U.S.-China Trade Truce Sparks AI Infrastructure Surge—But Watch Out for Retail and Pharma

The U.S.-China trade truce, now in its final weeks, has created a pivotal moment for investors. By reducing tariffs on $250 billion in goods and establishing a framework to curb trade tensions, the 90-day deal has reignited growth prospects in AI infrastructure while exposing vulnerabilities in sectors facing regulatory and pricing headwinds. For investors, the path forward is clear: pivot to companies enabling the AI revolution, but tread carefully in industries where policy risks loom large.

The AI Infrastructure Boom: A Tariff-Driven Tailwind

The tariff reductions have created a rare alignment of forces for companies at the vanguard of AI infrastructure. Lower duties on semiconductors, servers, and data storage components—key inputs for AI development—are slashing costs for firms like NVIDIA (NVDA), Super Micro (SMCI), and Palantir (PLTR). These companies are not just beneficiaries of cheaper inputs; they are also gaining access to Chinese markets, where demand for advanced computing hardware is surging.

Take NVIDIA, whose GPUs power 80% of AI training workloads globally. The 15% tariff cut on its exports to China alone could boost margins by 2-3%, according to analysts. Meanwhile, Super Micro’s modular server designs—critical for hyperscale data centers—stand to gain from reduced component costs and smoother cross-border supply chains.

The data shows NVDA’s stock has already rallied 40% since the tariff truce was announced, but the gains may only be beginning. The truce’s success hinges on whether the June 2025 review will extend these tariff cuts permanently, a scenario we consider increasingly likely given both nations’ reliance on AI-driven economic growth.

Retail: Caught in the Squeeze

While tech soars, retailers like Walmart (WMT) and American Eagle Outfitters (AEO) face a perfect storm. The tariff truce has not eliminated all trade barriers, leaving retailers vulnerable to rising input costs. Walmart’s Q1 earnings warned of “ongoing inflationary pressures,” with executives citing higher costs for imported goods despite the tariff reductions.

The real threat, however, lies in consumer behavior. As AI and automation reduce labor costs in manufacturing, retailers are passing along savings to shareholders rather than consumers—a strategy that risks alienating price-sensitive shoppers. American Eagle’s recent weak guidance, citing “softness in discretionary spending,” underscores the fragility of this sector.

WMT’s underperformance relative to the broader market signals investors’ skepticism about its ability to navigate this environment.

Pharma: Policy Risks Eclipse Tariff Gains

The pharmaceutical sector faces a separate set of challenges. While reduced tariffs on U.S. energy exports to China may lower input costs, the real overhang is domestic policy. President Trump’s renewed push to cap drug prices—a campaign promise resurfacing in his 2024 re-election bid—threatens companies like Pfizer (PFE) and Merck (MRK).

Even if the tariff truce holds, the industry’s profitability hinges on Washington’s actions. Analysts estimate price controls could cut earnings for top drugmakers by 15-20%, a risk not yet priced into their stocks.

The Investment Playbook: Go Long on AI, Short on Policy Headwinds

The trade truce has created a clear divide between sectors. Investors should:

1. Buy AI Infrastructure Leaders: NVIDIA, Super Micro, and Palantir are positioned to dominate the $300 billion AI hardware market. Their exposure to China’s tech ambitions—where the government aims to lead global AI innovation by 2030—adds a geopolitical tailwind.
2. Avoid Retail and Pharma: Until consumer spending stabilizes and policy risks subside, these sectors remain value traps.
3. Monitor the June Review: A permanent extension of tariff cuts would validate this trade thesis, while failure could trigger sector rotation back into defensive plays.

The U.S.-China truce is more than a temporary reprieve—it’s a catalyst for a new era of tech-driven growth. Investors who act now can secure positions in the companies building the future, while sidestepping sectors stuck in the past. The time to pivot is now.