Starbucks' Post-Tariff Rally: Sustainable Rebound or Fleeting Optimism?

The U.S.-China trade truce announced on May 11, 2025, has sparked a surge in U.S. futures markets and sent Starbucks (SBUX) shares climbing 5% in early trading—a reflection of investor hopes that reduced tariffs will stabilize the coffee giant’s growth in its second-largest market. But as the 90-day truce takes effect, a critical question emerges: Does this rally signal a sustainable recovery for Starbucks, or is it a premature celebration of a fragile truce?

The answer hinges on Starbucks’ exposure to China, its supply chain resilience, and the unresolved risks embedded in the trade deal. While the truce’s immediate tariff cuts offer relief, the agreement’s narrow scope—and the unresolved disputes over intellectual property, semiconductors, and fentanyl—suggest the path to long-term stability remains fraught with uncertainty.

China’s Role: A Double-Edged Sword

Starbucks’ China business is both its growth engine and its vulnerability. With 7,758 stores in China (19% of its global footprint), the market contributes a significant, though undisclosed, portion of its revenue. In Q2 2025, China’s comparable store sales were flat year-over-year, as a 4% rise in transaction volume was offset by a 4% drop in average ticket prices—a sign of competitive pressures in a saturated market.

The trade truce’s tariff reductions could alleviate some of these pressures. While Starbucks sources less than 2% of its coffee beans from China, it has long-term plans to expand domestic sourcing to 3-5% of its global supply by 2025. This shift, tied to sustainability partnerships with Yunnan and Fujian coffee farmers, could reduce reliance on volatile international supply chains. However, the truce’s exclusion of tariffs on “strategic” sectors like pharmaceuticals and EVs—alongside unresolved issues such as intellectual property disputes—means Starbucks cannot yet declare full independence from geopolitical risks.

Margin Relief vs. Structural Risks

The immediate benefit of the truce is clear: reduced tariffs on Chinese imports could ease margin pressures. Starbucks’ Q2 2025 results showed store operating expenses rose to 52.3% of revenue in the International segment—a 0.6% increase from 2024—due to rising labor and operational costs. A rollback of tariffs on inputs like packaging or equipment could help reverse this trend.

Yet the truce’s 90-day timeline and its exclusion of critical sectors leave room for renewed conflict. If talks over intellectual property or fentanyl fail, retaliatory tariffs could resurface, reversing gains. Moreover, Starbucks’ reliance on China for expansion—its goal is to open 600 new stores there this year—depends on stable trade conditions. A renewed trade war could stall these plans and reignite competition from rivals like Luckin Coffee.

The Case for Caution—and Opportunity

Investors must weigh two scenarios:
1. Truce Extends, Tensions Ease: If the U.S. and China build on this truce to resolve deeper issues, Starbucks could see sustained margin improvements. Lower input costs, paired with disciplined cost-cutting (e.g., the 1,100 support roles reduced in Q2), could boost profitability. China’s flat sales in Q2 might also rebound as the economy stabilizes.
2. Truce Collapses, Tariffs Return: A failure to address core disputes could reignite trade tensions. Starbucks’ China expansion and supply chain could face renewed headwinds, while currency fluctuations (already costing 2% in International revenue) might worsen.

The balance tilts toward cautious optimism—but only if Starbucks executes its “Back to Starbucks” strategy flawlessly. CEO Brian Niccol’s focus on store-level execution and customer experience is critical. If the company can stabilize China sales and leverage lower tariffs to improve margins, the rally could endure.

Investment Verdict: Wait for Clarity, but Monitor Closely

While the truce’s tariff cuts provide a tailwind, the agreement’s fragility argues against aggressive investment. Starbucks’ shares, up 12% year-to-date, may have already priced in short-term optimism. Investors should await two key signals:
- Progress on Trade Talks: If the U.S. and China extend the truce beyond 90 days and address fentanyl or IP issues, Starbucks could gain long-term stability.
- China Sales Turnaround: A Q3 rebound in comparable store sales—or signs of margin improvement—would validate the rally.

For now, the best move is to hold fire. Monitor the truce’s fate and Starbucks’ execution, but avoid overpaying for a stock that trades at 24x forward earnings—a premium justified only by sustained growth.

The next 90 days will determine whether this is a fleeting sip of optimism or the first taste of a durable recovery.