China has engaged in discussions with European Union trade chief Maros Sefcovic, expressing a commitment to enhance trade, investment, and industrial collaborations with the EU. China indicated it prefers resolving differences through negotiation but is prepared to resist if the United States persists with unilateral actions, labelling US tariffs as a violation of other countries’ interests.
Currently, the AUD/USD pair has declined by 0.50%, trading at 0.6126. The ongoing US-China trade war began in 2018, triggered by tariffs imposed by the US, which China countered with its own tariffs on American goods.
The Phase One Deal And Its Aftermath
Tensions escalated until the Phase One trade deal was signed in January 2020, although the pandemic shifted focus away from the conflict. Under President Biden, existing tariffs remained in place, with some new levies added. The potential return of Donald Trump as President in 2025 promises to rekindle trade tensions, with Trump suggesting a 60% tariff on China during his campaign, signalling a continuation of trade disputes impacting global supply chains and inflation.
Given the latest exchange between Beijing and the European Commission, we note a firm stance continuing to develop beneath the diplomatic gloss. China’s language—while outwardly collaborative—carries a clear underlying message. It would prefer to settle disagreements through dialogue but is unambiguous in expressing its willingness to retaliate if pushed too far. Sefcovic’s meeting with counterparts signals that Brussels remains an active participant in shaping the commercial relationship, aware of both opportunity and risk.
For us, it is less about the specific words exchanged and more about what they imply for the medium-term trajectory of global trade policy. Traders should pay close attention to how EU industrial partners respond—not only in terms of rhetoric but policy guidance, as these will quietly influence risk premiums across supply-sensitive sectors.
The 0.50% drop in the Australian dollar against the US dollar and its current level around 0.6126 aren’t occurring in isolation. This move reflects more than transient sentiment—it mirrors renewed anxiety over trade fragmentation and its potential to disturb commodity routes, especially those in Asia-Pacific. The AUD often reacts early to shifts in global production and consumption flows, particularly tied to metal exports and China’s industrial demand. For those of us involved in derivatives, this dip is a noticeable reaction—and it’s unlikely to be the last.
Trade Wars And Economic Repercussions
Tensions initially began six years ago, sparked by White House policy under Trump that levied tariffs on Chinese imports. China, in turn, targeted US goods. The result was a multi-year exchange that reshaped trade balances and added complexity to global pricing models. That conflict cooled with the 2020 Phase One agreement, just before COVID-19 reshuffled priorities. However, despite a leadership change in Washington, aggressive trade tools have remained—and in some cases intensified.
More importantly for our positioning strategies, Trump’s potential reelection introduces added downside risk. Traders must now factor in renewed threats of 60% tariffs as more than stray campaign talk. Markets do not require confirmation to begin repricing scenarios. They already are. These suggestions add weight to the probability of policy actions that could alter demand forecasts, disrupt inflation readings, and shift the path of central bank responses.
We shouldn’t underestimate how this conflicting direction spills into pricing. Carry trades, especially those involving commodity-linked currencies like the AUD, are vulnerable. The same goes for interest rate-expectation derivatives—where reactions to shifting inflation probabilities will be felt first.
It becomes important, then, to stress-test positions against a scenario where trade barriers begin to harden once more across multiple theatres. Not just US-China, but increasingly involving Europe. Adjusting exposure requires recognising where hedges may break down. Supply routes are interconnected. If one falters, there’s a domino effect.
Monitor options vol in currencies tied to export-heavy economies. Watch freight indices for subtle reactions, as well as PMI releases over the next quarter—particularly for industrial components. These are often early signals before price dislocations appear. Volatility smiles in FX options may begin to flatten unusually or widen in unexpected pairs.
For now, Sefcovic’s presence confirms that Brussels intends to keep its seat at the negotiating table. But the pressure between opposing tariff philosophies—one aligned with multilateralism, the other with aggressive protectionism—isn’t stabilising. That tension, not talk, is what we are tracking most closely in models of short-term volatility risk.
