US-China Trade Truce Sparks Sector Rotation: Tech and Manufacturing Lead the Charge

The US-China trade truce announced in June 2025 has injected a dose of optimism into markets, with tariff reductions and 10 imminent deals poised to reshape supply chains and valuations. For investors, the agreement represents a critical inflection point—particularly for semiconductors and industrial components, where tariff-driven cost pressures have long constrained profitability. Here's how the truce could unlock opportunities and where to position portfolios for maximum upside.

Semiconductors: A Breathing Room for Innovation

The truce reduces reciprocal tariffs from 125% to 10%, though the 20% fentanyl-related duties remain, leaving an effective rate of 30% on most goods. For semiconductors, however, the temporary relief is a lifeline. U.S. firms like Applied Materials (AMAT) and Lam Research (LRCX)—which dominate chip manufacturing equipment—stand to benefit as Chinese foundries ramp up production to meet global demand.

Key Catalyst: The U.S. has eased export restrictions on critical materials like ethane and butane, while China agreed to resume rare earth shipments. Rare earth magnets, vital for chip production, now flow more freely, easing bottlenecks.

Analyst Take: “The truce buys time for semiconductor firms to rebuild margins,” said Sarah Chen, a tech analyst at Goldman Sachs. “Applied Materials' Q2 earnings showed a 15% sequential revenue jump as Chinese clients resumed orders. This trend could accelerate if the truce is extended.”

Industrial Components: Tariff Relief Meets Automation Demand

Industrial sectors face similar tailwinds. The 74.9% anti-dumping duty on POM copolymers—a material used in automotive and industrial machinery—has forced companies to seek alternatives or reshore production. The truce's 10% tariff cap on reciprocals reduces costs for firms reliant on Chinese imports, while automation giants like Rockwell Automation (ROK) and ABB (ABB) gain as businesses invest in robotics to offset labor shortages.

Key Catalyst: The truce's rare earth agreement ensures access to magnets for electric vehicles and industrial robots. ABB's order backlog for automation systems in Asia-Pacific rose 20% in Q2, driven by reshoring projects.

Analyst Take: “The truce reduces the cost of imported components by ~15% for industrial firms,” noted Michael Taylor of JPMorgan. “Rockwell's Q2 margins expanded 300 basis points as clients scaled back contingency spending on redundant suppliers.”

The 10 Deals: Beyond Tariffs, Into Supply Chain Resilience

The 10 imminent deals go beyond tariffs. Key areas include:
1. Rare earths and magnets: China commits to supplying “full magnets upfront” for U.S. manufacturers.
2. Technology sharing: U.S. software exports (EDA tools) may see relaxed restrictions, easing bottlenecks for Chinese chip designers.
3. Automotive parts: Lower tariffs on steel and aluminum (though still at 50%) stabilize costs for automakers like Tesla and Ford.

Analyst Take: “The deals are a reset button for supply chains,” said Li Wei, an analyst at CLSA. “Semiconductor firms like Micron (MU) could see a 5–7% margin improvement in 2026 if rare earths flow smoothly. But the truce's 90-day clock means investors must act quickly.”

Risks and Uncertainties

• Truce Expiration: The deal expires in July, with no guarantee of extension. Companies exposed to the 125% tariff risk (e.g., industrial metals) face renewed volatility.
• Non-Tariff Barriers: U.S. export controls on EDA software and China's military-use vetting for rare earths persist.
• Inflation Lingering: Even with lower tariffs, base effects and geopolitical uncertainty may keep inflation elevated in cyclical sectors like autos.

Investment Recommendations

1. Rotate into Semiconductor Equipment:
2. Buy: Applied Materials (AMAT) and Lam Research (LRCX). Both are leveraged to Chinese demand and have R&D pipelines insulated from tariffs.

3. Target: AMAT's valuation at 18x forward earnings is cheap relative to its 20%+ EPS growth potential.

4. Industrial Automation Leaders:

5. Overweight: Rockwell Automation (ROK) and ABB (ABB). Their automation solutions reduce reliance on tariff-heavy components.

6. Watch: Itron (ITRI) for smart infrastructure plays tied to supply chain resilience.

7. Avoid Tariff-Laden Sectors:

8. Underweight: Steel and aluminum producers (e.g., Nucor (NUE)) due to 50% tariffs and oversupply risks.
9. Stay Clear: Firms reliant on China's POM copolymers (e.g., small-cap industrial suppliers) until substitutes are secured.

Conclusion: Time to Rebalance

The US-China truce is a tactical win for sectors starved of supply chain stability. For now, semiconductors and industrial automation are the clear winners. Investors should prioritize companies with diversified supply chains and exposure to the 10 deals' core sectors. However, with expiration looming, this is a window—not a permanent shift. Act swiftly, but remain vigilant for geopolitical headwinds.

Actionable Play:
- Buy AMAT and ROK on dips below $150 and $230, respectively.
- Sell NUE above $50 unless steel tariffs are slashed permanently.

The next 90 days will test the truce's staying power—but for now, the path to profit is clear.