Insights 
US President Donald Trump announced the maintenance of 10% tariffs on imports, with potential exemptions for favourable trading terms. New trade deals are expected soon, but a baseline 10% will remain.
A trade war occurs when countries engage in protectionism, leading to escalated import costs and living expenses due to tariffs. The US-China trade war started in 2018 when Trump imposed tariffs on China, accusing the country of unfair practices. China retaliated, impacting goods like US soybeans and automobiles.
Us China Phase One Deal
The US-China Phase One deal was signed in January 2020, requiring changes to China’s trade practices. However, the Coronavirus pandemic shifted focus away from the conflict. Despite changes in leadership, tariffs persisted under President Joe Biden, with some additional levies imposed.
The return of Trump to the presidency has rekindled tensions, with plans for 60% tariffs on China. This situation affects the global economy, disrupting supply chains and impacting Consumer Price Index inflation. It stresses the need for careful economic strategies, considering the potential repercussions on international trade and domestic markets.
The reintroduction of an aggressive tariff policy, especially one that floats a blanket 60% on Chinese imports, sends a clear signal of rising protectionism out of Washington. This isn’t just a political stance; it has direct knock-on effects for supply chain consistency and cost structures globally. What previously seemed like a historical trade blip is now back in focus, with Trump’s return fanning the embers of an unresolved standoff.
Market Implications
For those of us observing the recent market tone, there’s no avoiding the tightening implications that ripple through manufacturing input costs and outbound exports. When commodity flows are impeded or made overly expensive, the aftershocks don’t stay isolated. Manufacturing-heavy sectors will likely bear the brunt. These aren’t abstract hypotheticals—importers will need to reprice, and hedge contracts established on older rates may no longer match actual exposure.
Biden hadn’t dismantled the Trump-era tariffs in his term, which in hindsight suggested a bipartisan acceptance of economic containment strategy in relation to China. Additional levies became less of a dramatic shift and more of a continuation. But Trump’s renewed imposition, especially at a 60% level, marks a distinct escalation. Not just higher fees, but a structural distortion of trade assumptions baked into risk models for years. It cuts deeper than the 10% blanket now being advertised with so-called flexibility for terms—it resets the cost calculus for importers and exporters alike.
Inflation watchers might pick up an early flicker here. CPI data doesn’t move in isolation—tariff adjustments can skew the baseline if import-heavy sectors absorb higher costs too quickly or transmit them to consumers. Derivatives traders following CPI-linked instruments, such as inflation swaps or TIPS breakevens, should expect greater volatility and recalibrations as these policies shape forward curves differently than prior baseline assumptions. Any sharp upward movement in tariffs amplifies forward inflation estimates.
From our side, that means re-evaluating exposure in areas previously considered immune or low-beta to trade policy. Consumer durables, rare earths, and semiconductor component flows all risk renewed friction. Cross-market spreads tied to supply chain stability—like transport REITs and energy hedges—will also need watching. If China’s retaliatory measures mirror previous cycles, we could see a quick shift in agricultural futures as well, especially grains and livestock.
We should also consider that exemptions for ‘favourable trading terms’ may create erratic rotation across sectors that believe they’ll benefit—this brings optionality into focus. Short-term trading strategies may find edge by identifying these perceived winners, but mid-curve volatility will be introducing inefficiencies again.
Risk-adjusted strategies are likely to outperform directional ones in this context. Carry trades tied to trade-linked currencies—like the Australian dollar or the Korean won—should be revisited with fresh eyes. Vol surfaces hint at a pricing disconnect between perceived risk and actual policy execution timeline. That divergence presents an opportunity for tactical positioning, especially as the current administration hasn’t discounted further layers being added without much notice.
We must stay alert to how sudden policy rhetoric translates into executed orders. If the market starts pricing in full tariff applicability before implementation dates, correlation moves will follow among FX, USD-denominated commodities, and even safe-haven flows into Treasuries. It’s highly probable that the next CPI prints could briefly reflect those front-loaded pressures, thereby shifting short-end rate hike expectations yet again, even if temporarily.
In moments like this, derivatives serve less as hedging tools and more as reflections of immediate sentiment. Monitoring skew and gamma exposure in equity volatility should offer early clues. Particularly when tied to multinationals heavily exposed to Chinese production bases. This is where action gets its sharpest—less waiting, more hedging, and tighter margins for error.
Be ready for narratives to shift quickly from inflation risk to policy risk. And both need to be treated with equal weight.
