To The Moon

Based on the latest data and public statements, a "higher for longer" tariff truce between the US and China is the most likely scenario, rather than a full reinstatement of previous, higher tariffs.

Latest PPI Show Wholesale Prices Rose 0.9% in July, Much More Than Expected

On an annual basis, headline PPI increased 3.3%, the biggest 12-month move since February and well above the Federal Reserve’s 2% inflation target.

Services inflation provided much of the push higher, rising 1.1% in July for the largest gain also since March 2022. Trade services margins climbed 2%, coming amid ongoing developments in President Donald Trump’s tariff implementations.

Here is a breakdown of the situation:

1. US-China Tariff Truce is Extended:

On or around August 12, 2025, the U.S. and China agreed to extend their tariff truce for another 90 days, pushing the deadline to November 10, 2025.

This extension keeps tariffs at their current levels (e.g., U.S. tariffs on Chinese goods at 30% and China's on U.S. goods at 10%), preventing a return to the significantly higher rates seen earlier in 2025 (as high as 145% and 125% respectively).

The extension is seen as a way to "avert a costly re-escalation" and provides more time for both sides to negotiate a broader trade agreement.

2. Latest CPI and PPI Data and Its Role:

The latest Consumer Price Index (CPI) and Producer Price Index (PPI) data for the U.S. shows inflation is still a factor, though at a more moderate level than in the recent past.

The CPI increased 0.2% in July and is up 2.7% over the last 12 months. The PPI rose 0.9% in July and is up 3.3% for the year.

Higher PPI, which measures prices from the producer's perspective, can be a leading indicator of future CPI increases, as businesses often pass on higher costs to consumers.

Tariffs directly contribute to higher prices for both producers (PPI) and consumers (CPI) by increasing the cost of imported goods.

Given that inflation remains a concern, a reinstatement of even higher tariffs would likely exacerbate price pressures, which is a major disincentive for the U.S. to take that step. The current administration appears to be balancing its trade policy goals with the need to manage inflation.

3. The Overall Context of Negotiations:

Negotiations between the U.S. and China continue, but a "grand bargain" remains elusive. The current truce allows for continued dialogue without the immediate threat of a full-blown trade war.

Both countries are using specific, targeted leverage in negotiations. The U.S. has eased some export restrictions on advanced semiconductors, while China has used its control over rare-earth minerals as a bargaining chip.

While a long-term agreement is not guaranteed, the repeated extensions of the tariff truce suggest a mutual interest in avoiding a major escalation that would harm both economies and global markets.

In conclusion, the latest CPI and PPI data, while showing that inflation is still a factor, reinforce the incentive for the U.S. to maintain the current tariff truce. Reinstating higher tariffs would likely push prices up further, undermining efforts to manage inflation. Therefore, a "higher for longer" state of managed tariffs and ongoing, albeit slow, negotiations appears to be the prevailing strategy for the foreseeable future.

A "higher for longer" state of managed tariffs and slow, ongoing negotiations between the U.S. and China presents a complex landscape for investors. This environment is characterized by persistent uncertainty and a re-shaping of global supply chains.

Here is how investors can prepare their portfolios:

1. Diversify Beyond the U.S. and China

A key strategy is to reduce direct exposure to companies and sectors that are highly dependent on the U.S.-China trade relationship.

Look to other emerging markets: Countries like Mexico and Vietnam are becoming increasingly important in global supply chains as companies seek to "de-risk" from China. These nations could see increased foreign direct investment and manufacturing activity.

Invest in domestic-focused companies: Companies that primarily serve their local markets and are not heavily reliant on international trade for revenue or supply are often more insulated from tariff shocks.

Consider a "China for China" strategy: Some companies are adopting a "China for China" model, where they produce and sell goods within China to serve the domestic market, thereby reducing their exposure to export tariffs.

I would think that investors could look for ETFs which are domestic-focused, while looking beyond U.S. and China.

$iShares MSCI Emerging Markets ex China ETF(EMXC)$

The iShares MSCI Emerging Markets ex China ETF (EMXC) offers a compelling diversification strategy, especially in light of potential risks from U.S. and China trade tensions. By excluding Chinese companies, the ETF allows investors to mitigate a significant source of geopolitical and economic risk. China's economic policies and regulatory crackdowns can introduce unique volatility, which is separated from the broader emerging market universe by investing in EMXC.

Furthermore, this ETF provides exposure to other high-growth emerging economies that are positioned to benefit from global supply chain shifts away from China. This includes countries like Taiwan, South Korea, India, and Brazil. These markets often have strong domestic consumption trends and are home to global leaders in key sectors like technology (e.g., semiconductor manufacturing in Taiwan) and finance. EMXC's concentrated exposure to these diverse and promising markets can enhance a portfolio's growth potential while reducing its dependency on any single country, particularly one with a complex relationship with the U.S.

With an expense ratio of 0.25%, and YTD returns of 18.41%, performing better than S&P 500 YTD return of 9.98%. this is one ETFs that I will be considering to load while monitoring how development goes for the next two weeks till end of August 2025.

2. Focus on Resilient Sectors and Companies

Not all sectors are equally vulnerable to tariffs. Some are better positioned to weather the storm.

Domestic-focused industries: Sectors like banking, consumer staples, and utilities, which serve domestic demand, tend to be more resilient to trade tensions.

If we looked at how these sectors have performed over the 1 week and 1 month performance, we can see that financials (banking) have showed pretty good resilient to these trade tensions.

$Financial Select Sector SPDR Fund(XLF)$

Companies with pricing power: Businesses that offer essential goods or services, have strong brand recognition, or operate in a market with high demand can more easily pass on tariff-related costs to consumers without losing significant market share.

Firms with diversified supply chains: Companies that have already invested in diversifying their supply chains away from China are better prepared. Look for companies that have established a "multi-node" network, with production facilities in various countries.

Technology and AI: While the technology sector can be a battleground for export controls, certain segments focused on long-term growth themes like artificial intelligence (AI), software, and cybersecurity may be more insulated from direct tariff impacts than hardware manufacturers.

For this, I think we can have some exposure to this ETF, $Technology Select Sector SPDR Fund(XLK)$ which I did in my long-term portfolio with another broker, I believe that in the long run, we are already moving ahead with AI, especially in terms of software and cybersecurity as you would have noticed that countries are starting to make plans to move fast into getting involved or enhance their existing implementations.

3. Re-evaluate Your Supply Chain Exposure

Investors should be diligent in understanding the supply chains of the companies in their portfolios.

Analyze the impact of "upstream" choke points: Be aware of companies that rely on critical minerals, rare earths, or other specialized components where China has a significant market share. China is using its control over these resources as a bargaining chip, and this can create sudden disruptions.

Look for companies that are "reshoring": The tariff environment has accelerated a trend of companies bringing production back to their home countries or to nearby allies. Companies that are actively reshoring or nearshoring their manufacturing operations may be more stable in the long run.

I have written an article on how reshoring might happen to some of the chipmakers as they seek to navigate the sectoral tariffs hitting the semiconductor sector, so we might want to continue to monitor the development and see how things progress.

4. Adjust Your Asset Allocation

In a volatile environment, a more defensive and diversified approach to asset allocation can be prudent.

Consider fixed income: While the "higher for longer" interest rate environment poses its own challenges, high-quality bonds can act as a stabilizing force in a portfolio.

Be valuation-sensitive: With markets showing volatility in response to trade headlines, it's a good time to be cautious about overpaying for stocks. A focus on dividend-paying stocks can also provide a more defensive approach.

Explore alternatives: Real estate, particularly in a domestic context, and private markets can offer a hedge against some of the volatility of public equities.

Summary

The trade relationship between the U.S. and China is dynamic and can change with little notice.

Monitor political rhetoric and policy shifts: Pay attention to news regarding trade negotiations, export controls, and new tariff threats.

Be prepared for volatility: The current environment is prone to market swings based on headlines. A long-term, fundamentals-driven strategy, supported by diversification, is often more effective than reacting to short-term noise.

By taking these steps, investors can better position their portfolios to navigate the ongoing uncertainty and capitalize on the new global economic landscape shaped by managed tariffs and evolving trade relationships.

Appreciate if you could share your thoughts in the comment section whether you think it is a good time to better position our portfolio with some exposure to some of the ETFs suggested so as to navigate the ongoing uncertainity and also capture any opportunities that might arise.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.