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The Semiconductor Trade War: Navigating Choppy Waters for Investors

In the past two weeks, the global trade landscape has shifted and the economic tensions continue to rise. Now most investors are focused on tariffs and the rising cost of goods for the right reason. With the Trump Administration, a lot has happened on the front line of America.

If you’re new to investing or unfamiliar with macroeconomics, trade wars look like uncharted territory. Your primary concern might be the rising cost of importing goods. Which is warranted because the United States is a net importer of many physical goods. In fact, outside of our exporting services, the U.S.’s top export is oil. I was surprised to learn that myself.

Now if you’re an economics nerd like me, you’ve probably read Adam Smith's The Wealth of Nations several times. Yes, I’ve been studying economics since high school and this book has been the basis for many fundamental ideas of the free markets today. Adam Smith introduced several key points such as the Division of Labor, the Role of Government, the Free Markets and the Invisible Hand. If you aren’t familiar with these terms, I recommend doing a quick search to get familiar with them.

Today I will cover a few of those key points and how they relate to the technology industry. Particularly in the semiconductor sector, presents significant challenges and opportunities for investors. This isn't just about tariffs; it's about a fundamental realignment of global supply chains, national security priorities, and technological leadership. Understanding these complexities is crucial for making informed investment decisions. Let’s get started.

Why Globalization Peaked in 2020

There is no right answer here. Every country has to fend for itself when it comes to its natural resources. Personally I think globalization peaked right before Covid in 2020. February 2020 was the last time it appeared that all countries were working together on a singular mission. But after the world went remote and the virus spread, every country quickly realized the importance of independent resources.

As investors, we realized the upper limits of global trade. And we are not going back to 2020 economics. Instead the United States is headed in a new direction and has decided to maintain its leadership position in global trade. Either we are in first place, or we are in last.

For context, here are a few nations the U.S. is having major tariff discussion with right now:

• Venezuela
• Canada and Mexico
• The Panama canal
• China
• EU

At first, I was surprised by how many trading partners President Trump was negotiating with at once. It has only been two weeks and the Trump Administration is firing on all cylinders. But to be honest, none of this should be a surprise since Trump’s campaigned on these specific trade issues.

For example, you would think the U.S needs Canada and Mexico, but it’s actually the inverse. As a percentage of total exports, 55% of Canada total exports go to the U.S. and 84% of Mexico total exports go to the U.S. Our neighboring countries are dependent on us. We have the leverage when it comes to negotiating deals. In this particular case, the Administration wants to improve border security by removing illegal immigration and fentanyl drug trades. Both countries have complied to help with these terms.

Tariffs are an interesting tactic and they have worked so far. But let’s dive deeper into the world of technology, where trade wars have a unique impact on the global economy.

Why Semiconductors Matter: The New Battleground

Semiconductors are the lifeblood of the modern economy. They power everything from smartphones and computers to cars and critical infrastructure. The first time I dived deep into the semiconductor industry was during the supply chain shortage in 2021-2022.

One of the major drivers for this shortage was the increased demand for cars. So many new vehicles rely on the latest chips to improve the driving experience. It was also the first time I realized how dependent the United States was on China and Taiwan for electronics.

But what really kicked it off for me was the launch of OpenAI’s ChatGPT. On the surface, ChatGPT looks like a simple chatbot app but is powered by thousands of Nvidia GPU chips. With the A.I. race taking off, we have reinvigorated the global tensions across leading nations again. This time it is for super intelligence.

Recent Developments: Big Names, Big Promises

Last week you probably read about DeepSeek and the decline in Nvidia’s market cap. This was a big story for several reasons in the world of technology. Below I will summarize some of the concerns that investors need to be aware of.

First is the A.I. wave. Since 2022, Nvidia’s stock price has skyrocketed because of the demand for A.I. chips. These chips are designed to power apps like ChatGPT. Not only do tech companies spend billions to buy Nvidia’s chips, these companies have to spend billions to train new computers as well. Building A.I. is a massive undertaking and not cheap.

For example, OpenAI has raised $23 billion since 2015, $10 billion of that came from Microsoft in 2023. OpenAI is worth $157 billion today. They probably spend $8.5 billion per year to train and build new A.I. models. $3-4 billion is spent on training and compute each, another $1.5 billion on talent. Even though this is a massive business, OpenAI has a constant need to raise more money. That’s why Sam Altman met with President Trump, alongside Masayoshi Son and Larry Ellison.

The Race for Domestic Production

When President Biden introduced the U.S. CHIPs Act, it accelerated some domestic semiconductor manufacturing. The Act definitely shifted priorities and made semiconductors a key topic to discuss. But it was not enough to maintain America’s leadership position in technology.

When Altman, Son and Ellison met with President Trump, it was to announce a $500 billion investment to onshore A.I. investments. Instead of the CHIPs Act subsidizing production, President Trump incentivized the best leaders to invest in America. For context, the CHIPs Act only provided $52 billion for the semiconductor industry. However, it is important not to take this at face value.

National Security for Artificial Intelligence

Now Masayoshi Son, Sam Altman and Larry Ellison are very rich and have access to almost unlimited resources. But I don’t think the money is secured. Raising $100 billion is very difficult, even for the best investors.

For example, OpenAI is on a global fundraising tour in Japan with Masayoshi Son this week. Son did a similar roadshow when he raised $100 billion for his Vision Fund in 2017. This was also around the time when Son made his first investment in Nvidia. He even offered to help Jensen take Nvidia private but unsuccessful. Today, Son’s capital raising needs are very different.

Previously I mentioned the capital requirements to achieve super intelligence. Well if you’ve been reading tech news, then you might be familiar with the open-source competitor called DeepSeek from China. It became a major sensation a week after the $500 billion announcement.

There are two sides to this coin that investors need to be aware of. The first side is a Chinese competitor released an open source version, which is similar but better than Meta’s Llama model. If you haven’t tried DeepSeek, I recommend using the U.S. version through Perplexity. Which brings us to the second point. A Chinese competitor released a better A.I. reasoning model built on Chinese servers and rule of law. DeepSeek’s open source model is cheaper to run when compared to OpenAI’s premium models.

Now anyone can download DeepSeek’s open source software and build a competitive A.I. model. This puts OpenAI in a tough position to raise capital. First, DeepSeek has proven they can build a more efficient model with less capital. Second, providing open source software means more competitors will arise from this point.

At the moment, investors sold off Nvidia stock but I think this was shortsighted. More A.I. companies will get released and compete with OpenAI. Everyone will work to build better models but the capital structure will continue to change. I’m not sure if OpenAI will have the resources to raise the $500 billion to win this battle in the long-term anymore.

Position Your Portfolio for the Future

Overall the global trade wars have just begun for every major country. Today is the first time in recent history that the U.S. is taking a dominant position against its trading partners. The goal is to keep America first.

In the short run, I expect some cyclicality in job numbers over the next year. Industries like manufacturing and logistics will feel the cost of tariffs. But it will be a necessary pain America needs to endure in the short run.

The semiconductor trade war is reshaping the global economy. As an investor, here are the key risks you need to consider: supply chain disruptions, geopolitics, and funding valuations.