Navigating Sector Rotation: Semiconductors and Chemicals in the Wake of Trade Data Shifts

The U.S. trade balance has long been a barometer of economic health, but in July 2025, it revealed stark divergences between two cornerstone industries: semiconductors and chemical products. These divergences are not merely statistical anomalies—they are signals for investors to reassess sector rotation strategies. As trade data surprises emerge, the interplay between these sectors offers a compelling case for reallocating capital toward opportunities where policy, innovation, and global demand align.

The Chemical Sector: A Tale of Erosion

The U.S. chemical industry is grappling with a deteriorating trade position. In July 2025, the trade deficit for chemical products widened to a $1.9 billion surplus, down from $2.5 billion in April—a contraction driven by declining exports and surging imports. Key categories like agricultural chemicals (-8.8%) and specialty chemicals (-8.1%) saw sharp declines in May, while inorganic chemical imports surged by 56.7%. This imbalance reflects broader challenges: global supply chain bottlenecks, geopolitical uncertainties, and a shift in production to Europe and Asia.

Domestically, the U.S. CPRI (Chemical Production Regional Index) fell by 0.4% in April, with regional disparities exacerbating the problem. The Northeast and Southeast, critical hubs for chemical manufacturing, experienced significant declines. Meanwhile, plastic resin exports dropped 3.3% year-over-year, compounding pressure on a sector already struggling with weak demand and inventory overhangs.

For investors, the chemical sector's struggles are a cautionary tale. While the industry remains vital to downstream manufacturing, its current trajectory suggests a need for defensive positioning. Companies reliant on export-driven models, such as those in agricultural and specialty chemicals, face headwinds that could persist into 2026.

Semiconductors: A Reindustrialization Play

In stark contrast, the U.S. semiconductor sector is experiencing a renaissance. The Semiconductor Industry Association (SIA) reported that private-sector investments in the ecosystem have surpassed $500 billion, with projections of tripling domestic chipmaking capacity by 2032. This surge is fueled by a combination of government incentives and private-sector ambition, reversing decades of declining U.S. manufacturing share.

Trade data for semiconductors, while not explicitly detailed in July's report, is indirectly bolstered by global demand for advanced chips in AI, 5G/6G, and autonomous vehicles. The SIA notes that global semiconductor sales are expected to grow by 11.2% in 2025, reaching $701 billion, with the U.S. leading in high-value gen AI chip design.

The sector's strength is also underpinned by strategic policy moves. The “small yard, high fence” approach—restricting access to advanced manufacturing tools like EUV lithography—has insulated U.S. firms from global competition while accelerating domestic innovation. This creates a unique opportunity: semiconductors are not just a growth sector but a geopolitical asset, with long-term tailwinds from national security and technological leadership.

Sector Rotation: The Case for Semiconductors

The juxtaposition of these two sectors highlights a clear investment thesis. While chemicals face near-term headwinds, semiconductors are positioned to benefit from sustained demand, policy tailwinds, and a reindustrialization narrative. For investors, this suggests a strategic shift toward semiconductor equities and away from chemical exposure, particularly in export-heavy subsectors.

Consider the data:
- Semiconductors:
- Chemicals:

These visualizations underscore the divergent trajectories. Intel, a bellwether for the sector, has seen its stock price rebound on the back of AI-driven demand, while Dow's earnings have lagged due to weak chemical pricing and inventory pressures.

The Road Ahead

Investors should also monitor the interplay between trade policy and sector performance. The semiconductor industry's reliance on advanced manufacturing equipment and materials makes it sensitive to export restrictions and supply chain disruptions. Conversely, the chemical sector's exposure to global trade flows means it could benefit from a resolution of geopolitical tensions or a rebound in industrial demand.

In the short term, a defensive tilt toward semiconductors is warranted. However, long-term investors should balance this with a watchful eye on chemical sector catalysts, such as a recovery in construction or a shift in energy policies that could boost demand for industrial chemicals.

Conclusion

The U.S. trade balance is more than a macroeconomic indicator—it is a lens through which to view sector-specific opportunities and risks. As trade data surprises continue to reshape the landscape, the semiconductor sector emerges as a compelling long-term play, while the chemical industry requires a more cautious approach. For those seeking to rotate capital, the message is clear: align with the forces of innovation and reindustrialization, and hedge against the vulnerabilities of a sector in transition.