China's Trade Rebound: Navigating Strategic Opportunities in Export-Driven Sectors Amid U.S. Tariff Truce

The recent release of China's June trade data has sent ripples through global markets, revealing a 5.8% year-on-year surge in exports—a marked improvement over forecasts and a testament to the tentative U.S.-China tariff truce. As businesses rush to capitalize on a 90-day tariff reprieve, the data highlights strategic opportunities in export-driven sectors like technology, manufacturing, and materials. However, lingering risks—such as domestic demand weakness and unresolved trade disputes—demand a nuanced investment approach.

Key Drivers of June's Export Surge

China's export rebound, fueled by the May 2025 tariff truce, reflects a race to exploit favorable terms before the August 12 deadline. Businesses accelerated shipments to the U.S., while diversification efforts into Southeast Asia and the EU offset declines in American-bound goods. Notably, rare earth exports jumped by 60% year-on-year in June to 7,742 metric tons, signaling progress in resolving the trade war's most contentious issue.

The rare earth boom is directly tied to U.S.-China agreements to resume shipments of critical minerals like terbium and dysprosium, vital for electric vehicles (EVs), wind turbines, and defense systems. However, the truce remains fragile: only 60% of rare earth export licenses were approved by early July, and prices for oxides like Pr-Nd have surged to 470,000 yuan per ton, driven by supply tightness and speculative demand.

Sectors to Watch: Tech, Manufacturing, and Materials

1. Technology & Semiconductor Sectors
The tariff truce has eased pressure on Chinese tech firms reliant on U.S. chip imports. Companies like ZTE (0763.HK) and Huawei—which supply telecom equipment to global markets—benefit from reduced trade barriers. Meanwhile, U.S. tech firms like Applied Materials (AMAT), which export semiconductor equipment to China, may see orders rebound.

2. Advanced Manufacturing
Exports of machinery, EVs, and industrial robots—China's top growth sectors—are booming. In January–May 2025, equipment manufacturing exports rose 9.2% year-on-year, accounting for 58% of total exports. BYD (002594.SZ), a leader in EVs, reported a 19% export growth in the same period, underscoring demand from Europe and Asia.

3. Materials & Heavy Industry
Steel and aluminum exports hit 7- and 6-month highs in June, benefiting from global infrastructure spending. China Baowu Steel (0359.HK), the world's largest steelmaker, stands to gain as Asian and European demand for construction materials recovers. Rare earth producers like China Northern Rare Earth (600111.SH) also see tailwinds, though investors should monitor licensing delays and price volatility.

Investment Opportunities and Risks

Bullish Case:
- Near-term upside exists in firms exposed to U.S. and EU markets, particularly in tech, EVs, and industrial goods.
- The tariff truce reduces supply chain disruptions, stabilizing margins for manufacturers.
- Rare earth prices may remain elevated, benefiting miners and processors.

Bearish Risks:
- Domestic demand weakness persists: China's Q2 GDP growth slowed to 5.1%, hampering sectors reliant on internal consumption.
- The August 12 deadline looms: A failure to finalize a durable deal could reignite tariffs, reversing export gains.
- Overcapacity in materials (e.g., coal, copper) and weak industrial activity may cap upside for heavy industries.

Positioning Strategy

Investors should prioritize companies with diversified export portfolios and exposure to high-growth sectors:
- Technology: ZTE, Huawei (indirect via supply chains), and U.S. chipmakers like ASML (ASML).
- Manufacturing: BYD, Sany Heavy Industry (600031.SH) (construction machinery), and Shanghai Electric (601727.SH) (wind turbines).
- Materials: China Northern Rare Earth, Ganzhou Rare Earth (600592.SH), and steel giants like Baowu Steel.

Caution: Avoid domestic-heavy stocks (e.g., property developers, consumer staples) until consumption recovers. Diversify into ETFs tracking China's export sectors, such as the CS New Energy Vehicles Index (930997) or the Shanghai Semiconductor Index (000001).

Conclusion

China's June trade data underscores the fragility of its recovery: while export-driven sectors thrive on improved U.S. access, domestic demand and geopolitical risks remain stumbling blocks. Investors should embrace opportunities in tech, EVs, and rare earths, but hedge against August's looming trade deadline. The path forward hinges on Beijing and Washington's ability to forge a lasting deal—one that could redefine global supply chains for years to come.