Navigating U.S.-China Trade Policy Risks: Strategic Stock Selection in Defense, Tech, and Infrastructure Sectors

The evolving U.S.-China trade landscape in 2025 presents both risks and opportunities for investors, particularly in defense, technology, and infrastructure sectors. As geopolitical tensions and economic interdependence collide, sector-specific stock selection requires a nuanced understanding of policy shifts, supply chain dynamics, and strategic corporate responses. This analysis synthesizes recent developments to guide investment decisions in a volatile but pivotal year.

Defense Sector: Tariffs, Supply Chain Reconfiguration, and Strategic Resilience

The Trump administration's 2025 tariffs-imposing 25% duties on aircraft components and 10–15% on defense electronics sourced from China-have forced aerospace and defense firms to reevaluate global supply chains. Companies like Boeing and Lockheed Martin face elevated production costs, prompting a shift toward nearshoring. Similarly, Northrop Grumman and BAE Systems are exploring local sourcing for steel and aluminum, critical for military aircraft and systems, to mitigate the impact of tariffs.

While the November 2025 Trump-Xi trade deal temporarily reduced tensions-cutting the "fentanyl" tariff from 20% to 10% and suspending rare earth export controls-strategic competition in defense technologies persists. Investors should prioritize firms demonstrating agility in supply chain diversification and domestic production. For example, companies securing government contracts to offset material costs or investing in alternative materials will likely outperform peers in this environment according to analysis.

Technology Sector: Geopolitical Competition and Semiconductor Dynamics

China's "Made in China 2025" initiative continues to challenge U.S. technological dominance, targeting sectors like semiconductors. The U.S. response-tightening access to advanced technology and restricting semiconductor exports-has created volatility for firms reliant on Chinese markets. In October 2025, Trump's threats to escalate tariffs triggered sharp declines in semiconductor stocks, with NVIDIA (-4.9%) and AMD (-7.7%) among the hardest hit according to market data.

However, the November trade agreement introduced stability by suspending rare earth export curbs and easing trade restrictions. This has benefited companies requiring critical minerals for chip manufacturing and advanced robotics. Long-term, investors should focus on firms balancing exposure to Chinese markets with robust diversification strategies. For instance, companies with strong R&D pipelines in AI and quantum computing-areas where the U.S. maintains a strategic edge-could capitalize on China's push for self-reliance.

Infrastructure and Critical Minerals: A Race for Supply Chain Independence

The U.S.-China trade deal's impact on infrastructure is most evident in the rare earths sector. China's suspension of export controls on gallium, germanium, and other critical minerals has temporarily alleviated supply chain risks, but the U.S. remains vulnerable to future disruptions. To address this, the Department of Defense has invested $400 million in equity and secured a 15% stake in MP Materials, a key rare earths processor. This partnership includes a price floor guarantee for neodymium-praseodymium (NdPr) at $110/kg, stabilizing inputs for magnets used in wind turbines and electric vehicles.

Other beneficiaries of U.S. policy include Energy Fuels and NioCorp Developments, which are expanding rare earth and niobium production. Internationally, Almonty Industries reopened a South Korean tungsten mine to reduce reliance on Chinese supply. These companies exemplify the dual strategy of onshoring and offshoring to secure critical minerals. Investors should monitor firms receiving government contracts or participating in international agreements like the U.S.-Australia Critical Minerals Framework according to industry analysis.

Strategic Investment Considerations

1. Defense: Prioritize firms adapting to tariff-driven supply chain shifts, such as Boeing, Lockheed Martin, and contractors with DoD partnerships.
2. Technology: Favor companies with diversified markets and strong R&D in AI/semiconductors, while hedging against Chinese policy risks.
3. Infrastructure: Target rare earths and critical minerals players with government backing, including MP Materials and Energy Fuels, as well as international miners like Almonty Industries.

Conclusion

The U.S.-China trade dynamic in 2025 underscores the importance of sector-specific resilience. While tariffs and geopolitical competition create near-term volatility, strategic corporate responses and policy interventions offer long-term opportunities. Investors who align with firms navigating these challenges through innovation, diversification, and government collaboration are well-positioned to capitalize on a complex but evolving landscape.