Unlocking Asymmetric Upside: How the US-China Tariff Truce Fuels Cyclicals, Industrials, and Tech

The May 2025 U.S.-China tariff deal, though temporary, has reignited hopes of a thaw in cross-Pacific trade tensions. With tariffs on $550 billion of goods slashed to 10% for 90 days—and non-tariff barriers like China’s rare earth export controls suspended—the S&P 500 now faces a critical inflection point. For investors, the truce isn’t merely a pause in the trade war—it’s a catalyst to capitalize on sector-specific opportunities where reduced trade barriers and Goldman Sachs’ upgraded forecasts create asymmetric upside.

The Case for Cyclicals: A Demand-Fueled Rebound

Cyclicals—sectors like machinery, construction, and consumer discretionary—are among the first beneficiaries of trade normalization. Goldman Sachs’ upgrade to "overweight" for cyclicals reflects their outsized exposure to global demand recovery. Consider Caterpillar (CAT), whose heavy equipment sales to Chinese infrastructure projects faced 30% tariffs as recently as April 2025. The tariff reduction slashes input costs and opens pricing power to recoup prior losses.

Valuation Gap Alert: Cyclicals trade at 12.5x forward earnings—20% below their 5-year average—despite Goldman’s prediction of a 4-5% revenue uplift by Q4 2025. The disconnect is stark. For investors, the risk-reward is asymmetric: near-term earnings beats could trigger multiple expansion, while downside risks are capped by improving macro data.

Industrials: Supply Chains Reboot

The tariff truce’s most immediate impact lies in supply chain normalization. Industrials like Boeing (BA) and Rockwell Automation (ROK), which rely on Chinese components for aerospace and robotics, now face reduced costs for critical inputs. Goldman Sachs estimates a $2.1 billion annual savings for Boeing alone from eliminated tariffs on titanium and avionics parts.

Near-Term Catalyst: Q2 earnings (July/August 2025) will test this thesis. Companies with exposure to China’s infrastructure spending (e.g., 3M (MMM) in construction adhesives) could report margin improvements as early as July.

Technology: The Semiconductor Silver Lining

While tariffs on semiconductors were retained at 20%, the broader tariff cut eases pressure on tech giants reliant on cross-Pacific supply chains. Intel (INTC) and AMD (AMD), for instance, benefit from reduced tariffs on non-chip components (e.g., packaging materials). More critically, China’s removal of rare earth export controls resolves a bottleneck for NVIDIA (NVDA) and ASML Holding (ASML), whose advanced chips and lithography tools require rare earth magnets.

Asymmetric Play: Tech stocks trade at 25x forward multiples—15% below their 2024 peak—despite Goldman’s "buy" call on Big Tech. The sector’s valuation gap is widening as investors underprice the long-term benefits of supply chain stability.

Risks: Geopolitical Whiplash

The 90-day deal is no permanent fix. Risks include:
1. Policy Reversal: China’s "unreliable entity" blacklists or U.S. IEEPA sanctions on fentanyl-related imports could reignite tariffs.
2. Supply Chain Lingering Costs: Even with lower tariffs, companies like Tesla (TSLA) face legacy issues from prior disruptions (e.g., battery shortages in Q1 2025).

Execute with Precision: Timing and Targets

The window to act is narrow. Key catalysts in the next 90 days include:
- July 2025: Q2 earnings reports from Boeing, Caterpillar, and Intel.
- August 2025: U.S.-China trade talks to extend the tariff truce beyond the 90-day window.

Portfolio Strategy:
- Buy: Cyclicals (CAT, DE), Industrials (BA, MMM), Tech (NVDA, ASML) at current valuations.
- Avoid: Tariff-sensitive sectors like autos (TSLA) until non-tariff barriers are resolved.

Conclusion: Seize the Trade Truce Dividend

The tariff deal’s 90-day window is a race against time—but for investors with a 6-12 month horizon, the asymmetry is clear. Goldman Sachs’ upgrades and sector-specific catalysts create a path to 20-30% upside in cyclicals, industrials, and tech. The risks? Manageable if paired with selective exposure and a watchful eye on geopolitical headlines.

The S&P 500’s next leg higher will be led by those sectors brave enough to bet on trade normalization. The question is: Will you be in the cockpit or the passenger seat?