The Tactical Pause in US-China Trade Tensions: Implications for Defensive and Cyclical Sectors in Chinese Equities

The recent tactical de-escalation in US-China trade tensions, formalized on October 30, 2025, has created a ripple effect across global markets, particularly in Chinese equities. This "basic consensus" trade deal-marked by reduced tariffs, suspended export restrictions, and agricultural commitments-has temporarily stabilized trade relations but left deeper structural issues unresolved. For investors, the pause presents a critical juncture to reassess sector rotation strategies, balancing short-term relief with long-term uncertainties.

Defensive Sectors: Healthcare and Utilities Find Temporary Respite

The healthcare sector, a key defensive play, has seen immediate benefits from the trade truce. According to a report by NASDAQ, U.S. healthcare companies like Johnson & Johnson and GE HealthCare, which faced $400 million and $500 million in tariff-related costs respectively in 2025, now enjoy reduced supply-chain risks as planned tariff escalations are suspended, according to a Nasdaq report. This stability has bolstered healthcare ETFs such as XLV, IYH, and VHT, which hold significant exposure to pharmaceutical and medical device manufacturers, the Nasdaq report noted.

Utilities, another defensive sector, have also benefited from reduced geopolitical risk. Safe-haven assets like gold and silver plummeted post-agreement, reflecting investor confidence in lower volatility, according to a WRAL MarketMinute article. While utilities are less directly tied to trade policy, the broader market optimism has supported their valuations, particularly in China, where state-owned energy firms remain critical to domestic infrastructure.

Cyclical Sectors: EVs and Tech Lead the Rebound

Cyclical sectors, particularly electric vehicles (EVs) and high-tech manufacturing, have emerged as prime beneficiaries of the trade pause. The successful $1.8 billion Hong Kong listing of Seres Group Co., a Huawei-backed EV manufacturer, underscores investor appetite for innovation-driven growth, according to The Edge. This aligns with China's 14th Five-Year Plan, which prioritizes green technologies and digital transformation, as reported by China Briefing.

Meanwhile, Chinese chipmaker Nexperia's assertion of supply chain resilience amid the U.S.-Netherlands chip dispute highlights the sector's adaptability, according to an UNN report. The 2025 Green Industry Catalogue further amplifies opportunities in clean energy and automation, sectors poised to outperform as global demand for sustainable solutions intensifies, China Briefing noted.

Policy-Driven Rotation: Green Tech and AI as Strategic Anchors

The tactical pause has accelerated policy-driven rotation into sectors aligned with China's structural reforms. The 2024 Foreign Investment Negative List's relaxation of foreign ownership rules in manufacturing and telecommunications has attracted capital to high-tech and green industries, as China Briefing reported. For instance, generative AI and low-carbon solutions-now included in the Catalogue of Encouraged Industries for Foreign Investment-have seen surges in funding, China Briefing observed.

Investor behavior reflects this shift. From 2023 to 2025, short-term strategies increasingly favored high-dividend stocks as hedges against trade uncertainty, while long-term allocations gravitated toward AI, robotics, and green energy. The rural revitalization plan has also unlocked opportunities in agri-tech and smart infrastructure, further diversifying growth drivers, according to China Briefing.

Navigating the Tactical Pause: A Balanced Approach

While the trade truce offers near-term stability, investors must remain cautious. The agreement does not address systemic issues such as intellectual property disputes or China's state-led industrial policies, the WRAL MarketMinute article noted. Cyclical sectors like EVs and tech may face headwinds if tensions resurge, but their policy tailwinds and global demand trends provide a buffer.

Defensive sectors, though stabilized, remain vulnerable to long-term trade policy shifts. For example, healthcare's reliance on Chinese manufacturing for APIs means renewed tariffs could reignite cost pressures, the Nasdaq report noted. A balanced portfolio-combining defensive positions with high-conviction cyclical plays-appears optimal.

Conclusion: Strategic Rotation in a Shifting Landscape

The tactical pause in US-China trade tensions has created a window for strategic sector rotation in Chinese equities. Defensive sectors like healthcare and utilities offer near-term safety, while cyclical opportunities in EVs, AI, and green tech align with China's policy priorities and global trends. However, the fragile nature of the truce necessitates agility, as investors must prepare for both continued de-escalation and potential re-escalation.

As the 14th Five-Year Plan unfolds, the interplay between policy support and geopolitical dynamics will remain pivotal. For now, the tactical pause has reshaped the landscape-but not the underlying game.