U.S.-China Trade Truce or Turmoil? Semiconductor and AI Stocks Face a Volatile Road to Long-Term Dominance

The U.S.-China trade negotiations in July 2025 have entered a critical phase, with tariff truces and unresolved structural issues creating a volatile backdrop for tech investors. While near-term risks remain elevated, the semiconductor and AI sectors are positioned to benefit from long-term structural tailwinds. Here's how to navigate the turbulence.

Near-Term Volatility: Trade Deal Uncertainties and Tariff Pressures

The July 9 deadline for finalizing U.S.-China trade terms looms large. The current truce has reduced tariffs to 55% on Chinese imports and 10% on U.S. goods, down from earlier peaks of 145% and 125%, respectively. However, critical issues—such as China's rare earth export controls and U.S. restrictions on chip design software—remain unresolved.

The stakes are high for semiconductor stocks. Companies like NVIDIA (NVDA) and AMD (AMD), which rely on Chinese manufacturing and export controls, face immediate headwinds. A failure to finalize terms could reignite tariff hikes, squeezing margins and valuations.

Example: NVDA fell 15% in early 2025 amid tariff uncertainty but rebounded as truce talks advanced.

Meanwhile, China's retaliatory tariffs on U.S. tech exports—such as a 74.9% duty on POM copolymers used in automotive electronics—highlight the asymmetry of pain. U.S. firms exposed to these sectors (e.g., DuPont (DD)) face near-term pressure.

Long-Term Opportunity: AI and Semiconductors Are the New Oil

Beneath the noise, the demand for semiconductors and AI infrastructure remains insatiable. The global AI market is projected to grow at a 37% CAGR through 2030, driven by autonomous vehicles, cloud computing, and industrial automation.

Semiconductor firms are the linchpin of this growth. Advanced chip designs (e.g., NVIDIA's H100 GPUs) are critical to training AI models, while 5G and EV adoption require ever-greater computational power. Even in a trade-war scenario, the structural demand for these technologies cannot be ignored.

Chinese semiconductor firms like SMIC (0981.HK), though hampered by U.S. export controls, are accelerating domestic innovation. The U.S.-China truce's rare earth agreement—a key input for semiconductors—hints at a pragmatic détente in critical supply chains.

Investment Strategy: Focus on Diversification and Leadership

The path forward requires balancing short-term risks with long-term fundamentals:

1. Overweight AI Hardware Leaders: Companies like NVIDIA (NVDA) and AMD (AMD) dominate AI chip design and are positioned to capitalize on secular growth. Their scale and R&D budgets insulate them from near-term trade noise.

2. Underweight Supply-Chain Exposure: Avoid firms overly reliant on a single geography or export-controlled inputs. Intel (INTC), for instance, faces dual challenges of U.S.-China tensions and declining market share in advanced chips.

3. Monitor Geopolitical Catalysts: The July 9 deadline is a key inflection point. A successful deal could unlock a 10–20% rally in semiconductor stocks, while failure could trigger a rotation into defensive sectors.

4. Consider China's Domestic Play: SMIC and Huawei (HWT)—though sanctioned—are accelerating R&D in AI chips and 5G. A post-2025 trade deal could unlock their growth potential, making them a “buy the dip” opportunity.

Conclusion: Volatility Now, Value Later

The U.S.-China trade negotiations are a classic case of “buy the rumor, sell the news.” Near-term volatility will test investors, but the underlying demand for semiconductors and AI is too strong to ignore. Investors with a 3–5 year horizon should use dips to accumulate positions in industry leaders like NVDA and AMD, while keeping a wary eye on geopolitical headlines.

Example: Semiconductors trade at a 25% discount to their 10-year average P/E, suggesting undervaluation amid current uncertainty.

The truce or turmoil ahead won't change the endgame: semiconductors and AI are the engines of the 21st-century economy. Stay disciplined, and let the volatility work in your favor.