Navigating the Trade Truce: Strategic Plays Amid Tariff Uncertainty

The U.S.-China 90-day tariff truce, announced in May 2025, has injected cautious optimism into global markets, with the S&P 500 rallying 2.6% and oil prices surging $1.60/barrel. Yet beneath the surface, unresolved trade tensions, a Moody’s credit downgrade, and lingering economic risks demand a nuanced investment strategy. This article outlines how to capitalize on near-term truce optimism while hedging against tariff resurgence and rising interest rates—a dual approach critical for navigating today’s precarious landscape.

The 90-Day Tariff Truce: Tactical Opportunity or False Dawn?

The temporary reduction of U.S. tariffs on Chinese goods from 145% to 30% (comprising a 20% fentanyl-related levy and 10% baseline) has eased immediate pressures on businesses. Retailers like Walmart and Target celebrated reduced input costs, while tech firms such as Intel and NVIDIA gained respite from supply chain bottlenecks. However, the truce leaves core disputes—IP theft, industrial subsidies, and non-tariff barriers—unresolved.

Key Risk: The 30% tariff ceiling still exceeds pre-2023 levels, and China retains punitive export controls on rare earths and semiconductor materials. A relapse to 145% tariffs post-90 days could trigger supply chain chaos, as small businesses like board game publisher Connor Alexander warn: “If my shipment arrives one day late, I’m bankrupt.”

Strategic Sectors to Play Now

Consumer Discretionary: Selective Plays Amid Tariff Absorption

Retailers face a dual challenge: absorbing 30% tariffs or passing costs to consumers. Companies with pricing power and diversified supply chains—such as Amazon (AMZN) and Costco (COST)—are better positioned to weather the storm.

Caution: Smaller retailers like Haley Pavone’s apparel business are at risk. Focus on large-cap, high-margin players with global sourcing flexibility.

Technology: Winners of Supply Chain Diversification

The truce has accelerated tech firms’ shift away from China-centric manufacturing. Semiconductor companies like ASML (ASML) and Taiwan Semiconductor (TSM) are beneficiaries of U.S.-funded “onshoring” initiatives.

Why Now? The truce provides a window to lock in cheaper inputs while retooling supply chains. Long-term winners will be those that reduce reliance on Chinese raw materials and labor.

Sectors to Avoid: Cyclical Industrials in the Crosshairs

Industries like steel and aluminum remain exposed to punishing tariffs. U.S. aluminum imports face a combined 45% tariff (25% Section 232 + 20% fentanyl levy), squeezing margins for companies like Boeing (BA) and Caterpillar (CAT).

Risks: Even if tariffs drop further, structural overcapacity in global steel markets and geopolitical risks in energy supply chains make these stocks vulnerable to downside.

Defensive Allocations: Hedge Against Rising Rates and Credit Risks

The Moody’s downgrade of U.S. debt to Aa1 on May 16, 2025—citing unsustainable deficits and political gridlock—has sent the 10-year Treasury yield to 4.48%, with further hikes looming.

Action Steps:
1. Utilities and REITs: Companies like NextEra Energy (NEE) and Prologis (PLD) offer stable dividends and inflation protection.
2. Short-Term Treasurys: The iShares 1-3 Year Treasury Bond ETF (SHY) mitigates interest rate risk better than long-dated bonds.
3. Dividend Aristocrats: Firms with rock-solid balance sheets, like Coca-Cola (KO) or 3M (MMM), provide ballast against volatility.

The Bottom Line: Balance Optimism with Prudence

The 90-day truce offers a tactical entry point for tech and consumer discretionary plays, but investors must pair this with defensive allocations. With the U.S. debt-to-GDP ratio projected to hit 134% by 2035 and tariff risks still unresolved, portfolios should prioritize flexibility.

Final Call: Allocate 40% to tech and consumer leaders with global supply chain agility, 30% to utilities and short-term bonds, and 30% to cash reserves. Monitor the 10-year Treasury yield closely—any breach of 5% could signal deeper market turbulence.

In the words of Harvard economist Dani Rodrik, the truce is a “useless pause” unless it sparks lasting reform. For investors, this means staying nimble, capitalizing on near-term optimism, and hedging against the storm clouds on the horizon.