A Tactical Truce – The US-China Tariff

The 90-day agreement between the United States and China to reduce tariffs marks a significant – if temporary – détente in a trade war that has weighed heavily on global trade volumes, capital markets, and investor sentiment. The US slashed tariffs on Chinese goods from a staggering 145% to 30%, while China reciprocated by cutting tariffs on US imports from 125% to 10%. In the same breath, China also pledged to suspend non-tariff barriers, including opaque licensing requirements and quality inspections – key complaints by multinational corporates.

While this move alone won’t fix a multi-year strategic divergence, it provides lots of breathing space. Crucially, it's not just a "pause"; it's a market signal, and a potentially pivotal one.

Reading Between the Lines: Implications for Investors and Policymakers

The tariff cuts follow months of mounting pressure from both domestic industries and international institutions. According to data from the Peterson Institute for International Economics, US-China trade dropped by nearly $150 billion between 2022 and 2024, with dual-tariff escalation contributing to a 30–40% decline in bilateral flows. This decline was especially pronounced in US exports of agricultural and advanced manufacturing goods – sectors highly sensitive to cost competitiveness.

The key takeaway: trade wars are inflationary and inefficient. The current rollback acknowledges this economic reality.

On the policy front, this is also a tacit recognition by both governments of slowing domestic growth. Chinese GDP growth decelerated to 4.7% YoY in Q1 2025 – below Beijing’s 5% target – while US Q1 GDP growth came in at 1.2%, dragged by higher input costs and reduced business investment. This agreement could give a near-term boost to GDP in both economies through improved trade activity and reduced inflationary pressure.

Market Reactions – Relief Rally or False Dawn?

Global markets were quick to price in the news:

• S&P 500 futures jumped 2.8%

• Nasdaq futures rose 3.5%

• The dollar index climbed 1.2%

• Gold, typically a risk-off asset, fell 3.3%

• Brent crude rose 1.7% on hopes of revived global demand

This reflects not just improved trade prospects but a perceived shift in geopolitical risk premium. In cross-asset terms, this could prompt a near-term re-rating of equities, particularly in cyclical sectors and global exporters.

However, my view is that this may be a tactical rally, not a structural one. The 90-day window is brief, and the deep issues underpinning the US-China rivalry – intellectual property, industrial subsidies, national security concerns – remain unresolved.

MY PERSPECTIVE

This pause presents strategic opportunities in several ways:

• Valuation Gaps: Prolonged tariffs depressed valuations for export-driven firms, especially in logistics, industrials, and electronics. With a temporary lift, buy-side players may see this as a window to acquire assets at a discount before any longer-term deal materialises.

• Reshoring and Supply Chain Diversification: While this deal suggests reduced immediate pressure, firms are unlikely to reverse diversification efforts. ASEAN countries (Vietnam, Malaysia, Indonesia) remain key beneficiaries. Cross-border M&A here could accelerate.

• Public-to-Private Pipeline: Stabilising sentiment could reignite interest in undervalued public firms, particularly those hit by tariff exposure but with sound fundamentals – an ideal setup for take-private deals.

• FX Hedging Strategies: The strengthening USD and RMB volatility offer potential upside for funds that incorporate sophisticated FX overlays in cross-border deals.