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The US Treasury has developed a new option for tariffs that President Trump may consider. This involves a general tariff increase on a select group of nations, which would not reach the proposed 20%.
According to sources familiar with the matter, this plan emerges shortly before an anticipated announcement. There is speculation that further tariff proposals could be introduced in the coming days, indicating ongoing changes and uncertainties surrounding tariff decisions.
Strategic Tariff Adjustments
The US Treasury’s approach suggests a measured strategy, allowing some flexibility in tariff application without committing to the previously discussed higher rates. This alternative, involving targeted increases against particular nations but staying below 20%, reflects a shift towards more calculated economic positioning. While not as aggressive as initial floated figures, it still carries the potential to affect cross-border pricing structures and medium-term positioning across financial instruments sensitive to trade volume expectations.
Mnuchin’s department appears to be preparing groundwork rather than executing immediate fiscal changes. This preparation points to either internal hesitation or controlled signalling aimed at foreign governments and investors. From our standpoint, this implies a short window of reduced volatility, though that is unlikely to extend far into the next quarter.
Yields on medium-duration Treasuries are typically among the first to digest such moves. When discussions like these leak ahead of formal announcements, larger funds tend to pre-emptively recalibrate, thereby affecting liquidity along certain points of the curve. We might see minor shifts in three- to five-year notes, and these should not be treated as noise—forward volatility pricing may widen in response.
The positioning in futures markets has not yet fully reflected the scope of what’s proposed; the minor rise in open interest shows only partial adjustment. For those of us watching trade correlations, especially between US industrial equities and short-term rates, this creates short-lived asymmetries which can be used tactically. Any delay in presidential confirmation could cause a sudden reversion across sectors disproportionately exposed to tariff sensitivity.
Impacts On Derivative Markets
Lighthizer’s track record would suggest that speculation alone does not firmly support a commitment to action, but rather the possibility of increased bargaining leverage. This undermines any domestic certainty, and yet opens a narrow space for directional positioning among contracts that price in supply chain bottlenecks or input cost shifts.
With tariff percentage levels distinctly below earlier threats, the net forward risk premium may deflate temporarily. That said, we should be watching options pricing on both the USD and regional Asian currencies—there may be hints there before broader sentiment shifts. Timing here is key and possibly tighter than usual.
In terms of action, any plans that rely on post-announcement confirmation may already miss the adjustment that’s quietly, and gradually, occurring. We’ve observed before that tariff discussions result in pricing shifts before they become visible in traditional equity flows. A proactive approach—readjusting implied volatility expectations, easing off delta exposures on impacted sectors, and margin-checking on leveraged derivatives—could be far more rewarding in this type of policy waiting game.
As for what happens across emerging market derivatives, especially in exporters with soft currency buffers, we expect the reaction to be more acute and less forgiving. These types of tariff murmurings often lead to positioning rebalances that widen basis spreads to unaffordable levels for smaller counterparties. That asymmetry may be tracked shortly in calendar rolls and could offer early positioning signals, particularly where there’s slippage between implied and realised volatility.
