Navigating the new trade uncertainty

[UNITED STATES] The U.S.-China trade relationship, once the backbone of global economic integration, has become a source of persistent market anxiety. Recent moves by the U.S. Trade Representative to extend tariff exemptions on select Chinese imports through August 31 offered a fleeting sense of stability, briefly lifting Asian indices and sparking hope for a broader détente. Yet, the optimism evaporated almost as quickly as it arrived. President Trump’s renewed accusations against Beijing and the specter of higher tariffs have reminded investors that, beneath the surface, the world’s two largest economies remain locked in a complex contest—one that is reshaping investment strategies, supply chains, and the very architecture of global commerce. For investors and policymakers alike, the question is not whether volatility will persist, but how best to navigate it.

The Mirage of Tariff Relief

The U.S. administration’s decision to extend Section 301 tariff exclusions on 164 Chinese products and grant new exemptions for solar manufacturing equipment until August 31 was widely interpreted as a gesture toward de-escalation. Asian markets responded with relief: Hong Kong’s Hang Seng rose 1.1%, Tokyo’s Nikkei 225 climbed 0.6%, and Taiwan’s Taiex surged 1.4%. U.S. indices, too, closed in positive territory, with the S&P 500 and Nasdaq posting gains as investors bet on continued tech sector resilience and a temporary reprieve for import-dependent industries.

But this relief is fundamentally temporary. The White House has made clear that these exemptions are under ongoing review, and President Trump’s warnings that semiconductors and electronics supply chains remain under scrutiny signal that further restrictions could return at short notice. The administration’s willingness to double tariffs on steel and aluminum to 50%—a move that rattled European and Asian exporters—underscores the unpredictability of U.S. trade policy. This “flip-flopping” on tariffs, as one strategist put it, has become a defining feature of the current environment, keeping markets on edge and undermining business confidence.

Manufacturing Feels the Strain

Behind the market’s headline numbers, the real economy is showing signs of stress. The Institute for Supply Management’s manufacturing index fell to 48.5% in May, marking the third consecutive month of contraction and the sharpest drop since late 2024. Production, new orders, and exports all declined, while inventories shrank as companies scrambled to front-load supplies ahead of tariff hikes. The uncertainty surrounding trade policy has led many manufacturers to delay investments, reduce hiring, and reassess supply chains—a trend that economists warn could shave up to 0.9% off annual GDP if sustained.

Meanwhile, U.S. import volumes have dropped to their lowest levels since 2009, and export sales have hit a five-year low. The pain is not evenly distributed: while steelmakers have benefited from tariff-driven price hikes—Nucor and Steel Dynamics saw shares jump over 10%—automakers like Ford and GM have faced steep declines as input costs rise and global supply chains become more fragile. The broader message is clear: even as select sectors find opportunity in protectionism, the overall manufacturing landscape is contracting under the weight of policy uncertainty and disrupted flows.

Defensive Positioning and the New Investment Playbook

With volatility the new normal, investors are recalibrating their strategies. Defensive sectors—utilities, consumer staples, and healthcare—have outperformed more cyclical industries, offering relative stability amid tariff-driven inflation and slowing growth. Technology giants and semiconductor leaders, many of whom have diversified supply chains and global customer bases, have also demonstrated resilience, with companies like Nvidia and Apple continuing to post strong results despite the geopolitical headwinds.

Gold, meanwhile, has reasserted its role as a safe haven. The precious metal reached a record high of $3,300 in 2024, buoyed by central bank buying and investor demand for risk hedges as both equities and bonds faced simultaneous pressures. The U.S. dollar, by contrast, has weakened—down 9% against a basket of major currencies this year—as investors rotate into alternative assets and seek shelter from currency and policy volatility.

Financial advisors are urging caution: focus on sectors with pricing power and stable cash flows, maintain allocations to gold and high-quality bonds, and consider volatility-linked strategies to capitalize on market swings. For those exposed to China, converting ADRs to Hong Kong listings or diversifying into markets less affected by U.S.-China friction is increasingly seen as prudent risk management.

What We Think

The era of predictable U.S.-China trade relations is over, replaced by a landscape defined by rolling uncertainty, policy reversals, and strategic decoupling. Temporary tariff relief may offer short-term breathing room, but the underlying drivers—rivalry over technology, supply chain security, and geopolitical influence—ensure that volatility will persist. For investors, the imperative is to build resilience: favor defensive sectors, maintain diversified exposures, and stay nimble in the face of policy whiplash. The “uncertainty tax” is now a permanent feature of the global economy. Those who adapt—by anchoring portfolios in stability and preparing for further shocks—will be best positioned to weather the next chapter of the U.S.-China saga.