A Long Term U.S. China Strategic Rivalry
Macro Arbitrage: A Generational Investment Thesis
Executive Summary
The United States and China are engaged in competition for global economic, military, and technological dominance. Tensions continue to escalate over China’s rare earth export restrictions, rapid advancements in artificial intelligence, and U.S. policies to limit technology transfers, compounded by tariffs and efforts to decouple critical supply chains. Both nations continue to escalate, channeling substantial resources to outpace the other, representing a competition where technological innovation determines supremacy.
Fundamental differences in governance systems (democratic versus authoritarian) and deeply interconnected global supply chains establish this rivalry as a long-term contest.
We believe markets underestimate its duration and intensity, creating long term investment opportunities. Defense, semiconductors, critical minerals, artificial intelligence, quantum computing, and biotechnology are at the core of this competition, where national strength depends on technological leadership.
Historical precedent from the U.S.-Soviet rivalry, which produced transformative technologies including the internet, satellites and GPS, suggests this contest will drive capital investments far exceeding current projections and foster innovations that reward companies securing strategic advantages. Additional opportunities will continue to emerge as this competition accelerates and pushes the frontiers of technological progress.
Drivers of Long-Term Competition
The structural forces behind this rivalry ensure that elevated defense and technology spending will persist for decades:
Semiconductor independence: The U.S. is already investing billions through CHIPS Act projects, spanning more than 100 facilities across 28 states. This represents a permanent reindustrialization strategy rather than short-term stimulus.
Offsetting China’s production edge: The U.S. is focusing on advanced weapons, automation, and AI-driven systems to counter China’s low-cost military scaling.
Nuclear and arms expansion: Beijing refuses transparency or limits on its nuclear buildup, increasing global instability.
Allied military spending: Japan, Australia, and South Korea are all moving toward record defense budgets and U.S. platform purchases.
Resource leverage: China’s October 2025 export restrictions on rare earths such as dysprosium, terbium, and samarium can disrupt multiple industries and accelerated Western mineral independence efforts.
Economic and Industrial Reordering
Both nations are weaponizing economic policy as an extension of national strategy. The U.S. is broadening export restrictions, tariffs, and reshoring incentives, while China advances its “dual circulation” and yuan-settlement initiatives to shield from Western financial pressure.
The emerging global economy is bifurcating around two centers of gravity: one anchored in U.S.-led democratic markets, the other in China’s state-directed production systems. This alignment is tightening rather than converging.
Investment Opportunities
Sustained geopolitical competition favors companies aligned with national defense, supply chain resilience, and technological sovereignty. These sectors benefit from multi-decade policy support, not temporary stimulus cycles.
Autonomous Systems
The shift to autonomous warfare is growing, with demand for reconnaissance and combat drones.
AeroVironment (AVAV): Specializes in small tactical drones for surveillance.
Kratos (KTOS): Develops affordable combat drones.
L3Harris (LHX): Provides advanced autonomous systems for defense.
Context: Drones are increasingly vital for modern warfare, driven by cost efficiency and reduced risk to personnel. Defense budgets are prioritizing unmanned systems.
Defense and Aerospace Key Players
Major defense contractors are supported by long-term missile and aircraft programs, especially for Pacific deterrence against threats like China’s military growth.
Lockheed Martin (LMT): Leads in fighter jets (e.g., F-35) and missile defense, with contracts for hypersonic weapons and air defense systems.
RTX (RTX): Focuses on missile systems (e.g., Patriot) and radar, critical for Indo-Pacific defense.
Northrop Grumman (NOC): Develops the B-21 stealth bomber and missile defense, key for advanced deterrence.
Context: The U.S. Department of Defense’s 2026 budget prioritizes missile defense and next-generation aircraft. Tensions in the Pacific, especially around Taiwan, ensure steady funding. New technologies like AI and space systems are opening new markets.
Naval Shipbuilding
The U.S. Navy’s focus on countering China’s naval growth drives demand for nuclear submarines and aircraft carriers.
Huntington Ingalls (HII): Builds aircraft carriers (e.g., Gerald R. Ford-class) and submarines (e.g., Virginia-class).
BWX Technologies (BWXT): Supplies nuclear propulsion systems for naval vessels.
Context: The Navy’s plan to expand to over 400 vessels by 2045 supports HII and BWXT. China’s naval buildup and unmanned vessel advancements create further opportunities.
Semiconductors
Domestic semiconductor production is expanding due to the CHIPS Act and global supply chain shifts.
Intel (INTC): Invests in U.S.-based chip manufacturing.
Micron (MU): Focuses on memory chips critical for defense systems.
GlobalFoundries (GFS): Produces secure chips for military use.
Context: The CHIPS Act funds domestic chip production to reduce reliance on foreign suppliers, especially China, ensuring supply chain security.
Cybersecurity
Rising cyber threats, particularly from China, are increasing federal investment in digital defense.
Palo Alto Networks (PANW): Provides advanced cybersecurity solutions.
CrowdStrike (CRWD): Specializes in real-time threat detection and response.
Context: Growing cyber threats to critical infrastructure drive demand for robust cybersecurity, with federal budgets supporting these firms.
Critical Materials
Efforts to reduce reliance on Chinese rare earths and strategic minerals are boosting domestic producers.
MP Materials (MP): Mines rare earths in the U.S.
Lynas (LYC): Supplies rare earths outside China’s control.
Context: Global supply chain restructuring, driven by U.S. and allied policies, supports these companies as demand for rare earths in defense tech grows.
Taiwan: The First Battleground
Taiwan remains the epicenter of near term strategic risk. The Chinese military aims for operational readiness to seize the island by 2027 and has conducted realistic invasion and blockade drills in recent months.
Taiwan’s semiconductor industry underpins the world’s most advanced technology supply chains, producing over 90 percent of cutting-edge chips. Any disruption would paralyze global manufacturing, from AI systems to electric vehicles.
Recent analysis points to a possible “quarantine” scenario, where China isolates Taiwan without initiating full-scale war. Such a move would trigger global supply shocks and sustained defense escalation rather than a single crisis.
These dynamics render naval investment opportunities both immediate and strategic: any Taiwan scenario hinges on maritime power projection, while the 2027 readiness timeline leaves minimal margin for delayed procurement or capability development.
Risk Landscape
An armed Taiwan crisis would trigger immediate financial turmoil. Global chip production could collapse, commodity prices would soar, and equity markets would face sharp corrections. Yet defense, rare earth, and domestic semiconductor assets could outperform under emergency appropriations.
The broader risk is one of volatility within a durable escalation cycle. Government budgets and industrial policies will remain elevated even after geopolitical shocks fade.
Investor Outlook
The U.S.-China rivalry is a structural condition that will define economic and security policy for a generation. It is a new equilibrium in global competition.
Investors should focus on national security supply chains, defense contractors, and semiconductor self-sufficiency plays. These themes offer asymmetric exposure to the central geopolitical driver of the coming decades: the reorganization of global power around strategic resilience rather than efficiency.
Disclosure: This analysis does not constitute investment advice.
This piece really made me think. Your analysis of the US-China rivalry, especially the tech angle with AI and chips, feels incredibly prescient. It's a somber prospect, but a very well articulatd one.
This is one of the most comprehensiv investment theses I have seen on the US China rivalry. The point about cybersecurity being a critical battleground is spot on, and naming CRWD alongside PANW makes sense given the federal investmnt trends. What I find really interesting is how you position this as a generational opportunity rather than a cyclical trade. Most investors are still thinking about this in terms of quarterly defense budgets, but you are correctly framing it as a structural shift in the global order. The Taiwan semiconductor angle is the key linchpin here, because if that supply chain gets distrupted, the entire AI revolution stalls and CrowdStrike suddenly becomes even more critical for protecting whatever domestic infrastructure we can salvage. One thing I would add is that CrowdStrike's real time threat detection capability is probably more valuable than people realize in a scenario where state sponsored attacks ramp up. Their platform has become essential infrastructure for enterprise security, which means federal contracts and mandates could be a huge tailwind if geopolitical tensions continue escalating like you predict.