US-China Trade Deal: Navigating Rare Earth Leverage and Semiconductor Stakes

The high-stakes US-China trade negotiations in London this week underscore a critical inflection point for global supply chains, particularly in two strategically vital sectors: rare earth minerals and semiconductors. With tariffs, export controls, and industrial policies at the heart of the dispute, the emerging framework agreement has created both opportunities and risks for investors. Here's how to parse the asymmetric dynamics shaping this new trade calculus.

Rare Earths: China's Strategic Card

China's near-monopoly on rare earth production—accounting for 70% of global mining and 90% of refining—remains its primary leverage in these talks. Despite proposing a “green channel” to stabilize exports, Beijing has reduced rare earth shipments to the US by over 20% in 2025 compared to 2024, citing domestic industrial priorities. This creates a dual-edged scenario for investors:

• Opportunity: Companies exposed to rare earth mining and magnet production could benefit if the framework leads to tariff reductions or supply chain normalization. The automotive and renewable energy sectors, which rely on rare earth magnets for electric vehicles and wind turbines, are prime beneficiaries.
• Risk: The framework's fragility—already tested by accusations of truce violations—means supply disruptions could persist. Investors should prioritize firms with diversified rare earth sourcing or vertical integration, such as Lynas Corporation (LYC) or MP Materials (MP), which control critical processing facilities outside China.

Semiconductors: The US Tech Firewall

While China dominates rare earths, the US retains an unassailable lead in advanced semiconductor design and manufacturing. Washington has weaponized this advantage by tightening export controls on AI chips, quantum computing hardware, and chip-design software. Beijing's inability to produce these high-end components—coupled with US visa restrictions targeting Chinese students—has intensified its vulnerability.

Investors must weigh two conflicting dynamics:
- Risk: Semiconductor firms reliant on China's market, such as ASML (whose lithography machines are critical for chipmaking) or NVIDIA (whose GPUs power AI systems), face headwinds if the US maintains or expands export bans.
- Opportunity: US-based semiconductor equipment companies like Applied Materials (AMAT) or Lam Research (LRCX) could gain as global manufacturers seek non-Chinese suppliers to avoid supply chain blacklists.

Asymmetric Sector Stakes and Investment Playbook

The trade framework's success hinges on whether both sides can decouple their leverage without triggering systemic shocks. Here's how to position portfolios:

1. Overweight Rare Earths and Magnets:
2. MP Materials (MP): The largest US rare earth producer, benefiting from bipartisan support for domestic supply chains.

3. TerraForm Power (TERP): Renewable energy infrastructure firms with exposure to wind turbine magnet demand.

4. Underweight China-Exposed Semiconductors:

5. Avoid pure-play Chinese semiconductor stocks like SMIC (0981.HK) until export controls are eased.

6. Favor Taiwan Semiconductor Manufacturing (TSM), which straddles both US and Chinese markets but maintains flexibility in retooling supply chains.

7. Monitor the July 9 Deadline:
   If talks stall, expect the US to impose retaliatory tariffs on $200 billion of Chinese goods, amplifying volatility. Investors should hedge with put options in semiconductor ETFs like SOXX or PSI.

Conclusion: A Fragile Equilibrium

The US-China trade framework presents a mosaic of sector-specific outcomes. While rare earths offer a clearer path to de-escalation-driven gains, semiconductors remain hostage to geopolitical posturing. Investors must treat these sectors as distinct plays: bet on rare earths as a resolution trade and brace for semiconductor headwinds until tech controls ease. With the July deadline looming, patience—and diversified exposure—will be key to navigating this high-stakes landscape.