Gaming Out the US-China Trade War

• Container traffic from China to the US has fallen sharply since Liberation Day

• Nintendo’s Switch 2 console is a case study highlighting broader economic worries

• We believe the US holds better cards than China, but risks are many as volatility continues to run high across markets

  
  

April 2, 2025, was a cornerstone date for global trade...and global gamers. Concurrent with President Trump’s tariff announcement from the White House Rose Garden, Nintendo (NTDOY) revealed details about its hotly anticipated Switch 2 console. Hours before the POTUS greeted labor union members and the media in Washington DC, the $92 billion market cap Japanese Communication Services company held its Direct Event. 

Initially, Nintendo said the Switch 2 console would be available for purchase in the US on June 5 for $449.99. Sweeping tariffs imposed on electronics imported from China, Vietnam, and Cambodia—key manufacturing hubs for the company—threw wrenches into the plan. 

Gen Alpha members are up in arms. Switch 2 US pre-orders were set to begin on April 9, but that was pushed back, and now gamers are left wondering what the ongoing US-China trade war will mean for this American pastime. 

Like many other manufacturers, Nintendo is assessing the tariff situation. It’s also taking measures to mitigate potential problems in the weeks and months ahead. Sticking with Switch 2’s June 5 launch date, the Kyoto company had strategically shifted much of its console assembly from China to Vietnam and Cambodia to bypass the previously elevated import duty on Chinese goods, but new tariffs on the latter two nations threaten to erase those cost savings. 

Japan, Vietnam Faces High Reciprocal Tariff Rates Once the 90-Day Exemption Window Ends, Trade Talks Ongoing

Source: Goldman Sachs

Reciprocal Tariff Reprieve Window Closing

All eyes are on July 9. That’s when President Trump’s 90-day pause on the new tariffs expires. Nintendo has warned that retail price adjustments may be necessary depending on how the tariff saga unfolds—it has already delayed Switch 2’s China release. All the while, the company reports that Japanese demand for the next-gen console, which is powered by a custom processor featuring an NVIDIA (NVDA) GPU, is overwhelming. Nintendo President Shuntaro Furukawa said the number of applications "far exceeds our expectations and far exceeds the number of Nintendo Switch 2 consoles that can be delivered from the My Nintendo Store on June 5.”

Amid so many trade-policy question marks, Nintendo has done what many companies, big and small, have done. They’ve stockpiled goods in US warehouses ahead of potential tariffs. Meanwhile, teens nationwide might have to shell out a bit more to get their hands on the cutting-edge console. Analysts say the sticker price could jump from $450 to above $600, depending on how the levies shake out. While the University of Michigan doesn’t survey middle schoolers, the situation may influence sentiment among younger consumers about the macroeconomic situation as a result.

Import Volumes at the LA Port Soared, Suggesting Pre-Tariff Stockpiling

Source: BofA Global Research

Tariff Exemptions Possible for Certain Industries, Include Electronics

Source: Seeking Alpha

US “Soft” Survey Data Is Bleak, but “Hard” Data Holding Up

Source: Goldman Sachs

Price action tells a different story for Nintendo, however. This is why marrying the media narrative with what markets are telling investors is so critical. Nintendo’s US-listed American Depository Receipts (ADRs), a name for foreign-company shares that are tradeable on US exchanges, hit an all-time high toward the end of April. This bullish trader sentiment would seem to juxtapose the perceived risks, including the fact that its Americas segment makes up 44% of Nintendo’s annual net sales.

Timing it Out

Other global manufacturers face worries similar to those of Nintendo, and most of their stock prices are in worse shape as the 90-day reciprocal tariff moratorium deadline looms. While likely coincidental, the mid-June timing may coincide with important policy developments in US-China trade relations.

No matter the precise timing, the world’s two biggest economies will have to act soon to avoid potential empty shelves once the back-to-school shopping season begins.

2025 China Volatility Catalysts

Source: Goldman Sachs

Retail Having Its Say, Concerning Shipping Volume Data

On April 21, Walmart (WMT) CEO Doug McMillon, Target (TGT) CEO Brian Cornell, and Home Depot (HD) CEO Ted Decker sat down with the president to discuss tariffs, reportedly warning Trump that significant supply chain disruptions could result in turmoil for consumers. Early impacts of the effective US-China embargo are already being felt, too.

According to Bloomberg, the number of container ships departing China for the US plunged by almost 50% over just two weeks in April, while US-import ocean bookings fell 64% from late March to the week after Liberation Day. Those on the West Coast can see the effects of the tariffs, as very few bulk ships have hit Pacific ports. Data gathered by Goldman Sachs, however, show rising freight volumes departing China.

Torsten Slok of Apollo Global expects a prolonged steep drop in shipping volumes to impact domestic trucking demand by mid-May, with layoffs related to that industry starting around Memorial Day. With a deal, the US faces a potential recession over the back half of 2025, so says Slok.

Fewer Vessels Are Coming to America

Source: Michael McDonough, Bloomberg

Bullish Leading Indicator: Rising China Outgoing Freight Volumes

Source: Goldman Sachs

The Recession Scenario: A Possible Tariff-Impact Timeline

Source: Torsten Slok, Apollo Global

Muddied Macro Data

As with most economic data series, there’s nuance to figure in with shipping trends. It’s probable that import volumes abnormally jumped in advance of April 2, and you’ll notice in many of these container shipping counts that total and used capacity amounts are quite volatile. Though a tsunami of supply chain problems could come about, we believe the extremes we experienced in 2020 and 2021 are unlikely to be repeated—the “empty store shelves” and “toilet paper hoarding” stories being told today are hyperbole.

Trade uncertainty does beg the question, however, “Is China or the US in a better position to weather economic risks from tariffs?” On the one hand, the US is obviously on a much healthier macro footing, given our level of wealth and consumer resilience. The US is like a world-class athlete, able to perform amid dire circumstances. But, on the other hand, even just a sore hamstring can take a premier competitor out of the game. Hence, if tariffs cause only a modest but protracted decline in household and business spending, a recession can ensue quickly. 

Prediction Markets Near 50/50 on a 2025 US Recession

Source: Polymarket

Johnson Redbook US Retail Sales Growth YoY: Steady & Strong in 2025

Source: Trading Economics

US Travel Trends Holding up: TSA Checkpoint Numbers Flat YoY

Source: MacroMicro

China has long struggled with macro factors like an aging population and low per-capita consumption compared to the US. Its politburo is anti-capitalist and goes out of its way to clamp down on tech and innovation. Even its stimulus efforts announced last year didn’t do much to improve the world’s second-largest economy’s growth trajectory. China relies on the US to purchase its goods, but there are theories that it can re-direct exports to areas like Europe and South America if the trade war endures for years, not just months. 

The Showdown

We expect China to make concessions under continued international pressure, though outcomes remain uncertain. President Trump continues to partner with allies to squeeze the communist nation during this high-stakes face-off, but we believe the US holds more cards. At the same time, President Xi is not afraid to allow his country to endure years of financial hardship. So China can play the waiting game longer than the US. Perhaps the biggest threat to Trump’s objective is mounting political pressure from both sides at home. The US mid-term elections are just 18 months away—even a minor uptick in the unemployment rate and job losses in key blue-collar areas, like trucking, would further weaken Trump’s approval of his handling of the economy among Republicans and Democrats. 

A recent CNBC survey found that 47% of supply chain firms plan job cuts, and a Fed survey noted surging layoff fears. Furthermore, consumer confidence would only worsen once goods and groceries turn more expensive. A higher MSRP for Switch 2 is one thing, but household upheaval could transpire if family essentials cost just 10% more.

Effective Tariff Rates Between the US and China Have Skyrocketed

Source: Goldman Sachs

Since Trump’s win last November, Allio has outlined a likely scenario in which the US economy undergoes some pain before a new era of private-sector-led American Exceptionalism begins. Resetting global trade with allies, partners, and adversaries is required. 

Earlier this year, the president suggested that Americans might feel a bit of pain due to tariffs, but that on the other side of fairer trade deals lie better terms for families and businesses at home. Moreover, returning manufacturing in some industries will improve national security and provide new, better jobs for the working class. 

Why It’s Different This Time

Unlike COVID, all of these risks stem from deliberate policy. There will be options for corporate executives to weigh. Their decisions may not be easy, but tactics such as front-loading supplies and re-routing finished goods can soften the near-term blow. 

As for the visceral fear of depleted stores, it’s likely that would only occur in toys, apparel, and low-priced home goods—not at the grocery store. For Temu and Shein fans, closing the de minimis tax loophole could materially hit e-commerce retail sales beginning in Q2. Other niches of the consumer industry may require stimulus boosts from the Trump administration. Recall during Trump 1.0, US farmers received significant loans and grants to keep them afloat. Lower-end retailers dependent on cheap Chinese imports and already operating lean may be particularly vulnerable. 

Zooming out, Trump’s vision of reshoring manufacturing will eventually more than offset near-term disruptions brought about by trade frictions. Incentivizing factory production and at-home automation may fuel the next industrial boom, one that leverages AI and robotics alongside a high-skilled workforce. This next wave will not look like manufacturing jobs of the past, as Trump critics like to assert. Rather, America’s entrepreneurial spirit and solid industrial base give us an edge over China’s state-owned model. 

The Trade War and Your Portfolio

For investors, all that has played out since Liberation Day is on par with expectations for a GDP soft patch over the next year-plus. We have been monitoring indicators that may suggest slowing economic growth, so a defensive asset allocation would make sense in our view. We have also underscored, however, that stocks tend to bottom well before a macro trough. It’s even possible that the near-20% S&P 500 pullback from February through mid-April marked a cyclical low in equities. Historical analogs are mixed—we can look to the comparable drawdowns in 1990, 1998, 2011, and late 2018 for clues on how markets might perform over the balance of 2025, although history may not repeat itself.

Often, so-called “re-tests” of the initial low take place. We saw that in 1998 and 2011—after panic plunges, stocks recovered, wobbled, and then fell back. More recently, during Trump’s first term, Chair Powell and the Fed pulled a dovish 180, which helped to quell the Q4 2018 correction. While nobody has a crystal ball to guide them through this volatility bout, Trump and the Fed may steer the S&P 500. Perhaps the best way to frame tariff risk is to consider it a policy dimmer, not an on/off switch. 

Trump has demonstrated flexibility as stock and bond markets have ebbed. Moreover, Treasury Secretary Scott Bessent, who calls current tariff levels “unsustainable,” appears to be helming the policy ship, keeping Commerce Secretary Howard Lutnick and Peter Navarro, economic advisor to the president, in the background, much to the bulls’ appreciation. A reshuffling of the executive trade-policy pecking order could be the bearish trigger to send the S&P 500 back toward its April 7 low.

Media Headlines for Lutnick, Bessent, Navarro

Source: RenMac, Bloomberg

Investors must also listen for clues from the Fed over the remainder of 2025. Bond traders price in three or four quarter-point cuts this year, but that outlook depends on the hard data illustrated earlier. So long as the labor market holds up, the Federal Open Market Committee (FOMC) may be on hold. 

So, we do see both a Trump and Fed “put,” but that downside support is perhaps below 5000 on the S&P 500. Amid a periodic feud between Trump and Powell, the Fed chair has warned that tariffs could spark persistent inflation, forcing the FOMC to keep interest rates elevated to anchor broader expectations.

Risk Management is Crucial Today

At a macro level, Ray Dalio claims the global economy may be at a once-in-a-generation crossroads. Dramatic economic shifts away from globalization and toward President Trump’s America First agenda could spark a steep slowdown. The monetary system is in flux—look no further than gold’s tremendous rally since 2024. The political order has been upended, with once-steady alliances and geopolitical relationships being tested. 

A diversified macro approach is one of several strategies investors may consider in volatile environments. That means diversifying among stocks, bonds, commodities, real estate, precious metals, and crypto. Allio’s proprietary ALTITUDE AI™ technology is designed to support portfolio construction using quantitative inputs, harnessing strategies using large-language models to create dynamic macro portfolios. You can take the DIY approach or invest with our team.

The Bottom Line

We don’t think Christmas will be canceled this year, but Nintendo’s saga is a front-and-center retail reality of how quickly changing global trade policies can disrupt an in-demand product. At the very least, price hikes are likely on goods coming from China. At worst, container traffic will reach a standstill this summer, and the US supply chain will be temporarily severed. 

Allio continues to game it out.