Trump's trade war with China in focus ahead of May summit

May summit: President Trump is due to meet President Xi in May as U.S.-China tensions remain centred on tariffs and export controls. Recent actions include a 10% punitive tariff reintroduced in April, escalating retaliatory measures that at times pushed levies to over 100%, and a previously agreed 90-day tariff truce that was later contested. Policy moves — expanded Chinese rare-earth export curbs, U.S. export controls and selective licences (including Nvidia AI chip licences), and reciprocal investigations — sustain material risks to semiconductor supply chains, critical minerals, shipping, and agricultural flows (soybeans).

Analysis

Escalating trade frictions and export-control brinksmanship have created asymmetric, option-like payoffs across the tech supply chain: firms that control the choke points (advanced logic GPUs, high-end lithography, non‑Chinese rare earth sources, and licensing authorities) can swing market structure and margins quickly, while assemblers and commodity-exposed suppliers face binary demand shocks. Over the next 3–12 months, capacity re‑allocation to Southeast Asia and other non‑Chinese jurisdictions will lock in fixed costs (fabs, EMS lines, port/logistics) that amplify winners’ long‑term returns but depress Chinese local suppliers’ marginal returns; this creates a durable dispersion trade between multinational suppliers and China‑centric incumbents.

For AI compute, centralization around a handful of Western suppliers makes the sector highly sensitive to licensing volatility: a wave of permissive exports would be a multi‑quarter positive rerate for incumbents; conversely, durable curbs accelerate onshore substitution and R&D spending inside constrained markets, trimming top‑line growth after ~18–36 months. Expect realized volatility in revenues and order flow for leading GPU vendors to remain 30–60% higher than baseline for the next 6–9 months as licensing cadence and tariff announcements drive lumpy shipments.

Commodity and shipping secondaries will matter more than headline tariff rates. Targeted restrictions on critical minerals lift non‑Chinese rare‑earth miners and recycling/refining projects from obscurity into multi‑year cash‑flow optionality; simultaneously, intermittent shipping disruptions and reciprocal duties raise landed import costs for OEMs by mid‑single to low‑double digits within quarters, compressing margins and favoring companies with pre‑existing hedges or diversified sourcing.

Key Decisions for Investors

• Long NVDA via a limited‑risk call spread (buy 6‑month ATM calls, sell 20% OTM calls) — entry within 2–6 weeks to capture potential licensing tailwinds; max loss = premium (~2–3% of position), target 2–3x payoff if exports/licensing normalize over 3–6 months; hedge event risk by selling shorter‑dated calls into spikes.
• Buy MP Materials (MP), 6–12 month horizon — exposure to non‑Chinese rare‑earth supply optionality if export curbs tighten. Position size 1–3% NAV; upside target 40–60% on re‑rating, downside 30% from commodity volatility; add on pullbacks and scale into evidence of sustained Chinese export discipline.
• Overweight Flex (FLEX) or Jabil (JBL) vs semiconductor capex peers, 6–18 months — play EMS/outsourced manufacturing beneficiaries from supply‑chain reallocation to SE Asia. Expect 20–35% upside if order reallocation accelerates; risk is secular demand slowdowns, cap at 2–4% NAV and use 20% trailing stop.
• Relative trade: Long ASML (ASML) 9–12 months and hedge with a modest short position in a China‑exposed equipment name (e.g., AMAT) — asymmetric benefit from continued Western control over advanced lithography and constrained capacity. Target 25–40% spread widening; keep hedge ratio small (0.25–0.5x) to limit cross‑tech cyclicality exposure.