US-China Tariff Truce: A 90-Day Rally or the Start of Lasting Growth?

The U.S.-China 90-day tariff reduction agreement, effective as of May 14, 2025, has sparked a global market rally, with the S&P 500 futures surging 2.6% and oil prices jumping amid hopes of de-escalation. However, the truce’s narrow scope—reducing U.S. tariffs on Chinese goods from 145% to 30% (including a persistent 20% “fentanyl tariff”) and China’s rates from 125% to 10%—leaves systemic issues unresolved. For investors, this presents a tactical opportunity to capitalize on sector-specific rebounds while hedging against looming risks.

The Truce’s Immediate Impact: A Supply Chain Breather, Not a Fix

The pause in tariff escalation has temporarily eased pressure on global supply chains, particularly for industries reliant on cross-border manufacturing. Automakers, electronics firms, and apparel companies that had faced spiraling costs from prior tariffs now see reduced near-term volatility.

.

Yet, the truce’s terms are fragile. Critical sectors remain exposed:
- Semiconductors: The 30% U.S. tariff on Chinese-made chips endangers the $500 billion global chip market, with companies like Taiwan’s TSMC and South Korea’s Samsung still caught in the crossfire.
- Rare Earth Metals: China’s threat to resume rare earth export controls—a key leverage point—remains unresolved, keeping defense and tech supply chains on edge.

.

Agricultural Commodities: A Beacon of Stability

The truce’s timing coincides with a $10/kg milk price forecast for New Zealand’s 2024/25 season, per ANZ Bank—a figure that reflects robust global demand and supply constraints. With dairy prices up 4.6% in the latest Global Dairy Trade (GDT) auction, the outlook for agricultural commodities is bullish.

Investors should overweight dairy stocks (e.g., Fonterra, Arla Foods) and agricultural ETFs like the Teucrium Dairy Fund (DAIR). The ANZ forecast implies a $10 billion boost to New Zealand’s economy, with spillover benefits for Australia’s beef and Southeast Asia’s palm oil sectors.

The Structural Risks Lurking Post-Truce

While the 90-day pause may calm markets, three existential risks persist:
1. Tech Decoupling: U.S. restrictions on AI chip exports to China and Beijing’s countermeasures in semiconductors and cloud computing threaten long-term innovation.
2. Geopolitical Posturing: With U.S. presidential elections looming, both nations may re-escalate tariffs to score political points.
3. Trade Deficit Deadlock: The $1.2 trillion U.S. trade deficit with China remains unaddressed, ensuring ongoing friction over subsidies and intellectual property.

Investment Strategy: Overweight Asia-Pacific, Hedge with Defensives

• Buy Asia-Pacific Equities: Overweight sectors like autos (e.g., Toyota, Hyundai) and consumer discretionary (e.g., Alibaba, Samsung) that benefit from reduced tariff uncertainty.
• Hedge with Defensives: Allocate 15–20% to utilities (e.g., NextEra Energy), healthcare (e.g., Johnson & Johnson), and commodities (e.g., gold miners, ANZ’s dairy proxies).
• Avoid Tech Exposures: Steer clear of pure-play semiconductor firms until U.S.-China tech accords materialize.

Conclusion: A Truce, Not a Treaty

The 90-day tariff reduction offers a fleeting reprieve, not a solution. Investors should exploit the rally in Asia-Pacific equities but remain vigilant: the clock is ticking until August 11, 2025. With structural risks unresolved, hedging is essential to avoid the next wave of volatility.

Final Call: Go long on dairy and manufacturing—just don’t forget the umbrella.