% figure presents potential difficulties in finalising trade deals, considering Trump’s history of shifting his positions on tariffs.

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Implications Of A 10 Percent Tariff

The existing commentary highlights Trump’s indication that a 10% tariff may serve not as an upper threshold but as a baseline in discussions. This implies a hardened stance on trade policy should he return to office. His approach, coupled with a tendency to recalibrate policy positions without much notice, introduces considerable unpredictability. For markets, such unpredictability tends to reduce transparency around supply chains, input costs, and future pricing assumptions. Moreover, Trump’s preference for using tariffs as a negotiation tool has historically impacted sentiment across bond yields, equity indices, and commodity-linked currencies.

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For traders looking at derivatives, this moment demands a recalibration of short-term bias and positioning. We would avoid structuring exposure on assumptions of diplomacy reducing tariffs. Instead, it’s safer to anticipate that headline risk will continue to drive volatility, especially in sectors or regions sensitive to cross-border taxes and retaliatory measures. Volatility surfaces across near-term expiries are already showing signs of steepening, particularly in trades tied to industrial input names and major exporters.

Strategic Considerations For Traders

Given that any policy development feeds directly into implied pricing, it makes sense to keep delta exposure relatively light unless directional conviction is high. Clearly, any re-pricing of tariffs would be felt broadly: not just in equity premiums but in forward swap rates and currency pair skew. Risk reversals, for instance, are probably a more efficient way to express views while capping downside. We’ve noticed increased issuance in weekly and monthly puts across trade-sensitive ETFs, which supports this view.

Separately, with seasonality offering less reliability given event risk, it’s worth paying closer attention to the term structure of volatility. Dislocations in funding markets or forward FX curves may offer more signal than macro indicators alone. Powell’s recent tone suggests limited tolerance for shocks, further narrowing the reaction time for institutional desks.

Over the next few weeks, we’ll be monitoring skew changes across most liquid index options while watching for signs of heavier hedging flows in futures. There’s still scope to capitalise on mispriced implieds, especially if macro traders return from the sidelines. Yet it remains important to be tactical. We’re trading what we see, not what we expect.

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