U.S.-China Trade Truce: Unlocking Rare Earths, Semiconductors, and Supply Chain Plays

The U.S.-China trade agreement reached in June 2025 marks a pivotal shift in a relationship long defined by friction. While geopolitical tensions remain, the framework deal addressing rare earth minerals and semiconductor restrictions offers a rare window of opportunity for investors. By dismantling export bottlenecks and easing technology barriers, the truce has created entry points in sectors critical to global supply chains—from EV manufacturing to aerospace and defense. Here's how to position for this emerging landscape.

Rare Earths: A Supply Chain Lifeline

The agreement's most immediate impact lies in resolving China's longstanding curbs on rare earth exports, a move that has sent shockwaves through industries reliant on these materials. Elements like neodymium (Nd) and dysprosium—critical for EV motors, wind turbines, and missile guidance systems—are now set to flow more freely.

Key Plays:
- MP Materials (MCP): The U.S.'s largest rare earth producer stands to benefit from stabilized pricing and surging demand from EV manufacturers like Tesla. With China's exports normalized, MCP's domestic production could undercut price volatility.
- Lynas Corporation (LYC): Australia's Lynas, a major supplier to Tesla's Shanghai Gigafactory, gains from reduced trade friction, while its Malaysian refinery positions it as a key non-Chinese supplier.
- Alkane Resources (AKE): This Australian miner's recent expansion into high-purity magnet-grade rare earths could make it a beneficiary of EV battery demand.

Semiconductors: A Tech Detente

The truce also eases U.S. export controls on advanced semiconductor equipment, a boon for chipmakers and their suppliers. Firms like ASML and Applied Materials, which provide lithography and etching tools, now gain access to China's booming chip industry.

Key Plays:
- ASML Holding (ASML): The Dutch giant's extreme ultraviolet (EUV) lithography machines are irreplaceable for advanced chip manufacturing. With relaxed restrictions, demand from Chinese fabs like SMIC could surge. Historically, periods of revenue growth outperformance have delivered an average return of 58.41% over 20 days, though the strategy faced significant risk with a maximum drawdown of -56.35% and a low Sharpe ratio, signaling mixed consistency in returns. This underscores ASML's potential upside but also the need for disciplined risk management, such as trailing stops, to navigate volatility.
- Intel (INTC): The agreement removes a barrier to Intel's ambitions in China's semiconductor market, where its foundry services could capture market share.
- Semiconductor ETFs: Funds like the VanEck Vectors Semiconductor ETF (SMH) offer diversified exposure to the sector's cyclical rebound.

The Tariff Truce: A 90-Day Window for Investors

The August 10 deadline looms large. If finalized, the agreement will slash retaliatory tariffs—from 145% (U.S.) to pre-2025 levels—easing cost pressures on manufacturers. The World Bank estimates this could boost global GDP growth to 2.3% in 2025, up from its previous 1.7% forecast.

ETF Plays:
- iShares MSCI China (MCHI): A broad bet on Chinese equities, which could rebound as supply chains stabilize and tech access improves.
- Industrial Select Sector SPDR Fund (XLI): U.S. industrial firms like Caterpillar and Boeing, which rely on rare earth magnets and semiconductors, could see margin improvements.

Risks and Hedging

The deal is far from permanent. Geopolitical flashpoints—such as Taiwan or intellectual property disputes—could reignite tensions. Investors should:
1. Monitor rare earth price indices (e.g., NdPr) for signs of supply-demand imbalances.
2. Use short-dated options (e.g., August-expiring calls) to hedge against a potential breakdown.
3. Avoid overexposure to single-country ETFs without geopolitical diversification.

Conclusion: A Buy Signal with Caution

The June agreement is a tactical win for sectors starved of certainty. Investors should treat it as a binary event: position for the August 10 deadline by overweighting rare earth miners, semiconductor equipment firms, and industrial ETFs. However, remain nimble—this truce is as much a reflection of interdependence as it is a resolution. For now, the supply chain lifeline is open. Seize it while the window lasts.