Navigating Trade Crosscurrents: European Sectors at Risk and Strategic Opportunities in Defense and Industry

The escalating trade tensions between the European Union and the United States, compounded by China's dominance in critical sectors, have thrown European industries into a precarious balancing act. As France spearheads negotiations to mitigate the fallout, its strategy—crafted by Finance Minister Eric Lombard—faces scrutiny for its ability to protect vulnerable sectors while avoiding economic stagnation. This article dissects the vulnerabilities, evaluates Lombard's approach, and identifies sectors poised to benefit from trade defense measures.

The Vulnerability of European Industries to Chinese Imports

European manufacturers face significant exposure to Chinese imports, particularly in sectors where state-backed subsidies and scale advantages give Beijing an edge.

1. Tinplate Manufacturing:
   The EU's anti-dumping duties on Chinese tinplate imports (up to 45%) underscore the fragility of this sector. Chinese tinplate flooded the market at prices 30% below EU production costs, threatening jobs and competitiveness.
   

2. Electric Vehicles (EVs):
   While European automakers like Renault and Stellantis collaborate with Chinese battery giants (e.g., CATL), they remain exposed to U.S. tariffs on imports and EU-China trade disputes. The EU's 45% tariff on Chinese EVs aims to level the playing field but risks stifling innovation.
   

3. Luxury Goods:
   Brands like LVMH and Kering face a dual challenge: declining Chinese tourism and retaliatory tariffs on European spirits. The EU's 34.9% tariff on Chinese brandy has yet to stem imports, while Chinese consumers shift spending to domestic alternatives.

4. Rare Earths and Critical Minerals:
   Europe's reliance on China for 80% of rare earths—a cornerstone for EVs and semiconductors—exposes its tech and defense sectors to supply chain disruptions. The EU's proposed working group with China offers hope, but dependency persists.

France's Tariff Proposal and Lombard's Strategy

France's stance is twofold: negotiate a reciprocal tariff deal with the U.S. to avert a 50% levy on EU goods and bolster trade defense against Chinese imports. Lombard's strategy hinges on three pillars:

1. Extending Negotiations with the U.S.:
   Lombard advocates delaying the July 9 deadline to secure a “good deal” rather than a rushed agreement. By linking energy cooperation (e.g., U.S. LNG imports) to trade terms, he aims to soften U.S. demands. This approach aligns with France's lowered 2025 growth forecast (0.7%), which hinges on resolving trade uncertainties.

2. Sectoral Trade Defense:
   France is prioritizing industries vital to its economic backbone, such as aviation (via Airbus exemptions) and defense. The EU's anti-dumping measures on tinplate and EV tariffs reflect this focus.

3. Geopolitical Risk Management:
   Lombard's refusal to raise taxes and his emphasis on diplomatic flexibility signal a recognition of the interconnected risks of trade wars and geopolitical instability.

Assessing the Viability of Lombard's Strategy

Lombard's approach is pragmatic but faces hurdles:

• Pros:
• Economic Stability: Delaying U.S. tariffs buys time to avoid a growth shock.
• Sectoral Focus: Targeted measures protect high-value industries like defense and aviation.

• Diplomatic Leverage: Tying energy deals to trade negotiations could yield concessions.

• Cons:

• Internal EU Divisions: France's insistence on reciprocity clashes with Germany's openness to a 10% baseline tariff.
• China's Resilience: Beijing's willingness to engage in “price undertaking” agreements (e.g., for EVs) may dilute EU measures' impact.
• Market Volatility: Prolonged uncertainty could deter investment in exposed sectors like luxury goods.

Investment Opportunities in Trade Defense Sectors

Investors should focus on industries shielded by trade measures and those benefiting from geopolitical realignments.

1. Defense and Aerospace:
   The EU's push to boost defense spending (exempt from fiscal rules) is fueling demand for European manufacturers.
   
2. Renk Group (Germany): +12% YTD in 2025 due to contracts with NATO members.

3. Saab (Sweden): +8.9% YTD, benefiting from Swedish and EU procurement.
   

4. EV Components and Critical Minerals:
   European firms collaborating with China on battery tech (e.g., Stellantis-CATL) or diversifying supply chains (e.g., Solvay in rare earths) could outperform.

5. Stellantis (STLA): Partnerships mitigate tariff risks while accessing Chinese innovation.

6. Luxury Brands with Adaptive Strategies:
   Companies pivoting to digital engagement and sustainability are weathering tariff headwinds.

7. LVMH (MC.PA): Pop-up shops in Southeast Asia and eco-friendly campaigns are stabilizing demand.

8. Tinplate Producers:
   EU tariffs have stabilized margins for local firms like Tata Steel and ArcelorMittal.

Conclusion: Balancing Defense and Growth

Lombard's strategy is a necessary response to trade asymmetries, but its success depends on resolving EU-U.S. differences and decoupling from Chinese overreliance without stifling innovation. Investors should favor sectors benefiting from trade defense (defense, EV components) and companies demonstrating agility in navigating tariffs. The path forward requires a blend of diplomatic finesse and industrial resilience—a balance Europe must strike to thrive in this new trade order.