After taking a backseat to the pandemic crisis, trade tensions between the U.S. and China have flared up once again.
There are serious concerns that China won’t make good on promises to buy American energy and agricultural products. And if that happens, the Trump administration may nix the big phase 1 trade deal.
So once again every China-focused headline and tweet rattles investors and the stock market.
With the global economy already reeling from the economic impact of the virus, the last thing we need is more uncertainty and headwinds.
But while agriculture and energy purchases dominate the headlines, this $433 billion industry is where the real trade war is played out…
How to Profit From the Technology Arms Race
A technology arms race between the U.S. and China has just kicked into high gear. You can hear more about it in our recent YouTube video.
And it’s squarely centered on the $433 billion semiconductor industry. These microchips are the building block of every electronic device … such as your smartphone, computer or vehicle safety systems.
As we transition to a new world of 5G ultra-high-speed wireless communication, the country that dominates the production of these chips will have the upper hand.
And it’s an industry where the U.S. has been slowly losing its edge to foreign manufacturers.
So in order to reclaim the lead, the U.S. is pushing and incentivizing chip companies across the supply chain to make investments and bring production back within U.S. borders.
Just consider that:
- The Semiconductor Industry Association has proposed $37 billion in federal spending to support new chip factories and research, according to a report from The Wall Street Journal.
- Taiwan Semiconductor Manufacturing Co. (NYSE: TSM) recently announced a $12 billion facility that will be located in Arizona and turn out the company’s most advanced chips.
- Intel Corp. (Nasdaq: INTC) has been in discussions with the Department of Defense to build and operate a chip foundry located in the U.S.
- A bill in Congress would provide $110 billion to support technology spending and research.
These initiatives are set to boost companies across the semiconductor supply chain, including foundries that manufacture chips as well as companies that supply foundries with equipment.
To take advantage of the spending boom, I recommend the VanEck Vectors Semiconductor ETF (Nasdaq: SMH). This exchange-traded fund (ETF) holds all types of companies involved in the production of chips and related equipment.
So while uncertainty hangs over the fate of the phase 1 trade deal, you can take advantage of the billions spent to help the U.S. retake the lead in chip technology.
Research Analyst, The Bauman Letter