The Great Semiconductor Shift: Navigating Trade Tensions and Tech Decoupling

Written byMarketPulse
Friday, Jul 4, 2025 5:35 am ET2min read

The U.S.-China trade war has evolved into a high-stakes battle for control of the semiconductor industry—a sector that underpins everything from smartphones to artificial intelligence. With tariffs soaring to 70%, export controls tightening, and the CHIPS Act reshaping global supply chains, the era of seamless tech integration is over. For investors, this seismic shift presents both risks and opportunities. Here's how to navigate it.

The New Semiconductor Cold War

The U.S. has weaponized trade policy to curb China's rise in semiconductors. Current tariffs on Chinese-made chips average 70%, combining Section 301 levies, fentanyl-related duties, and baseline tariffs. Meanwhile, the Section 232 investigation into semiconductor imports—threatening an additional 25% tariff—remains a Sword of Damocles, incentivizing companies to reshore production. Taiwan, a critical node in the supply chain, faces its own deadline: a 10% tariff suspension on U.S. exports expires in August 2025.

The CHIPS Act, a $52 billion U.S. subsidy program, is the administration's counterpunch. Major beneficiaries include Intel, which secured $3 billion for its “Secure Enclave” initiative to produce chips for national security uses, and TSMC, which received $6.6 billion to build a 3nm plant in Arizona. Applied Materials (AMAT) and Lam Research (LRCX), suppliers of critical manufacturing tools, are also poised to profit as U.S. foundries expand.

The Geography of Tech Decoupling

Supply chains are fracturing. Companies are moving production to ASEAN countries like Malaysia and Vietnam, where semiconductor exports grew 15% in 2024. Intel's Penang facility, for instance, is a key beneficiary of this shift, while the iShares

Malaysia ETF (EWM) has surged as investors bet on regional tech hubs.

China, however, retains niches. SMIC (SMICY) dominates mature-node chips for automotive and industrial uses, while Huawei (HWT) continues to push AI processors despite U.S. restrictions. Yet these advantages come with risks: Beijing's export controls on rare earths and critical materials could disrupt global supply chains.

Betting on the Winners

The clearest winners are semiconductor equipment manufacturers, which profit from the U.S. and Taiwan's foundry boom. ASML Holding (ASML), the sole supplier of extreme ultraviolet (EUV) lithography machines, is irreplaceable in advanced chipmaking. Applied Materials (AMAT) and Lam Research (LRCX) dominate deposition and etching tools, respectively.

R&D-heavy firms also stand to gain. The CHIPS Act's $13 billion for semiconductor research has fueled projects like the National Semiconductor Technology Center (NSTC), which focuses on AI-driven design and advanced packaging. Companies like Synopsys (SNPS) and Cadence Design Systems (CDNS), providers of EDA software, saw demand rebound after U.S.-China trade truces eased export controls.

Risks and Considerations

Investors must balance optimism with caution. Overcapacity is a looming threat: $540 billion in private investments could lead to oversupply in advanced nodes like 2nm. The CHIPS Act's tax credits expire in 2026, and the STAR Act's proposed R&D tax incentives remain uncertain. Geopolitical volatility—such as U.S. sanctions or Chinese retaliation—could upend supply chains overnight.

The Bottom Line

The semiconductor sector is now a geopolitical chessboard, where governments and firms are repositioning for dominance. For investors:

  1. Prioritize equipment stocks like , , and ASML—they are essential to reshoring efforts.
  2. Look to ASEAN via ETFs like EWM or Intel's regional projects, which offer diversification.
  3. Consider China's niche plays (SMICY, HWT) with strict risk management, as they remain embedded in global supply chains.
  4. Avoid overexposure to pure-play Chinese chipmakers, given the risk of further decoupling.

The Semiconductor Holdrs ETF (SMH), which tracks U.S. semiconductor stocks, has outperformed platform stocks like

(HOOD) by 34% since 2022—a trend likely to continue as tech decoupling accelerates.

In a world where chips are the new oil, the question is not whether to invest, but how to do so while hedging against geopolitical storms. The answer lies in the firms and regions building the infrastructure of the post-decoupling era.

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