The U.S.-China Trade Truce: A Short-Term Catalyst, but Inflation Risks Loom Large

The U.S.-China trade truce announced in May 2025 has sparked a wave of optimism among investors, with tech and industrials sectors surging on the promise of reduced tariffs and stabilized supply chains. Yet beneath this rally lies a precarious balancing act: while the 90-day tariff cuts provide a critical reprieve for companies like NVIDIA (NVDA) and Amazon (AMZN), rising inflation risks and stubbornly high bond yields threaten to undermine this fragile progress. For investors, the question is clear: Is this truce a sustainable tailwind, or merely a pause in a years-long trade war?

The Tariff Truce: A Sector-Specific Boost

The immediate winners of the truce are unmistakable. U.S. tariffs on Chinese goods have dropped from 145% to 30%, while China slashed retaliatory duties from 125% to 10%. For NVIDIA and AMD (AMD), the reduction in tariffs on semiconductors and consumer electronics has eased pressure on margins and inventory costs. shows their shares rising 12% and 9%, respectively, in the week following the deal. Similarly, retailers like Best Buy (BBY) and Amazon stand to benefit from lower costs on imported goods, with Best Buy’s stock up 8% on news of stabilized supply chains.

In industrials, companies like Caterpillar (CAT) and Deere (DE), which rely on Chinese steel and components, now face reduced headwinds. The suspension of China’s non-tariff barriers on critical minerals (e.g., lithium and cobalt) also eases bottlenecks for battery manufacturers and EV producers.

The Inflation Elephant in the Room

Yet the truce’s optimism is tempered by two critical risks: inflation and bond yields.

First, the March 2025 CPI data showed annual inflation at 2.4%, down from 2.8% in February—a modest slowdown, but not enough to ease fears of a hotter-than-expected economy. reveals that core inflation (excluding energy and food) remains stubborn at 2.8%, driven by shelter costs. With the April CPI report due on May 13, investors await clarity on whether energy price declines can offset rising rents and wages.

Second, the U.S. 10-year Treasury yield has held near 4.45%, a level that pressures equity valuations and signals skepticism about the Fed’s ability to tame inflation without sparking a recession. underscores how bond markets remain wary of the Fed’s next move.

The Truce’s Fragile Foundation

The trade deal’s 90-day window leaves unresolved structural issues: intellectual property disputes, China’s dominance in rare earth minerals, and U.S. concerns over fentanyl trafficking (the 20% “fentanyl tariff” remains in place). A breakdown in negotiations could reignite tariffs, destabilizing industries reliant on cross-Pacific trade.

Meanwhile, the PPI data for March 2025 shows final demand prices falling 0.4%, but intermediate goods costs—like steel and chemicals—are still volatile. For manufacturers, the truce’s benefits may be offset by rising input costs.

Investing with Both Eyes Open

The truce creates a tactical opportunity—but only for those willing to balance greed with caution.

• Buy the dip in tech and industrials, but set strict exit points. Companies with pricing power (e.g., Apple (AAPL), which can pass costs to consumers) or exposure to commodities (e.g., Copper Corp (CCU)) offer better downside protection.
• Avoid overexposure to tariff-sensitive sectors like semiconductors and textiles unless they have diversified supply chains.
• Hedge with commodities. The S&P GSCI Commodity Index, which includes energy and industrial metals, has risen 6% year-to-date, offering a buffer against inflation shocks.

The Bottom Line

The trade truce is a buying opportunity—but one with a short expiration date. While tech and industrials may rally in the near term, investors must stay vigilant. With inflation data and bond yields set to dominate headlines in coming weeks, the path forward hinges on whether the U.S. and China can turn a 90-day truce into lasting stability—or if investors will face a reckoning when the clock runs out.

The writing is on the wall: prioritize companies that can thrive in both boom and bust, or brace for turbulence ahead.