Will the U.S.-China Trade Truce Keep Big 3 Automakers Rolling?

The U.S.-China trade deal announced on May 12, 2025, has sparked a brief but vigorous rally in shares of General Motors, Ford, and Stellantis, with each company’s stock surging by 8–15% in the 48 hours following the agreement. Investors are betting that the 90-day tariff suspension will ease cost pressures and stabilize supply chains for automakers reliant on Chinese components. But beneath the optimism lies a precarious reality: the deal merely pauses the escalation of trade tensions while leaving unresolved structural challenges that could reignite a crisis. Is this rally a sustainable rebound—or a fleeting illusion?

The Cost Relief: A Lifeline or a Band-Aid?

The tariff suspension’s immediate benefit is clear. The U.S. slashed its retaliatory tariffs on Chinese goods from 145% to 30%, while China reduced its levies to 10%. For automakers, this means lower costs on imported parts, especially for electric vehicle (EV) components like batteries and semiconductors. Analysts estimate GM alone could save $4 billion–$5 billion annually on reduced tariffs—a windfall that could offset rising labor costs and supply chain bottlenecks.

But the relief is far from comprehensive. Section 232 tariffs, the 25% duties on steel, aluminum, and automotive imports, remain in place. These foundational levies—originally imposed under Trump—add $1,000–$2,000 to the cost of every vehicle produced in the U.S. with imported steel. China’s retained 10% tariff further complicates exports to its market, where automakers face pressure to localize production to avoid duties entirely.

Supply Chain Vulnerabilities: Still Exposed

Automakers’ reliance on Chinese suppliers remains a critical weak point. Over 60% of global EV battery production occurs in China, and U.S. automakers source critical minerals like lithium and cobalt from Chinese-controlled supply chains. While the tariff suspension eases immediate costs, unresolved issues like fentanyl-related duties—retained under the IEEPA—threaten to reignite tensions. If the U.S. reactivates these sanctions or China retaliates by tightening export controls on rare earth metals, automakers could face sudden disruptions.

Stellantis, for instance, sources 30% of its EV batteries from Chinese manufacturers, while Ford’s $11 billion investment in EV factories hinges on stable access to low-cost components. The trade deal’s narrow focus on tariff rates does nothing to address these deeper dependencies.

Geopolitical Risks: The Clock is Ticking

The 90-day suspension creates a “test period” for negotiations, but both sides have shown little appetite to compromise on core issues. China has made clear it will not dismantle its industrial subsidies or halt forced technology transfers—a red line for the U.S. Meanwhile, the White House faces domestic pressure to maintain tariffs on national security grounds.

Analysts like Alicia García Herrero warn that the deal is merely a “more civilized way to divorce,” with neither side willing to resolve systemic imbalances. A renewed escalation after 90 days could erase gains, particularly if the U.S. reimposes 145% tariffs or China hikes its levies beyond 10%.

The Investment Play: Tactical Bull or Bear?

The rally in Big 3 automakers reflects a bet that the pause will buy time for companies to diversify supply chains or secure alternative suppliers. For investors, this presents a high-risk, high-reward scenario:

1. Buy the Dip: Short-term traders might capitalize on the volatility, targeting dips below recent lows.
2. Hedge with Options: Use put options to protect against a tariff re-escalation shock.
3. Focus on Domestic Exposure: Prioritize companies like Ford (which derives 40% of revenue from U.S. markets) over those with heavy China exposure.

However, the risks are asymmetric. If the truce fails, automakers’ valuations could plummet as costs surge and trade barriers return.

Final Verdict: Proceed with Caution

The U.S.-China truce offers a temporary reprieve but no lasting solution. While the tariff suspension delivers immediate savings, the sector’s long-term resilience depends on resolving supply chain fragility and geopolitical tensions. Investors should treat the rally as a tactical opportunity, not a buy-and-hold signal. Diversify geographically, hedge against downside risks, and prepare for the next chapter in this unresolved trade war.

The road ahead is bumpy. The question is: Are you ready for the next pothole?