Navigating the New Trade Divide: How to Invest in U.S.-China Tensions

The U.S.-China trade negotiations entering Q3 2025 remain a high-stakes game of tariffs, rare earths, and technological dominance. With a 90-day tariff truce in place but no long-term resolution in sight, investors must parse the chaos to identify sectors primed to thrive—or falter—in this geopolitical battleground. Here's how to position portfolios for profit.

The Fragile Truce and Its Opportunities

The temporary suspension of punitive tariffs since May 2025 has created a narrow window for strategic investments. However, the clock is ticking: the deal expires in early July, and tensions over rare earths, semiconductors, and steel remain unresolved.

Rare Earths: The New Oil of the 21st Century

China's stranglehold on rare earth production (70% of global supply) has backfired: its April 2025 export restrictions sparked a global scramble for alternatives.

Investment Play:
- MP Materials (MP): The U.S.'s sole rare earth miner, partnered with GM to build a $1.2B magnet factory, is a pure play on domestic supply chain resilience.
- Lynas Rare Earths (LYC): Australia's largest producer, expanding a Texas refinery with Pentagon backing, has seen shares surge 60% since 2023.

Semiconductors: Betting on U.S. Manufacturing

The CHIPS Act is fueling a domestic chip renaissance, but China's tech ambitions remain a thorn.

Key Companies:
- Intel (INTC): Scaling up U.S. factories to rival Taiwan's TSMC, benefiting from $52B in federal subsidies.
- ASML (ASML): The Dutch giant's EUV lithography machines are critical to advanced chipmaking, now prioritized by U.S. funding.

Historically, when ASML's quarterly revenue growth outperformed industry benchmarks, a buy-and-hold strategy for 30 days yielded a 91.25% return versus the benchmark's 43.03%, with a Sharpe ratio of 0.50. While volatility led to a maximum drawdown of -49.43%, the strategy's risk-adjusted returns suggest it thrives during periods of strong semiconductor demand.

Steel: India and Mexico Fill the Void

U.S. tariffs on Chinese steel (now 50% on some imports) have reshaped global flows.

• India's Edge:
• JSW Steel: Exports hit 1.3M tons in late 2024, targeting U.S. construction and automotive sectors.

• Tata Steel: Leverages its U.K. operations to supply niche U.S. markets, avoiding bulk tariff hits.

• Mexico's Pivot:

• CEMEX: Benefits from U.S. infrastructure spending, though its proximity to U.S. markets keeps it in the sweet spot.

The Risks to Watch

1. Geopolitical Volatility: A failed July deadline could reignite tariff wars, hurting semiconductor stocks like NVIDIA (NVDA) and AMD (AMD).
2. Overcapacity: Global steel production is set to exceed demand by 158M tons by 2026, pressuring margins.
3. Regulatory Whiplash: U.S. courts are challenging the legality of tariffs—a wildcard for sectors like automotive.

ETF Strategies for Diversification

• Rare Earths: REMX (VanEck) captures the sector's boom-bust cycles.
• Semiconductors: SMH (VanEck) or XSD (SPDR) for broad exposure, with SOXQ (Invesco) as a low-cost alternative.
• Steel: Use SLX (Global X Steel) to track global leaders, but pair it with India-specific ETFs like INDA (iShares India).

Final Take

The U.S.-China trade war isn't ending anytime soon—it's evolving into a permanent feature of global markets. Investors who focus on supply chain resilience (rare earths, semiconductors), regional diversification (India, Mexico), and policy tailwinds (CHIPS Act winners) will weather the storm.

But tread carefully: geopolitical theater is unpredictable. As the July deadline looms, keep a close eye on tariff renegotiations and rare earth trade data. The next move in this game could redefine entire industries.