Navigating US-China Trade Dynamics: Opportunities in Rare Earths, Tech, and Supply Chain Rebalancing

The U.S.-China trade relationship remains a volatile yet pivotal axis of global economic strategy. While tensions have escalated in 2025-marked by China's export controls on rare earth elements and U.S. retaliatory tariffs-there are early signs of de-escalation through indirect cooperation and strategic diversification. For investors, this duality of conflict and collaboration creates a unique landscape of risk and reward. By analyzing sector-specific developments in rare earths, cutting-edge technology, and supply chain realignment, we can identify opportunities to position portfolios for resilience and growth.

Rare Earths: A Strategic Bottleneck and a Policy-Driven Market

China's recent imposition of export controls on 12 rare earth elements has intensified scrutiny over its dominance in this critical resource. According to a Modern Diplomacy report, these measures are framed as necessary to protect national security and regulate materials with military applications. While Beijing insists the controls are not an outright ban and will approve civilian-use applications, as China defended the controls, the policy has already disrupted global supply chains. The U.S. responded with a 100% tariff on Chinese goods, a move China criticized as hypocritical.

For investors, the rare earths sector presents a paradox: geopolitical risk coexists with long-term demand from clean energy and defense technologies. Companies outside China, such as U.S.-based MP Materials and Australia's Lynas Rare Earths, are gaining traction as alternative suppliers. However, the high cost of establishing new processing infrastructure and the time required to scale production mean that China's dominance is unlikely to wane quickly. A strategic approach here might involve hedging-investing in both rare earths producers and firms developing substitutes, such as recycling technologies or alternative materials.

Quantum Computing and the Tech Arms Race

The U.S.-China tech rivalry is accelerating innovation in frontier fields like quantum computing. On October 24, 2025, IBM and AMD achieved a breakthrough by running a quantum error-correction algorithm in real time on an AMD FPGA chip, according to an El-Balad report. This milestone, a year ahead of IBM's projected timeline, underscores the potential of hybrid quantum-classical systems and highlights the value of cross-border collaboration, per an Evrimagaci article. Meanwhile, China has unveiled a 10-year plan to dominate high-tech sectors, including quantum technology and brain-computer interfaces, according to an Economic Times report.

Investors should focus on two trends:
1. U.S. Leadership in Commercialization: Firms like IBM and AMD, which are bridging the gap between theoretical quantum research and practical applications, are prime candidates for growth.
2. China's State-Driven Innovation: While Western investors may face restrictions on direct investment in Chinese tech firms, indirect exposure through global partnerships or semiconductor suppliers could offer upside.

The sector's rapid evolution demands a balanced portfolio, combining early-stage bets on quantum startups with defensive plays in established tech giants.

Supply Chain Rebalancing: Vietnam, India, and the New Geopolitical Order

U.S. firms are increasingly shifting supply chains to countries like Vietnam and India to mitigate the impact of Chinese tariffs. A McKinsey analysis reveals that 35% of U.S. imports from China have a "rearrangement ratio" below 0.1, meaning alternative suppliers are readily available. Vietnam, in particular, has emerged as a key replacement for Chinese electronics exports, accounting for over 80% of ASEAN's increased shipments to the U.S. India, despite its own trade barriers, is also gaining traction due to its geopolitical alignment with the West.

However, the "great trade rearrangement" is not without challenges. For products like rare earth magnets-where China's rearrangement ratio exceeds 1.0-finding alternatives is nearly impossible. This reality suggests that full decoupling between the U.S. and China is unlikely; instead, supply chains are becoming more "friendshored," with indirect ties persisting through third-party partners.

Investors should prioritize companies with strong footholds in Vietnam and India, such as semiconductor manufacturers and logistics providers. Additionally, firms that facilitate cross-border collaboration-like those offering supply chain analytics or dual-use technology-could benefit from the hybrid model of competition and cooperation.

Strategic Positioning: Balancing Risk and Reward

The U.S.-China trade dynamic is neither a zero-sum game nor a static conflict. While tensions will likely persist, the interdependence of global supply chains and technological ecosystems ensures that opportunities will emerge. Investors must adopt a multi-pronged strategy:
- Short-Term: Hedge against rare earths volatility and U.S. tariff risks by diversifying suppliers and investing in recycling technologies.
- Medium-Term: Allocate capital to quantum computing and AI, where both U.S. and Chinese firms are driving innovation.
- Long-Term: Position for supply chain realignment by targeting growth in Vietnam and India, while monitoring geopolitical developments that could reshape trade policies.

As the world navigates this complex landscape, agility and sector-specific insight will be the keys to unlocking value.