US President Donald Trump stated that no trade deal with China will occur unless the trade deficit is addressed. He remarked on recent market volatility, claiming he was not intentionally causing a selloff.
US Commerce Secretary Howard Lutnick reiterated that tariffs would remain in place for the foreseeable future. Treasury Secretary Scott Bessent mentioned that over 50 nations have sought negotiations, but resolving issues with China may take considerable time.
Trade Conflict Background
The US Dollar Index (DXY) was down 0.44% at 102.89. The US-China trade conflict began in 2018 due to perceived unfair practices from China, resulting in tariffs from both sides.
The US-China Phase One trade deal was signed in January 2020, aiming to restore trust, but tariffs have continued under President Joe Biden. Trump’s return has rekindled tensions, with pledges to implement 60% tariffs on China, impacting global supply chains and consumer prices.
From what we’ve observed, the rhetoric from Trump suggests a hardened stance on trade discussions, with an emphasis on correcting what he describes as an unbalanced trade relationship. When he links the continuation of tariffs to the trade deficit, that’s not a soft opening bid—it positions tariff policy more as a condition than a negotiating tool. This isn’t posturing without consequence. Markets caught that hint, and nearly half a per cent downshift in the Dollar Index appears to validate it.
Lutnick’s firm tone reinforces the message: tariffs are not going anywhere soon. That further defines expectations on both import costs and potential squeeze on profitability for firms with exposure to raw materials or goods from East Asia. Bessent’s comments meanwhile—even as they suggest a willingness to engage—betray the slow-moving nature of any eventual resolution. Over 50 countries seeking negotiation speaks to broader concern, not momentum. For those of us tracking these discussions, that’s enough to dismiss the prospect of any near-term pivot in trade policy direction.
Implications for Markets
For traders in derivative markets, particularly those operating at high-frequency or delta-neutral levels, there are concrete implications: it narrows the path forward for clarity on US-China trade flows and keeps volatility pricing active. Short-term interest rate products and equity-linked derivatives may see heightened implied moves, especially around related macro data prints or policy statements. Risk premia is unlikely to retreat until there’s structural news on tariffs—and that doesn’t look to be in play yet.
It’s also worth noticing the tone around tariffs isn’t being softened, even with broader election-cycle rhetoric. By mentioning 60% duties, Trump has effectively set a floor on future uncertainty. That directly alters forward pricing assumptions in commodity-linked hedging and cross-border exposure instruments. Expect to see calendar spreads and vol skews reacting to a pricing-in of policy rigidity.
For desk strategy, this introduces spacing in time decay that demands precise reassessment. Vol buyers may find cover through directional short gamma overlays, while in rates-driven spaces, it’s not a stretch to anticipate fresh upward momentum on shorter curves if pricing pressure seeps beyond speculative impact. All of this feeds back into consumer inflation assumptions, and by extension, monetary response bets.
We must remember that this is not just a political spat; the ongoing silence on easing tariffs—even after a signed trade agreement—solidifies a more permanent tension. With China’s past response pattern including measured retaliatory tariffs, supply-side disruptions become a base case rather than outlier scenarios. It’s likely that longer-dated risk reversals and skew curves in commodity and logistics-linked names already started reflecting this.
Overall, what stands out is that no side is projecting softness, and each repetition of that hardline voice makes reactive adjustment—as opposed to proactive hedging—riskier. Where there’s a demand for recalibration is less in macro trend views, more in implied forward exposure and the concentration of convexity risk. That’s what we’d recommend keeping front of mind.
