Navigating European Equities Amid Tariff Turbulence: Where to Find Resilience

The Trump administration's trade policies between 2017 and 2021 created significant volatility for European equities, with tariffs on steel, aluminum, and autos disrupting supply chains and pricing dynamics. Yet beneath the noise, certain sectors proved remarkably resilient—or even opportunistic—amid the chaos. For investors, the key lies in parsing which industries weathered the storm and why, then applying that lens to current market conditions. Let's dissect the landscape.

Defensive Sectors: Utilities and Inflation Hedging

First, utilities. These stalwarts have long been a refuge in uncertain markets, and their resilience during the tariff era underscores their value. European utilities like Enel (ENEL.MI) and E.ON (EOAN.GR) benefit from regulated pricing, steady demand, and inflation-linked revenue streams. The sector's low beta (volatility) and high dividend yields (3.5–4.5% on average) make it a natural hedge against the macroeconomic uncertainty tariffs introduced.

The Euro Stoxx 600 Utilities index outperformed broader markets during Trump's tariff peaks, rising 12% in 2018–2019 while the broader Stoxx 600 fell 5%. This trend persists today: utilities are up 8% YTD in 2025, even as the sector's P/E ratio remains attractively low at 14x forward earnings versus the S&P 500's 20x.

AI-Driven Firms: Tech's Efficiency Play

While the automotive sector faced headwinds—U.S. tariffs on vehicles hit European manufacturers like BMW and Daimler—the tech sector thrived. AI and automation enabled firms to cut costs, streamline supply chains, and reduce reliance on tariff-prone inputs.

Take ASML Holding (ASML), the Dutch semiconductor equipment giant. Its AI-driven manufacturing processes allowed it to maintain margins despite U.S. tariffs on Chinese competitors, boosting its market share. Similarly, Siemens (SIE.F) leveraged AI in its industrial units to optimize production and offset input cost pressures.

The Euro Stoxx 600 Tech index has returned 18% annually since 2017, outperforming autos by 23 percentage points. Tech's dominance is now amplified by the EU-U.S. Trade and Technology Council (TTC), which fosters cross-border innovation partnerships, reducing geopolitical risks.

Beware: Autos and Retail in the Crosshairs

Not all sectors fared well. The automotive industry faced a perfect storm: U.S. tariffs on imported cars (25%), retaliatory measures, and supply chain disruptions from steel shortages. While German automakers like Volkswagen (VOW.GR) adapted by shifting production to Mexico and the U.S., their European equity valuations lagged.

Retailers also struggled. Tariffs on imported goods inflated costs, squeezing margins for companies like Inditex (ITX.MC) (Zara's parent). The Euro Stoxx 600 Retail index fell 15% during peak tariff years, and its recovery has been sluggish.

The Investment Thesis: Selective Longs in Defensive and Tech Sectors

Go long on utilities and tech firms with AI/automation exposure.
- Utilities offer stability and dividends; target firms with regulated rate hikes (e.g., EDP Renováveis (EDPR.LS) in Portugal).
- Tech names like ASML and SAP (SAP.GR) benefit from EU-U.S. tech partnerships and cost efficiencies.

Avoid auto and retail equities.
- Autos remain vulnerable to lingering trade tensions and overcapacity.
- Retailers face inflation and shifting consumer preferences toward online platforms.

Technical and Corporate Guidance Backing the Play

• Valuation: European equities trade at a 25% discount to U.S. peers, offering bargains in resilient sectors.
• Dividend yields: Utilities and tech offer 3.5–4.5%, outpacing bonds in a high-rate environment.
• Corporate guidance: ASML recently raised 2025 revenue guidance by 8%, citing AI demand. Siemens' industrial division reported a 10% margin expansion through automation.

Conclusion: Resilience Isn't Random—It's Strategic

The tariff era revealed that European equities aren't a monolith. Investors who focus on inflation-resistant utilities and tech firms with cost-cutting tech will find value, while exposed sectors like autos remain risky. With the EU-U.S. trade relationship now shifting toward cooperation (e.g., the TTC), the path forward favors those who lean into resilience.

Stay selective—and let the data lead.