Opinion | ‘America first’ can’t mean America alone if West hopes to counter China

The article argues that President Trump’s aggressive trade and tariff policies against allies and adversaries have provoked resistance and left the West ill-prepared to counter a strengthening, self-sufficient China that is advancing in critical technologies. It warns that US industrial policy alone is insufficient and that coordinated action with European and Asian partners is necessary, while noting elevated geopolitical risks from recent muscular US actions (including strikes on Iranian targets and potential moves against Venezuela) and diminished domestic political capital that could constrain pragmatic cooperation.

Analysis

Market structure: A pragmatic rollback or softening of tariffs and a turn toward allied coordination would likely re-rate semiconductor capital equipment (LRCX, KLAC), global foundries (TSM, ASML), and export-oriented European/Asian industrials as onshoring and coordinated industrial policy drive incremental capex demand (estimate +5–15% y/y in semi capex over 12 months). Clear losers: US-heavy commodity/steel producers (X, NUE) and import-substitution beneficiaries that priced in permanent protection; pricing power for protected incumbents would compress if tariffs fall.

Risk assessment: Tail risks include rapid geopolitical escalation (military action, new export controls) that would spike risk premia and re-impose decoupling — a 1–3 month shock could push VIX >40 and 10y US yields down 20–50bps. Immediate (days) — policy headlines drive 3–7% swings in affected equities; short-term (weeks–months) — tariff announcements/directives determine flows; long-term (2–5 years) — supply-chain reconfiguration and capex cycles reshape market share. Hidden dependencies: corporate backlog, inventory cycles, and CHIPS/industrial subsidies timing; catalyst list: G7 communique, tariff notice, CHIPS funding tranche (next 30–90 days).

Trade implications & contrarian angles: Favor capex winners and beneficiaries of allied coordination; be cautious on Chinese importers that have used tariffs as a moat — export controls may persist even if tariffs ease, which benefits non-US suppliers. Consensus may underweight the magnitude of onshoring capex; conversely, the market may underprice the persistence of export controls (benefit ASML/LRCX but cap China access). Historical parallel: 1980s US–Japan adjustments show multi-year winners from early-capex cycles and multi-year losers among protected incumbents.

Key Decisions for Investors

• Establish a 3% long position split: 1.5% LRCX and 1.5% KLAC within 4 weeks to capture an expected 20–40% re-rate if allied coordination and onshoring drive semiconductor capex; set a 12% stop-loss and target +30% in 9–12 months.
• Add a 2% directional call-spread on TSM (buy 9-month 6% OTM calls, sell 9-month 20% OTM calls) sized to net ~2% portfolio exposure; rationale: Taiwan fabs benefit from allied support and CHIPS-like funding, target +25% in 12 months, roll or take profits on tariff-rollback signal within 60 days.
• Initiate a 1.5% short position in US Steel (X) if the administration signals tariff rollback within 30 days (or if harmonized tariff schedule shows >50% reduction of additional tariffs); target –30% downside if protection removed, stop-loss +12%.
• Allocate 1.5% to tail hedges: buy 3-month VIX call spread (size ~0.5% cost) and hold 1.0% in TLT to protect portfolio from a 1–3 month geopolitical shock that would depress equities and lower yields; size to offset ~20–30% drawdown risk in core equity holdings.