Trade War Turbulence: How to Profit in Semiconductors, Industrials, and Financials

The U.S. trade landscape is a minefield of tariffs, court battles, and geopolitical brinkmanship. Under the Trump administration's “America First” playbook, sectors like semiconductors, industrials, and financials are facing existential risks—but also asymmetric opportunities. Today, we're diving into how to navigate this chaos, protect your portfolio, and find hidden gems in the rubble of trade diplomacy.

Semiconductors: The New Cold War's Hot Spot

The semiconductor sector is ground zero for trade tensions. The Trump administration's Section 232 investigations into chip imports and critical materials (like gallium and germanium) have created a “small yard, high fence” dynamic. While this could cripple China's chip ambitions, U.S. firms aren't off the hook: retaliatory tariffs on U.S. semiconductor exports (e.g., 15% on chips from China) and material shortages could crimp margins.

The Play: Go long on domestic chipmakers with minimal China exposure and advanced recycling capabilities. Intel (INTC) and Texas Instruments (TXN) are prime candidates—they're diversifying supply chains and investing in U.S. fabrication. Avoid Nvidia (NVDA) and AMD (AMD), which rely heavily on Asian manufacturing.

Why now? Intel's valuation (P/E ~15) is dirt-cheap compared to its peers. Its recent $20B investment in Arizona chip plants signals a bet on U.S. self-sufficiency—exactly what this trade war demands.

Industrials: Steel, Autos, and the “USMCA Shield”

The industrials sector is a double-edged sword. Steel tariffs (50% for non-UK imports) and auto tariffs (25% for non-USMCA-compliant goods) have raised costs—but companies that master compliance can turn this into a moat.

The Play: Focus on firms with USMCA-aligned supply chains and pricing power. Caterpillar (CAT) and Deere (DE) are insulated because their North American factories avoid punitive tariffs. Meanwhile, the EU's threatened 50% tariffs on U.S. goods could backfire: European automakers reliant on U.S. parts (e.g., Ford's Cologne plant) might pressure Brussels to blink.

Watch this: Caterpillar's 2025 margin guidance (15-17%) is higher than rivals, thanks to its U.S. production focus.

Financials: The “Tariff Tax” Winners—and Losers

Financials are a paradox. On one hand, tariffs have raised $156B in federal revenue (a de facto tax hike), which could boost Treasury yields and bank lending margins. On the other, a 0.9% GDP contraction from trade wars could hurt loan portfolios.

The Play: Avoid multinational banks (e.g., JPMorgan (JPM)) with heavy exposure to China and EU trade. Instead, bet on regional banks insulated from global supply chains. Zions Bancorp (ZION) and BancorpSouth (BXS) serve local economies with minimal cross-border exposure.

Why? Zions' 4.2% net interest margin is among the highest in its peer group—a cushion against economic slowdowns.

The Tactical Shift: Domestic First, High-Margin Always

The playbook here is clear: go domestic, go high-margin, and avoid multinationals. The Trump administration's legal battles (e.g., the pending July 31 court ruling on “fentanyl” tariffs) mean volatility is baked in. But sectors with these traits can thrive:

1. Domestic Focus: Companies like Intel and Caterpillar that rely on U.S. demand and supply chains.
2. High Margins: Firms with pricing power to pass costs to customers (e.g., Deere's 18% operating margin).
3. Low Overseas Exposure: Steer clear of firms like Apple (AAPL) (40% of sales in China) or Boeing (BA) (exposed to EU auto tariffs).

The Risks: Supply Chains and the “Friendshoring” Gambit

The biggest threat is multinational supply chains. If Canada's retaliatory tariffs on $29.8B of U.S. goods escalate, or if China's rare earth bans bite, even U.S. firms could suffer. The solution? Friendshoring: Invest in companies partnering with allies like Japan or South Korea.

For example, General Electric (GE)'s joint ventures with Japanese firms in aviation parts could hedge against China's material bans.

Final Call: Buy the “America First” Bargains

The trade war isn't ending anytime soon. But in chaos lies opportunity. Load up on domestically rooted, high-margin stocks like Intel, Caterpillar, and Zions Bancorp. Avoid multinationals caught in the crossfire. And remember: the next 60 days will hinge on that July 31 court ruling—if the “fentanyl” tariffs are struck down, sectors like industrials could rally. But if they're upheld? It's time to double down on the U.S. core.

Action Items:
- Add INTC (target $40, current $32) for its chip plant bets.
- Go overweight CAT (target $220, current $195) on USMCA compliance.
- Swap JPMorgan for ZION (target $65, current $55) in financials.

This isn't about picking winners—it's about surviving the storm.

Disclosure: The author holds no positions in the stocks mentioned.