Europe's Resilience Amid US Tariff Threats: Navigating Sector-Specific Opportunities and Risks

The escalating U.S.-EU trade tensions, marked by tariffs on copper, pharmaceuticals, and broader reciprocal measures, have reshaped the investment landscape for European equities. While some sectors face headwinds, others are emerging as bastions of resilience. This article dissects the divergent trajectories of key industries—pharmaceuticals, copper, and tobacco—and uses WPP and Hunting PLC as case studies to illustrate strategic opportunities and pitfalls.

Pharmaceuticals: A Fortress of Exclusion and Pricing Power

European pharmaceuticals are among the least exposed sectors to U.S. tariffs. The U.S. has excluded pharmaceuticals from its reciprocal tariff framework (20% baseline rate for the EU) under Annex II exemptions, shielding exports like Germany's Merck and Switzerland's Roche. While a Section 232 investigation threatens a 200% tariff, its implementation remains pending, and the grace period for production shifts to the U.S. (1–1.5 years) offers breathing room.

Opportunity: European pharma stocks appear undervalued relative to their pricing power. For instance, shows a discount of 15%, reflecting overreactions to tariff fears. Companies with global pipelines or niche therapies (e.g., oncology) are insulated by inelastic demand.

Strategic Moves: Firms like Pfizer are reshoring production to dodge potential tariffs, but European peers with entrenched R&D and regulatory advantages can maintain margins. Buy-and-hold investors should target undervalued names with strong pipelines, such as AstraZeneca or Sanofi.

Copper: A Sector in the Crosshairs

The 50% U.S. tariff on copper imports, effective July 2025, has turned the sector into a battleground. European producers like Chile's Codelco (a top U.S. supplier) face reduced competitiveness, while U.S. firms like Freeport-McMoRan gain market share.

Risk: reveals a sharp decline as tariffs and geopolitical uncertainty mount. Hunting, a UK-based mining firm with exposure to European copper exports, exemplifies the vulnerability of companies reliant on U.S. demand. Its shares have fallen 25% YTD, reflecting margin pressures as production costs rise and exports shrink.

Opportunity: Investors should favor firms with hedging strategies or domestic demand diversification. For example, Glencore, with operations in Africa and Asia, faces less direct U.S. tariff exposure. However, sector-wide caution is warranted until a resolution emerges.

Tobacco: A Moderate Play Amid Reciprocity

European tobacco exporters face a 20% tariff on U.S. sales under the EU's reciprocal framework. While not a direct target like copper, the sector's margins are under pressure.

Stability: Companies like British American Tobacco (BAT) and Imperial Brands have pricing power due to brand loyalty and nicotine addiction. highlights its defensive appeal, with a 5.2% yield vs. 3.8% for peers.

Caution: The EU's countermeasures on U.S. tobacco imports (up to 50% duties) could trigger retaliatory cycles, but European firms are less exposed than U.S. players. A tactical overweight in tobacco is plausible, but avoid overpaying—BAT trades at a 10% discount to its 5-year average EV/EBITDA multiple.

Case Studies: Divergent Trajectories

1. Hunting PLC (Copper):
2. Risk: 50% U.S. tariffs reduce its export competitiveness.

3. Path Forward: Pivot to renewable energy infrastructure projects (e.g., copper for EVs) in non-U.S. markets. Without such moves, its valuation remains depressed.

4. WPP (Advertising):

5. Resilience: As a service sector firm, WPP faces minimal direct tariff exposure. Its global footprint and steady demand for marketing services make it a defensive play.
6. Strategic Move: Aggressive buybacks (WPP has repurchased £1.2B in shares since 2023) and a 4.5% dividend yield offer downside protection.

Investment Strategy: Sector-Specific Allocation

• Overweight: Defensive sectors with pricing power (pharmaceuticals, tobacco) and firms with diversified revenue streams.
• Underweight: Copper and other industries directly impacted by U.S. tariffs unless hedging strategies are evident.
• Avoid: Companies like Hunting PLC without clear paths to adapt to tariff-driven demand shifts.

Conclusion

The U.S. tariff regime has created a bifurcated European equity market: sectors with pricing power or geographic diversification thrive, while those tied to U.S. exports falter. Investors should prioritize pharmaceuticals and tobacco for income and resilience, while avoiding copper unless cost advantages or hedging are proven. Case studies like WPP and Hunting underscore the importance of sector-specific analysis—resilience is not uniform, but it is attainable for the discerning investor.

The data underscores the divide: healthcare (+7%) outperforms metals (-12%), validating a focus on defensive sectors.