Navigating the U.S.-China Trade Truce: Sector-Specific Opportunities in Asian Equities

The U.S.-China trade truce framework announced in June 2025 offers a fragile reprieve for Asian equities, particularly in tech, semiconductors, and rare earth metals. While the agreement aims to reduce tariffs and resolve export bottlenecks, lingering uncertainties—including July's “Liberation Day” tariff deadlines and geopolitical risks—demand a nuanced investment approach. Below, we dissect sector-specific opportunities and risks, with actionable insights for investors in South Korea, Taiwan, and China.

Semiconductors: A Delicate Balance of Relief and Restraint

The truce's most immediate beneficiary could be the semiconductor sector, where supply chain bottlenecks have plagued global manufacturers for years. Companies like Taiwan Semiconductor Manufacturing Company (TSMC) and SK Hynix (South Korea) stand to gain from reduced tariffs on components and equipment. The U.S. rollback of 145% tariffs on Chinese imports (now capped at 10% universally) eases costs for Taiwanese and Korean firms reliant on Chinese suppliers for substrates and packaging materials.

However, the U.S. maintains export restrictions on advanced AI chips to China, a critical constraint for mainland tech firms like Huawei and NVIDIA's Chinese partners. This creates a dual dynamic:
- Short-term upside: TSMC and SK Hynix may see improved margins as tariff-driven costs diminish.
- Long-term dependency: Chinese firms' reliance on U.S. chip technology could amplify risks if export controls tighten again.

Rare Earth Metals: A Resolution with Strings Attached

The truce mandates China to lift restrictions on rare earth exports—a major win for industries like aerospace and electric vehicles. Companies in Japan, South Korea, and Europe, which depend on these minerals for magnets and batteries, may see cost stability. Within Asia, Chinese rare earth producers like Baowu Group could benefit from restored export flows, though their growth hinges on compliance with U.S. demands.

Investors should note two caveats:
1. Supply chain diversification: The U.S. and EU are accelerating investments in rare earth mining (e.g., Australia's Lynas Corp), reducing long-term dependency on China.
2. Geopolitical leverage: China may use rare earth supplies as a bargaining chip in future disputes.

Technology Sector: IP Risks and Structural Challenges

While tariffs on consumer electronics (e.g., smartphones, laptops) are easing, the U.S. continues to accuse Chinese firms of intellectual property theft. This has fueled distrust, with U.S. export controls on software and AI tools persisting. For investors:
- South Korea and Taiwan: Companies like Samsung Electronics and TSMC—less exposed to U.S.-China IP disputes—offer safer bets.
- Mainland China: Tech firms like ZTE and Huawei face sustained scrutiny, though their valuations may reflect overly pessimistic expectations.

Key Risks: July's “Liberation Day” and Leadership Approval

The truce's fragility is underscored by two critical deadlines:
1. July 9, 2025: The U.S. threatens new tariffs if China fails to meet obligations, including rare earth export compliance.
2. Leadership Approval: The framework requires final sign-off from Presidents Trump and Xi, who have a history of abrupt policy shifts.

A failure to secure approval or comply with terms could reignite tariff wars, reversing recent gains in Asian equities.

Investment Strategies: Short-Term Plays vs. Long-Term Caution

1. Short-term opportunities:
2. Overweight semiconductor stocks like TSMC (2330.TW) and SK Hynix (000660.KS) if tariff reductions materialize.
3. Consider rare earth miners in China (e.g., Ganzhou Rare Earth) for immediate supply chain benefits.

Historically, this approach has proven lucrative: a backtest from 2020 to 2025 showed that buying these stocks five days before U.S.-China tariff negotiation deadlines and holding for 10 days generated an average return of 26.38%, though with a maximum drawdown of 13.91%, highlighting the volatility inherent in geopolitical-driven trades.

1. Long-term risks:
2. Avoid overexposure to Chinese tech firms (e.g., Semiconductor Manufacturing International Corp (SMIC)) due to U.S. export controls and IP concerns.

3. Diversify into non-Chinese suppliers of critical minerals (e.g., Australia's Lynas Corp).

4. Monitor the July 9 deadline: Position for volatility by hedging with put options on tech-heavy indices like the Nikkei 225 or KOSPI.

Conclusion

The U.S.-China trade truce offers a narrow window of opportunity for Asian equities, particularly in semiconductors and rare earths. However, investors must balance short-term gains against structural risks like U.S. export controls and geopolitical volatility. Prioritize firms with diversified supply chains and minimal exposure to IP disputes, while remaining vigilant for July's critical deadlines. In this fragile truce, patience—and preparedness—will be key to navigating the choppy waters ahead.