Tariffs have dropped significantly, is it time to go ALL IN on US stocks?

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From the day of the reciprocal tariff liberation on April 2 to May 12, after more than a month of back-and-forth tariffs between China and the United States, on May 12, China and the United States finally provided a reassuring negotiation result— the U.S. imposed a 30% tariff on China, while an additional 24% is postponed for 90 days; China imposed a 10% tariff on the U.S., with another 24% postponed for 90 days.

This result, regardless of how it affects both China and the U.S., is a significant positive for the capital markets. However, the current question is whether this means that the risks in the U.S. stock market can be eliminated, whether the U.S. stock market can continue its glorious era after the pandemic's massive liquidity, and whether people can go ALL IN on U.S. stocks again?

I. So, is everyone winning big now?

According to the latest trade negotiation announcement between China and the U.S., after a round of mutual tearing, both sides have returned to the tariffs on the day of liberation, April 2, and the tax rates of 50% and 41% that were thrown back and forth after the 2nd have all been canceled.

Regarding the 34% reciprocal tariff that the U.S. unilaterally imposed on China on April 2, 10% is retained, and the remaining 24% is postponed for 90 days; China is the same: retaining a 10% tariff on the U.S., with the remaining 24% postponed for 90 days.

Before April 2, the re-elected Trump had imposed tariffs on all Chinese goods twice in February and March, citing fentanyl, with each increase being 10%, totaling 20%.

Before the reciprocal tariffs on April 2, China's countermeasures were overall rational and restrained: mainly adding some tariffs on specific industries such as U.S. agricultural products, along with some non-tariff countermeasures, such as adding some U.S. companies to the unreliable entity list, paying attention to the export of raw materials like rare earths and tungsten to the U.S., and conducting antitrust investigations against companies like Google, etc.

Before April 2, the tariffs and non-tariff measures arising from the fentanyl issue had not changed.

Thus, since Trump's second term began, the final tariff increase on China is 30% + 24%, with the 24% part postponed for 90 days; China's tariffs on the U.S. are 10% + 24%, with the 24% part also postponed for 90 days (for detailed explanations, you can switch to the APP and click here.)

In addition, during Trump's first term, there was also about a 20% weighted average tariff on China, so the comprehensive tariff rate that the U.S. imposes on China should be around 50%, plus the tariffs that are postponed for 90 days. This means that although there has been some reduction, it remains at a relatively high level.

However, from a phased perspective, for China, as the main deficit country for the U.S., the tariff rates from this round of reciprocal tariffs are not higher than those already negotiated with other countries.

Of course, Trump's domestic propaganda might also suggest that tariffs have been increased on China again, and that they are winning big.

For the market, this tariff rate, whether postponed for 90 days or not, is clearly better than the market's expectations, and the market will undoubtedly welcome it positively.

II. What Purpose Can U.S. Tariffs Achieve?

But does this mean that after tariffs, funds can be ALL IN on U.S. assets? Dolphin Research believes that it is essential to understand the essence of this round of tariff increases: based on the results of existing negotiations, both surplus countries like the UK and deficit countries like China have been subjected to a 10% reciprocal tariff.

It is clear that Trump's purpose in increasing tariffs this time is not to reduce global trade barriers, but rather to impose tariffs for the sake of imposing tariffs. If the final result is to impose a 10-15% tariff on all goods entering the U.S., whether to promote the return of manufacturing or to reduce the fiscal deficit, the effect is likely to be far from satisfactory:

a. In the U.S. federal fiscal year 2024, ending in October 2024, the $65 billion in tariff revenue accounts for just over 1.5% of the total federal revenue of $4.1 trillion; this $65 billion in tariff revenue corresponds to a narrow deficit of over $800 billion that year, and a broad deficit (including national debt interest costs) reaching $1.6 trillion. In fact, even with increased tariffs, it would hardly cover the shortfall in the treasury.

b. As a Means for Manufacturing Return?

The return of manufacturing is a rare consensus between the two parties in the U.S., but the methods to achieve this goal differ significantly. Trump's core strategy is tax cuts + deregulation, along with personally negotiating with major companies to attract TSMC, Apple, and others to invest in or return to the U.S.; while Biden's three major economic bills indicate that the Democratic Party's core approach is industrial subsidies.

To bring manufacturing back, it is necessary to first build manufacturing capacity. From the changes in U.S. construction spending directed towards manufacturing shown in the chart below, it can be seen that manufacturing construction spending during Trump's first term was not high; however, after the introduction of Biden's three major economic bills, U.S. manufacturing construction spending saw a significant increase for a period.

But from mid-2024 to March 2025, when tariffs have not yet taken effect, U.S. construction spending directed towards manufacturing has once again stagnated.

However, if tariffs are raised and the price difference between domestically manufactured goods and imported goods is narrowed, making Americans willingly buy domestic products, then even in relatively hardcore manufacturing sectors such as consumer electronics, power batteries, photovoltaics, and new energy vehicles (not to mention low-end manufacturing like textiles), the cost gap between the U.S. and the outside world is definitely not just 10-15%. It is basically unrealistic to expect users to actively choose domestically manufactured goods based solely on a 10-15% tariff.

III. Will the Plan for Manufacturing Return Come to Naught? It Depends on Future Tax Cuts and Industrial Policies

According to U.S. negotiating representatives, U.S. Treasury Secretary Janet Yellen stated that after this negotiation, _“the U.S. will continue to strategically balance the supply chain weaknesses exposed during the pandemic, whether in pharmaceuticals, semiconductors, or steel.”

"America has locked down 5-6 strategic industries and weak links in the supply chain. In these areas, the U.S. will move towards independence or seek safer supply methods from allies."

From his expression, it can be seen that although the U.S. and China cannot completely sever ties, the U.S. will still strive to achieve so-called "supply security" through the return and adjustment of the industrial chain.

Since the return of manufacturing cannot be achieved solely through tariffs, the remaining aspects of Trump's economic MAGA agenda, namely tax cuts and deregulation, become particularly important.

To some extent, the earnings of the U.S. stock market in the second half of 2025 to 2026 actually depend on the strength of tax cuts and industrial policies in the second half of 2025. However, the fatal flaw here is that tax cuts and industrial stimulus essentially require fiscal backing.

This brings us back to the old question—Musk's DOGE government efficiency plan has not actually saved much expenditure for the federal government, and whether tariffs have brought substantial revenue to fill the fiscal gap.

The soul-searching questions to consider are:

a. How much strength can the upcoming tax cuts and industrial policies have?

b. If the strength is significant, how will the resulting excessive deficit be addressed under a 4.3% yield on 10-year Treasury bonds?

Since Trump's second term, the federal finances under the Republican Party have been striving to reduce dependence on short-term debt, aiming to return to the long-term Treasury bond market for financing. However, a huge obstacle to long-term bond financing currently is:

One is that under Trump's global tariff increases, which have triggered uncertainty in U.S. inflation, Powell refuses to cut interest rates;

The second is that even if short-term interest rates come down, long-term bond yields have remained above 4% (latest at 4.37%), with the spread between short and long-term bonds increasing. The risk premium for purchasing long-term bonds continues to rise, especially under the circumstances of Trump's global "bullying," how much incremental overseas sovereign funds are still willing to purchase U.S. Treasury bonds?

Currently, it seems that the difficulty of financing is considerable.

Of course, if all avenues prove unfeasible, there is still a backstop in the Federal Reserve: besides cutting interest rates, to lower long-term bond yields, it can directly purchase long-term bonds from the Treasury, which in turn becomes a form of quantitative easing (QE).

IV. Can we go all in on U.S. stocks again?

From the above, we can see that Trump's Tariff 2.0 policy:

1) Essentially imposes a tax on consumers in the U.S. and global producers. Its purpose is to tax for the sake of taxation, fundamentally acting as an economic suppression measure. Tariffs, as the first fire of Trump's economic policy, are negative for both U.S. and overseas economic development.

2) However, the actual final impact on the U.S. economy depends on how the tax revenue is spent once it is collected, and whether it is sufficient. This involves Trump's second move—after collecting these tariffs, how much money can be invested in domestic tax cuts and industrial policies in the U.S. to attract manufacturing back?

3) If the capital usage is massive, will there be a compliant Federal Reserve to support the financing sources for tax cuts? Will the U.S. shift from a combination of "independent fiscal + independent monetary" to a "fiscal-led + monetary cooperation" model of monetary-fiscal collaboration?

Otherwise, with the current end of federal fiscal leverage in the U.S., and both households and businesses not increasing leverage, while the labor employment market shows decent monthly non-farm job growth, the supply-demand relationship in the labor market has fallen to a lower ratio than before the pandemic in 2019—currently, one unemployed person corresponds to only 1.02 job openings, similar to the level in 2018.

At the same time, in February and March 2025, U.S. companies are actually reducing job demand. If this trend continues, it is likely that in the second half of the year, there will be an oversupply of labor and insufficient demand, leading to rising unemployment rates, and the U.S. economy could easily slide into recession.

It can be said that through the tariff negotiations on May 12, although the worst moments of U.S.-China trade, and even global trade, have passed, the U.S. still faces the challenge of how to address the hollowing out of manufacturing over the past few decades in a high-debt environment. Can this issue be resolved with low costs and minimal financing?

In the absence of clarity on this issue, Dolphin Research's judgment on dollar assets, including U.S. stocks, still leans towards diversifying its investment layout and engaging in cross-market and cross-asset investments.

Of course, in the short term, with the phased resolution of U.S.-China trade negotiations and the end of the U.S. earnings season without major surprises at the micro level, the market may celebrate for a while.

V. Portfolio Adjustment and Returns

The Alpha Dolphin virtual portfolio made no adjustments last week, but with the U.S. earnings season over, Dolphin Research will gradually adjust into some individual stocks based on earnings reports and macro trends.

Last week, the Alpha Dolphin virtual portfolio generated a return of 0.3%, underperforming the CSI 300 (+2%) and MSCI China (+0.5%), but outperforming the Hang Seng Tech (-1.2%) and S&P 500 (-0.5%).

Since the start of the portfolio testing (March 25, 2022) until last weekend, the absolute return of the portfolio is 80%, with an excess return of 80% compared to MSCI China. From the perspective of net asset value, Dolphin Research's initial virtual asset of 100 million USD has exceeded 184 million USD as of last weekend.

VI. Contribution of Individual Stocks to Profit and Loss

Last week, the Alpha Dolphin portfolio performed relatively stable, but the overall position remains light.

The specific stocks with significant price fluctuations are explained by Dolphin Research as follows:

VII. Asset Allocation Distribution

The Alpha Dolphin virtual portfolio holds a total of 10 individual stocks and equity ETFs, with a standard allocation of 1 and the rest under-allocated. Assets outside of equities are mainly distributed in gold, U.S. Treasury bonds, and USD cash. Currently, the portfolio is overall lightly positioned to cope with tariff uncertainties while closely monitoring the safety margins of high-quality assets that may drop.

As of last weekend, the asset allocation and equity asset holding weights of Alpha Dolphin are as follows:

VIII. This Week's Focus:

This week, the U.S. earnings season is basically over, entering a concentrated release period for overseas Chinese asset earnings. Tencent, Alibaba, and others have released their reports one after another. Dolphin Research has summarized the key areas to focus on:

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