Assessing Geopolitical Risk and Opportunity in the US-China Trade Truce: Strategic Positioning in Critical Materials and Export-Dependent Sectors

The October 2025 trade truce between the United States and China, brokered during a summit in South Korea, has introduced a fragile but significant pause in the decade-long escalation of tariffs and export controls. This agreement, while temporary, has reshaped dynamics in critical materials and export-dependent sectors, creating both risks and opportunities for investors. By analyzing the strategic positioning of both nations in rare earth elements, semiconductors, and agricultural trade, we can better assess the implications for global markets and long-term capital allocation.

Critical Materials: Rare Earths and Semiconductor Supply Chains

China's dominance in rare earth elements (REEs) remains a cornerstone of its geopolitical leverage. In October 2025, Beijing agreed to suspend new export controls on REEs for one year, easing immediate supply chain pressures for U.S. manufacturers reliant on these materials for electric vehicle magnets and semiconductor production. However, this concession was paired with a strategic move: China introduced Announcement No. 61 of 2025, applying the foreign direct product rule (FDPR) to rare earth magnets for the first time. This policy requires foreign firms to obtain Chinese approval to export magnets containing even trace amounts of Chinese-origin materials or technologies, effectively extending Beijing's control over global supply chains.

The U.S. response has been twofold. First, it secured general licenses for U.S. and global suppliers to access Chinese exports of gallium, germanium, and other critical minerals. Second, Washington has accelerated domestic production through initiatives like the Department of Defense's $400 million equity investment in MP Materials, aimed at scaling rare earth magnet manufacturing. While these steps signal progress, analysts caution that China's 90% share of global rare earth refining and 70% of mining remains unchallenged due to cost advantages and advanced processing capabilities.

Semiconductor tensions persist despite the truce. The U.S. has not lifted export bans on advanced AI chips like Nvidia's Blackwell, while China's state-owned enterprises are increasingly prioritizing domestic alternatives. Recent volatility in Chinese semiconductor stocks, triggered by U.S. discussions about easing restrictions on Nvidia's H200 chips, underscores the sector's sensitivity to geopolitical shifts. Investors must weigh short-term access to U.S. technology against China's long-term self-reliance goals, which include acquiring advanced chip-making equipment to boost AI capacity.

Export-Dependent Sectors: Agriculture and Strategic Commodities

The truce has also injected stability into export-dependent sectors, particularly agriculture. China's commitment to purchase 12 million metric tons of U.S. soybeans by early 2026 and 25 million metric tons annually for three years represents a critical lifeline for U.S. farmers, who have faced declining demand due to prior trade disputes. This agreement, however, hinges on the truce's durability. If tensions resurge in 2026, as expected when the deal expires, U.S. agricultural exports could face renewed headwinds.

Strategic Positioning for Investors

For investors, the truce creates a dual-edged landscape. On one hand, the temporary easing of REE export controls and soybean commitments offer near-term opportunities in supply chain resilience and commodity markets. On the other, the underlying structural competition-particularly in semiconductors and rare earth refining-remains unresolved.

Key investment themes include:
1. Critical Materials Producers: U.S. firms like MP Materials and Noveon Magnetics, which are benefiting from government support, present growth potential but face long-term challenges against China's cost advantages.
2. Supply Chain Technology: JD.com's supply-chain unit, Jingdong Industrials Inc., is preparing a $500 million Hong Kong IPO to expand AI-driven logistics capabilities. This aligns with broader trends in capital markets, where Hong Kong listings are projected to exceed $40 billion in 2025. However, market skepticism about recent IPO underperformance suggests caution.
3.
Agricultural Commodities: U.S. soybean producers and logistics firms stand to gain from China's procurement pledges, though exposure to geopolitical volatility remains a risk.

Geopolitical Risks and the Path Forward

The truce's expiration in 2026 looms as a major risk. Analysts warn that unresolved disputes over Taiwan, AI, and semiconductor technology could reignite tensions. Additionally, China's FDPR on rare earth magnets has created a precedent for expanding export controls, which could undermine U.S. efforts to build independent supply chains.

Investors must adopt a hedged approach, balancing exposure to near-term opportunities with diversification across geographies and sectors. For example, while U.S. rare earth investments offer strategic alignment with government priorities, they should be paired with positions in alternative materials or recycling technologies to mitigate reliance on any single region.

Conclusion

The 2025 U.S.-China trade truce has temporarily recalibrated global supply chains, offering breathing room for critical materials and export-dependent sectors. However, the underlying geopolitical rivalry remains intact, with both nations investing heavily in strategic industries. For investors, the path forward lies in identifying companies and markets that can navigate this dual narrative of cooperation and competition. As the truce's expiration approaches, vigilance and adaptability will be paramount.