Navigating the Truce: How to Profit from the U.S.-China Tariff Pause While Hedging Risk

The U.S.-China tariff truce announced on May 12, 2025, marks a pivotal but precarious moment for global markets. With 24 percentage points of punitive tariffs suspended for 90 days, sectors like semiconductors, automotive, and tech hardware stand to benefit from eased supply chain pressures and margin improvements. Yet this truce is no permanent peace treaty. Investors must act swiftly to capitalize on short-term dislocations while deploying hedging strategies to guard against the return of trade volatility. Here’s how to position portfolios for this high-reward, high-risk window.

Semiconductors: The Near-Term Winner, but Fragile Gains

The semiconductor sector is the most immediate beneficiary of the tariff truce. Companies like Intel (INTC) and Advanced Micro Devices (AMD) face reduced costs on Chinese-made chips, while U.S. firms exporting to China gain access to a stabilized market. The 10% remaining tariff floor is a relief compared to the prior 34% peak, allowing for margin recoveries of up to 2-3% for chipmakers reliant on cross-border components.

However, the sector remains hostage to geopolitical whims. The truce explicitly excludes tariffs on strategic industries like semiconductors, leaving 20% duties intact. Investors should pair long positions in chipmakers with put options on the Philadelphia Semiconductor Index (SOX) to hedge against a tariff re-escalation. For example, purchasing a 90-day put option on SOX at a strike price of 4,200 (its current level) would protect against downside if trade talks collapse.

Automotive: EVs Lead, But Supply Chain Risks Persist

The automotive sector, particularly electric vehicle (EV) manufacturers, gains from reduced tariffs on batteries, motors, and steel. Tesla (TSLA) and Nio (NIO), which source critical components from China, could see cost savings of $500-$1,000 per vehicle. Meanwhile, U.S. automakers like Ford (F) and General Motors (GM) benefit from lower tariffs on imported Chinese steel and aluminum.

Yet the truce does nothing to resolve disputes over forced technology transfers or China’s dominance in rare earth minerals. To mitigate this risk, consider inverse ETFs like Direxion Daily Semiconductor Services Bear 3x ETF (SOXS) or ProShares UltraShort MSCI China (CHXX). These instruments amplify gains if the truce unravels, providing asymmetric protection to long equity positions.

Tech Hardware: Margin Lifts, but Trade War Lingering Wounds

Tech hardware firms such as Apple (AAPL) and HP Inc. (HPQ), which rely on Chinese manufacturing and component sourcing, will see immediate margin improvements. The rollback of tariffs on consumer electronics (laptops, tablets) and the reduction in “de minimis” fees for small shipments could boost Apple’s gross margin by 0.5-1%.

However, the truce’s exclusion of fentanyl-related tariffs and its 90-day sunset clause mean the sector remains exposed. A tactical approach is to overweight hardware stocks while shorting the iShares China Large-Cap ETF (FXI) via futures or options. This creates a “long U.S. tech, short China exposure” hedge, capitalizing on near-term optimism while capping losses from a trade relapse.

The Hedging Playbook: Balance Aggression with Prudence

1. Go Long on Tariff-Beneficiaries: Allocate 60-70% of capital to semiconductor, EV, and tech hardware stocks with direct exposure to tariff reductions.
2. Deploy Put Options: Use 30-40% of capital to purchase put options on sector-specific indices (e.g., SOX, SPDR S&P Automotive & Components ETF (XAR)).
3. Inverse ETFs for Asymmetric Protection: Reserve 10-20% for inverse ETFs targeting China-exposed assets or semiconductors.

This strategy leverages the truce’s short-term tailwinds while insulating against the White House’s history of trade policy reversals. The 90-day window is a race to monetize the truce’s benefits before the next phase of negotiations—or breakdowns—takes center stage.

Conclusion: Act Now, but Protect Tomorrow

The U.S.-China tariff truce is a fleeting opportunity to profit from reinvigorated trade flows. Sectors with high tariff exposure and global supply chain integration stand to gain disproportionately. However, investors must treat this as a tactical play, not a permanent buy signal. By pairing aggressive long positions with dynamic hedging tools, portfolios can capture the upside while surviving the inevitable turbulence ahead. Time is short—act decisively, but hedge ruthlessly.