Uncertainty in U.S.-China Trade Relations Under Trump's Return: Strategic Sector Positioning for Geopolitical Risk

The return of Donald Trump to the White House in 2024 has reignited a volatile chapter in U.S.-China trade relations, marked by escalating tariffs, export controls, and strategic economic coercion. As of October 2025, the Trump administration's 100% additional tariffs on Chinese imports-compounded by China's retaliatory port fees and rare-earth export restrictions-have created a perfect storm of uncertainty for global markets. For investors, navigating this landscape requires a nuanced understanding of sector-specific vulnerabilities and opportunities. This analysis outlines strategic positioning for three critical sectors: rare earths, semiconductors, and energy, while emphasizing risk mitigation frameworks.

Rare Earths: A Strategic Bottleneck and Investment Frontier

China's dominance in rare-earth processing-accounting for 70% of U.S. imports-has become a geopolitical weapon, as AP reported. Recent export controls on materials like dysprosium and neodymium, essential for defense systems and EVs, have forced the U.S. to accelerate domestic production. The Trump administration's invocation of wartime emergency powers to support firms like MP Materials (NYSE: MP) underscores this shift, as described in a Motley Fool roundup. For investors, rare-earth ETFs such as the VanEck Rare Earth/Strategic Metals ETF (REMX) and the iShares Transition-Enabling Metals ETF (TMET) offer diversified exposure to this critical sector, according to a Rare Earth Exchanges roundup. However, volatility remains high, as China's leverage over processing infrastructure ensures short-term supply constraints.

Strategic positioning here demands a dual approach:
1. Long-term bets on U.S. and EU supply chain resilience, including junior miners and recycling firms.
2. Short-term hedging via ETFs, which mitigate company-specific risks while capturing sector-wide growth.

Semiconductors: A Tech Cold War and Capital Reallocation

The semiconductor sector has become a proxy for the U.S.-China tech rivalry. Trump's tariffs on Chinese imports and export restrictions on advanced U.S. software have collided with China's retaliatory measures, including antitrust actions against American firms. Meanwhile, the CHIPS and Science Act of 2022 continues to drive domestic investment, though Trump's administration has slowed funding disbursements, according to a Carnegie Endowment analysis.

Investors should prioritize ETFs like the VanEck Semiconductor ETF (SMH) and the SPDR S&P Semiconductor ETF (XSD), which offer exposure to both AI-driven chipmakers (e.g., Nvidia) and diversified manufacturers, as the AP noted. However, geopolitical risks persist: China's potential to weaponize its control over rare-earth inputs for semiconductor manufacturing could disrupt global supply chains, a FAF analysis warns. Positioning here requires balancing growth in AI-driven semiconductors with defensive plays in supply chain diversification.

Energy: Transitioning to Resilience Amid Geopolitical Fractures

The energy sector faces dual pressures: U.S. tariffs on Chinese cleantech products (e.g., solar panels, lithium-ion batteries) and China's export curbs on rare-earth materials critical for renewable technologies. These dynamics threaten the global clean energy transition, with 25% of lithium-ion battery exports in 2024 directed to the U.S., a FAF analysis noted.

Investors should consider energy ETFs like the Energy Select Sector SPDR Fund (XLE) for fossil fuel exposure and the iShares Global Clean Energy ETF (ICLN) for renewables (as highlighted by Motley Fool). However, true resilience requires:
- Diversifying energy sources to reduce reliance on China for critical minerals.
- Leveraging regional partnerships, such as the U.S.-Mexico-Canada Agreement (USMCA), to secure energy infrastructure, as the Carnegie Endowment has recommended.
- Prioritizing companies with vertical integration, such as those developing in-house rare-earth processing capabilities.

Geopolitical Risk Mitigation: A Framework for Investors

1. Diversify supply chains: Shift sourcing to Vietnam, India, and Mexico to buffer against retaliatory tariffs, according to Frost Brown Todd.
2. Leverage trade programs: Utilize free trade agreements and tariff drawback programs to defer costs (Frost Brown Todd also outlines mitigation strategies).
3. Adopt dynamic hedging: Use credit protection and netting arrangements to manage counterparty risks, as the Carnegie Endowment analysis suggests.
4. Focus on sectoral agility: Prioritize companies with modular production systems capable of rapid reconfiguration, a point emphasized in the FAF analysis.

Conclusion

The Trump administration's aggressive trade policies have transformed U.S.-China relations into a high-stakes game of economic brinkmanship. For investors, the path forward lies in strategic sector positioning-capitalizing on rare-earth and semiconductor ETFs while hedging against energy sector fragilities. As geopolitical risks evolve, agility and diversification will remain paramount.