The Truce Turnaround: Why China's Trade Pause and Stimulus Signal a Bull Run in Export Sectors
3min read The 90-day U.S.-China tariff truce, effective May 14, 2025, has injected a lifeline into global supply chains and reignited hopes for a synchronized recovery. Combined with aggressive liquidity measures from China’s central bank—driving record Total Social Financing (TSF) growth and a 7% year-over-year jump in M2 money supply—the stage is set for a rebound in sectors battered by trade wars. For investors, this convergence of reduced geopolitical risk and ample liquidity presents a rare opportunity to capitalize on undervalued manufacturing, technology, and infrastructure stocks before markets fully price in the upside.
The Truce Effect: Reopening the Floodgates of Trade
The tariff rollback is more than a temporary ceasefire. By slashing U.S. tariffs on Chinese goods from 145% to 30% and China’s retaliatory duties from 125% to 10%, the truce has slashed costs for exporters and importers alike. U.S. port data already hints at a 35% rebound in China-U.S. freight volumes after April’s historic slump, while container rates stabilize at $2,300–$3,400 per FEU—a sign of renewed demand.
But the truce’s true power lies in its psychological impact. Global equity markets, including the S&P 500 and Asian indices, surged 1.3–1.7% on the news, signaling investor optimism. For export-driven sectors, this is a “reset button” to rebuild inventories, rehire workers, and reinvest in growth.
Manufacturing: The Immediate Winner
Manufacturing stocks, which cratered during tariff spikes, are primed for a comeback. The truce’s reduction in 30% tariffs—still elevated but manageable—lowers input costs for automotive, machinery, and consumer goods producers. China’s Q1 2025 TSF data, showing 9.78 trillion yuan in new RMB loans to the real economy, reveals a credit surge targeted at businesses. This liquidity is already flowing into factories: corporate short-term loans rose 3.03 trillion yuan, while medium-term loans (for capital expansion) jumped 5.83 trillion yuan.
Investors should focus on companies with exposure to U.S. demand. For example:
- Foxconn (HN精密): A key supplier to Apple, now facing lower tariffs on electronics assembly.
- BYD (002594.SZ): Benefits from reduced automotive component tariffs and rising U.S. EV demand.
Technology: A Stealth Play on Global Supply Chains
The truce’s impact on tech stocks is twofold: reduced tariffs ease profit margins, and China’s M2 expansion fuels R&D investment. The 4.85 trillion yuan surge in government bond financing (part of TSF) signals fiscal backing for semiconductors, AI, and 5G infrastructure—sectors critical to China’s “Made in China 2025” strategy.
Consider SMIC (0981.HK), China’s leading chipmaker. Lower tariffs on semiconductor equipment imports could narrow its 12% gross margin gap versus global peers. Meanwhile, Huawei (HWT.UL)—still navigating U.S. restrictions—could see relief in 5G component exports if negotiations progress.
Infrastructure: Riding the Fiscal Stimulus Wave
China’s central bank is not just boosting liquidity; it’s directing it. The 15.18 trillion yuan Q1 TSF growth, driven by 4.85 trillion yuan in government bonds, points to a flood of funds for railways, smart cities, and renewable energy projects. This favors firms like China State Construction Engineering (018.HK), which specializes in infrastructure development, and Tongwei Group (600438.SH), a solar panel giant benefiting from green infrastructure subsidies.
Risks and the Case for Immediate Action
Critics will note the truce’s August expiration date and unresolved issues like the U.S. trade deficit. Yet investors who wait for a permanent deal risk missing the “truce rally” already unfolding. Key catalysts include:
1. Inventory restocking: Companies will frontload shipments before August, boosting Q3 revenue.
2. Currency stability: A weaker U.S. dollar (due to Fed easing) could amplify China’s export competitiveness.
3. Equity liquidity: M2’s 7% growth suggests ample cash to chase beaten-down stocks.
Conclusion: Time to Deploy Capital Before the Crowd Catches On
The combination of reduced tariffs, TSF-fueled credit expansion, and M2-driven liquidity creates a “sweet spot” for investors to buy undervalued export-driven stocks. While risks remain, the truce’s 90-day window offers a low-cost entry point into sectors like manufacturing, tech, and infrastructure—before August’s deadline forces a rerating.
Act now, and position for a rebound that could outlast the truce itself.
The next 90 days will separate the cautious from the opportunistic.
