A New Calculus in Tech Diplomacy: How Nvidia's China Trade Thaw Reshapes Semiconductor and Rare Earths Markets

The U.S.-China trade relationship, long defined by friction over technology and national security, has taken a sharp turn. The Biden administration's decision to lift export restrictions on Nvidia's AI chips to China marks a pivotal shift in Washington's approach to tech diplomacy—one that prioritizes economic pragmatism over rigid security concerns. This move, alongside China's parallel easing of rare-earth export restrictions, signals a strategic realignment in which both nations are recalibrating their leverage points to secure long-term economic advantage. For investors, the implications are profound: the semiconductor sector and rare earths suppliers now sit at the center of a thawing cross-border tech trade landscape, ripe with opportunity—and risk.

The Nvidia Pivot: A Window into U.S. Strategy
The U.S. approval for Nvidia to resume sales of its H20 AI chips to China, announced in early July 2025, reverses a ban imposed just three months earlier. The H20, a less powerful variant of the H100 chip, is now deemed compliant with U.S. export controls—a compromise that allows Beijing to access critical AI infrastructure while Washington retains some oversight. Nvidia's CEO, Jensen Huang, is in Beijing this week to seal deals and engage with government officials, a trip that underscores the strategic importance of China as a market (accounting for 13% of Nvidia's fiscal 2024 revenue).

The decision is not purely altruistic. U.S. officials are gambling that economic gains—potentially unlocking $15–$20 billion in revenue for Nvidia—will outweigh the risks of enabling Chinese AI advancements. “This is a calculated bet that commercial ties can be leveraged to dilute China's military tech ambitions,” says a former U.S. trade official.

The Rare Earths Connection: A Two-Way Street
The semiconductor thaw coincides with China's own moves to ease restrictions on rare-earth exports—a resource vital for chip manufacturing and clean energy. Beijing's decision to relax controls on rare-earth oxides and alloys, announced in June .

The strategic shift toward economic incentives over security concerns opens three clear avenues for investors:

1. Nvidia (NVDA): The immediate beneficiary. The resumption of H20 sales alone could add ~$10–$15 billion to its revenue over the next 12 months, assuming full market access. Historically, earnings releases have shown that a buy-and-hold strategy post-earnings has performed well: from 2022 to present, NVDA saw a 64.29% win rate over 10 days and a maximum return of 2.46% on day 27 following earnings. This suggests that holding through post-earnings volatility, such as the -0.35% 3-day dip, can yield positive results. Investors should watch for Q3 2025 earnings, where China's AI adoption rates will be a key metric.

2. AMD (AMD): A secondary play on the semiconductor thaw. AMD's AI chips, which avoid the export controls targeting Nvidia's H100, could see accelerated adoption by Chinese firms seeking alternatives. AMD's stock has historically outperformed during periods of tech trade liberalization.

3. Rare Earths Suppliers: Companies like Molycorp (MCP) and Lynas Corporation (LYD) are positioned to benefit from China's export easing. Lower rare-earth prices could reduce input costs for U.S. semiconductor firms, while China's push for domestic chip production (to rival U.S. firms) will sustain demand.

The Risks Lurking Beneath the Thaw
Optimism must be tempered. U.S. regulators could reimpose restrictions if China's AI advancements cross perceived redlines—particularly in military applications. Meanwhile, China's own reliance on U.S. chips may slow its push for domestic alternatives like Huawei's Kunpeng chips. Bipartisan congressional pushback, as seen in letters from Senators Warren and Banks to Huang, suggests political headwinds remain.

For now, the balance tilts toward economic realism. Investors who bet on the durability of this détente could profit handsomely—but must remain vigilant to the ever-present risk of policy reversal.

Final Take: Position for the New Tech Trade Paradigm
The Nvidia-China deal isn't just about chips; it's about defining the rules of engagement in the AI era. By relaxing export controls, the U.S. has acknowledged that cutting off China's access to AI infrastructure may only accelerate its self-reliance. For investors, this means focusing on companies at the intersection of geopolitical compromise: semiconductors for growth, and rare earths for stability.

The playbook is clear: overweight NVDA and AMD for their direct exposure to AI demand, and pair them with rare earths plays to hedge against supply chain volatility. The thaw may yet freeze—but for now, the ice is breaking.