Navigating the US-China Trade Crossroads: Sector-Specific Strategies for Global Equities

The U.S.-China trade talks, now in a fragile truce after years of escalating tensions, have reached a pivotal juncture. With tariffs still elevated, rare earth minerals as geopolitical leverage, and semiconductor tech access at the heart of negotiations, investors face a landscape of uncertainty and opportunity. Here's how to position portfolios for sector-specific risks and rewards.

The Tech Sector: US Chipmakers as Critical Plays

The semiconductor industry is ground zero for the tech decoupling narrative. U.S. chipmakers like Intel (INTC) and AMD (AMD) are beneficiaries of strategic U.S. policies aimed at reducing reliance on Chinese manufacturing. Despite recent layoffs in the broader tech sector—driven by AI-driven automation and cost-cutting—semiconductor firms are positioned to benefit from long-term demand for advanced chips in AI, 5G, and autonomous vehicles.

Intel's stock, for instance, has outperformed the broader market since the start of 2025, reflecting investor confidence in its role as a key supplier to industries less exposed to trade tensions. Meanwhile, China's struggle to develop domestic semiconductor capabilities (due to U.S. export curbs) has created a structural tailwind for U.S. chip stocks.

Investment Thesis:
- Long positions in US semiconductor stocks (e.g., INTC, AMD, ASML) offer exposure to a sector insulated from trade volatility.
- Avoid pure-play Chinese chip stocks, which face regulatory and technical headwinds.

Automotive Sector: Caution Amid Tariff-Driven Costs

The automotive industry is caught in a vice grip of rising production costs and weak demand. U.S. tariffs on Chinese imports have forced automakers like General Motors (GM) and Ford (F) to seek alternative supply chains, but progress remains incremental. Meanwhile, China's deflationary pressures (PPI down 3.3% in May 2025) are squeezing margins for manufacturers, with factory jobs declining 8,000 in May alone.

While U.S. automakers have some tariff relief, the sector's profitability remains tied to China's recovery. Investors should avoid overexposure to automotive equities until trade certainty and demand stabilize.

Commodities: Hong Kong Equities as a Value Play

China's deflation (CPI at -0.1% in May 2025) has created a buying opportunity in Hong Kong-listed equities. The Hang Seng Index, which includes commodity-linked firms like China National Building Materials and CNOOC, has been undervalued due to fears of a hard landing. However, Beijing's policy tools—monetary easing, fiscal subsidies—are slowly gaining traction.

With China's central bank cutting rates and injecting liquidity, Hong Kong equities could rebound if deflation eases and exports stabilize. Investors should consider selective long positions in Hong Kong stocks tied to infrastructure and energy sectors, which benefit from domestic stimulus.

Deflationary Pressures: A Double-Edged Sword

China's deflation is both a risk and an opportunity. Weak PPI data reflects overcapacity and weak demand, but it also creates a “deflation dividend” for consumers—potentially boosting discretionary spending over time. For now, sectors like consumer discretionary (e.g., Alibaba's JD.com) are cautiously optimistic, but their growth hinges on job market stability.

The tech job market's shift—8% fewer entry-level roles since 2022—suggests a structural shift toward automation, favoring firms investing in AI (e.g., Microsoft (MSFT)). Conversely, sectors reliant on China's exports (e.g., agricultural commodities) face prolonged headwinds.

Investment Recommendations

1. Buy US semiconductor stocks: Long positions in INTC, AMD, and ASML offer exposure to a sector critical to U.S. tech dominance.
2. Dip into Hong Kong equities: Look for bargains in infrastructure and energy firms listed in Hong Kong, but set tight stop-losses.
3. Avoid tariff-sensitive industries: Auto, machinery, and export-heavy sectors remain vulnerable to further trade shocks.
4. Monitor deflation trends: A rebound in China's PPI could trigger a rotation into cyclical commodities.

Conclusion

The U.S.-China trade talks are a marathon, not a sprint. Investors must stay attuned to sector-specific dynamics. U.S. chipmakers and Hong Kong equities offer asymmetric upside, while industries exposed to tariffs or deflationary headwinds demand caution. The key is to avoid blanket bets and focus on companies positioned to thrive in this fractured landscape.

As the negotiations drag on, one truth remains clear: the sectors that navigate trade uncertainty with innovation and resilience will outperform.