Navigating the New Trade Landscape: How the US-China Tariff Truce Redefines Global Supply Chains

The temporary suspension of higher US-China tariffs until August 2025 offers a fragile reprieve for global manufacturers and commodity traders. But beneath the surface of this "détente" lies a mosaic of sector-specific vulnerabilities and opportunities. For investors, the path to resilience—and profit—requires a granular focus on how steel, copper, and aluminum industries are adapting to trade volatility, supply chain shifts, and the looming shadow of S&P’s stress-test scenarios.

Steel: A Sector on the Brink of Collapse—or Reinvention?

China’s steel industry, which accounts for 15% of global GDP and 1.7 million jobs, faces a precarious balancing act. S&P’s stress tests reveal that if tariffs remain elevated beyond August, production could plummet by up to 75 million metric tons—a 7% drop—from already strained levels. Current HRC (hot-rolled coil) prices have fallen 3.6% since April, signaling oversupply.

The truce has bought time, but firms must act now. Steel producers are pivoting to markets like Vietnam and Indonesia, but rising US tariffs on these countries could reverse gains. The solution? Vertical integration. Companies like Baowu Steel are investing in scrap recycling infrastructure to reduce reliance on US imports. Meanwhile, investors should prioritize firms with exposure to domestic Chinese demand (infrastructure, renewables) or those hedging via offshore plants in Mexico or the ASEAN region.

Copper: A Resource Under Siege, But with Hidden Fortunes

Copper’s troubles are existential. US tariffs of 125% on scrap imports have forced smelters to turn to lower-quality Congolese "EQ" copper cathodes and Russian scrap. S&P’s Scenario 2—a full-blown trade war—would push copper prices 30% higher, rewarding firms with access to untaxed supply chains.

The silver lining? China’s push to build copper scrap recycling hubs could create long-term winners. Investors should target companies like Jiangxi Copper that are diversifying feedstock sources and partnering with African miners. For traders, the volatility in copper’s TC/RC (now negative $35/mt) presents a short-term play: short copper-heavy equities while buying futures contracts tied to politically stable supply routes.

Aluminum: The Stealth Winner of Trade Chaos

Aluminum’s 12% export dependency has insulated it from the worst of tariffs, but its true opportunity lies in substitution. As copper prices spike, firms are switching to aluminum for wiring and pipes—a trend already boosting demand in China’s EV and HVAC sectors.

The truce has also accelerated offshoring: Zhejiang Wanfeng’s North American plants avoid tariffs entirely. Investors should favor aluminum firms with processing trade expertise (e.g., Shandong Weiqiao) and those supplying the energy transition (batteries, solar frames). The sector’s 67% capacity utilization in PDH plants offers further upside if ethane-cracking projects secure tariff exemptions.

S&P’s Stress Tests: A Roadmap for Capital Reallocation

S&P’s scenarios highlight a stark divide between sectors:
- Scenario 1 (Trade Deal): Global equities stabilize, but US Treasuries weaken. Act now on steel firms with diversified markets (e.g., POSCO in Vietnam).
- Scenario 2 (Trade War): Copper and aluminum outperform as their prices decouple from equities. Overweight commodity ETFs (e.g., COPX, ALUM) and mining stocks with geopolitical buffers.

The Strategic Playbook for Investors

1. Diversify Geographically: Allocate to firms with production in Mexico, Southeast Asia, or the EU—regions outside the tariff crosshairs.
2. Bet on Domestic Demand: China’s infrastructure spending (high-speed rail, clean energy) insulates aluminum and steel from export volatility.
3. Leverage Volatility: Use options to short overexposed steel equities while going long on copper futures tied to African or South American mines.
4. Monitor the De Minimis Revocation: The end of small-shipment exemptions means logistics firms like FedEx or DHL may see increased volume—if they can navigate compliance costs.

Conclusion: The Détente Is a False Calm

The August 2025 deadline is a ticking clock. With S&P’s models showing a 0.4% permanent GDP scar even under a “best-case” deal, investors must act now to insulate portfolios. The sectors most primed for gain are those that have already begun rewiring supply chains—geographically, politically, and technologically. This is no time for passive holding. The next 100 days will decide whether this truce becomes a turning point or the calm before a storm.

The window to position for this new reality is closing. Move swiftly—or risk being left stranded in a world where supply chains are no longer global, but geopolitical battlegrounds.