Senior officials from China’s State Council and regulatory bodies plan to meet to address US tariffs imposed by President Donald Trump, which have reached 104%. They will discuss measures to enhance domestic consumption and support capital markets, including potential export tax rebates.
AUD/USD has shown recovery, testing the 0.6000 level and increasing by 0.64% at the time of reporting.
Us China Trade Conflict Background
The US-China trade conflict began in 2018, with the US imposing tariffs due to perceived unfair practices. The situation escalated until the signing of the Phase One trade deal in January 2020, but tensions resumed under President Joe Biden, who maintained and increased tariffs.
The election of Donald Trump in 2025 has reignited tensions, with plans for 60% tariffs on China. This renewed conflict affects global supply chains and investment, contributing to inflation and reduced spending.
The renewed escalation of tariffs, now climbing beyond 100%, has prompted high-level meetings within Beijing’s policy apparatus. With multiple agencies involved, and the State Council taking a lead role, plans appear to centre on stimulating domestic consumption and potentially softening the impact of overseas restrictions. Exporters seem set to receive stronger tailwinds—possibly via expanded tax rebates—aimed at keeping goods competitive abroad despite harsher trade barriers.
Meanwhile, the Australian dollar has staged a minor recovery against its US counterpart. The rebound, nudging upwards through 0.6000, marks a shift from previous selling pressure, possibly driven by optimism over regional policy responses or positioning flows adjusting to adjusted macro signals. A 0.64% climb might seem modest, yet such moves tend to reflect anticipation of fiscal or monetary nudges from Asia-Pacific economies responding to global friction.
Market Trading Implications
These tensions between Washington and Beijing go back several years, with actions first kicking off in 2018 when retaliatory measures spiralled following conflict over trade practices and intellectual property. Despite a partial thaw in early 2020, old wounds were never sealed. The return of Trump to the White House in 2025 has served to inflame existing divisions, especially with new proposals pegged at 60% tariffs—well above previous rounds. The outcome has been upheaval across production chains and underpinned a drag on discretionary consumption as costs ripple across borders.
For those of us trading volatility or spreads, especially in regions tied to commodity currencies or export-heavy economies, this isn’t just noise. It directly affects margins and correlation models. Marginal rate adjustments or anticipated liquidity support in East Asia could lead to a shakeout in positioning—even spill into other risk-off trades if US bond yields additionally adjust. Positioning through options may require more tail protection, given longer-cycle risks now returning as a live scenario, particularly because no swift resolution looks likely while both sides dig in.
In currency futures or options structures, reactivity may not be gradual. These events tend to cause sharp repricing once broader participants grasp the fiscal intent behind policy actions. Traders tend to price currency weakness or strength earlier than economic figures reflect, so those taking directional strategies might need tighter timing windows than in stable macro regimes.
As for equity derivatives, be wary of positioning where implied volatility remains suppressed. While equity markets can appear resilient in the short run, policy announcements—especially from China or unexpected trade developments—have a habit of resetting vols almost overnight.
In the current moment, we can see how trade friction isn’t just a political subplot—it’s feeding right into market repricing, from FX to global equities. It’s likely that Chinese policymakers will deliver measures designed to cushion the blow, especially for exporters and local firms exposed to slower global demand. Their decisions could prompt ripple effects across Asia-Pacific equities and currencies—watch correlation decoupling carefully, particularly if stimulus measures are more aggressive than consensus expects.
There’s also concern about knock-on impacts to inflation. Recall that tariffs, while framed as protectionist, inevitably raise import costs, which then bleed into consumer prices. This directly interacts with the bond market, and higher inflation risks may bring forward rate speculation again in the US. For us, this means yield curve sensitivity within macro option strategies becomes less theoretical and more directional as traders reassess forward rate paths.
Our desk has raised exposure to short-dated vol strategies, especially in currency pairings vulnerable to tariff risk and policy divergence. But even longer-dated derivatives may begin to see repricing if it becomes clear that macro stress is being embedded, not merely anticipated. In weeks ahead, hedges around Asian equity exposure and long commodity trades might need adjusting—not because of price moves yet, but because implied risk has shifted, and that always filters into liquidity and term structure.
