Navigating EU-US Trade Tensions: Spain's Strategic Shifts Offer Hidden Equity Gems

The escalating trade war between the EU and the US, amplified by President Trump's tariff threats targeting Spain over NATO defense spending, has created a paradoxical opportunity for investors. While geopolitical risks dominate headlines, Spain's proactive economic reforms, pivot to Asian markets, and EU solidarity are positioning its equities as undervalued assets ripe for tactical allocation. This article explores how Spain's defiance of US pressure—coupled with its diplomatic overtures to China and Vietnam—creates a compelling case for investing in sectors like manufacturing and renewable energy, while leveraging Asia's growth as a buffer against transatlantic volatility.

Spain's Defiance and Economic Reinvention

Spain's refusal to meet NATO's 5% GDP defense spending target has drawn direct retaliation from the US, including threats to hike tariffs on Spanish exports to 50%. Yet, rather than capitulate, Madrid has doubled down on economic diversification. The Trade Response and Relaunch Plan, a €14.1 billion initiative, is modernizing industries, boosting liquidity for firms hit by tariffs, and accelerating infrastructure spending. Key sectors to watch:

1. Manufacturing: Spain's automotive and machinery industries—critical for exports—are being retooled with €200 million in state-backed loans for industrial modernization. Companies like Ferrovial (infrastructure) and Inditex (textiles) benefit from subsidies aimed at reducing reliance on US markets.
2. Renewable Energy: With €400 million allocated to the MOVES III Plan for electric vehicles and charging networks, and €5 billion from EU Recovery Funds targeting energy efficiency, Spain is solidifying its role as a green energy hub. Iberdrola and Red Eléctrica are prime beneficiaries of this transition.

Asia Pivot: A Shield Against Transatlantic Turbulence

Spain's diplomatic pivot to Asia—evident in Prime Minister Sánchez's 2025 trip to China and Vietnam—is a strategic masterstroke. By deepening trade ties with Asia, Madrid is mitigating US tariff risks while tapping into faster-growing markets. Key data points:

• Trade with China: Spain's exports to China grew by 12% in Q1 2025, outpacing EU averages.
• Vietnam FTA: The newly ratified free trade agreement with Vietnam opens doors for Spanish manufacturers in electronics and textiles.

Investors should prioritize companies with Asian exposure. For example, ACS Group (construction) is expanding in Southeast Asia, while Grifols (biotech) is leveraging China's healthcare boom.

ETF Opportunities: Capturing Spain's Rebound

While individual stocks offer high upside, Spain-focused ETFs provide diversified exposure at a lower risk. Two top picks:

1. iShares MSCI Spain ETF (EWP):
2. Why Buy? Holds 90% of Spain's largest companies, including banking giants (Santander) and industrials (ACS). The fund has surged 13.4% YTD (as of Feb 2025) as Spain's 3.5% GDP growth outpaces the Eurozone.
3. Risk Mitigation: Over 40% of EWP's holdings are in sectors (energy, utilities) insulated from US tariffs.

1. SPDR® S&P® Global Infrastructure ETF (GII):
2. Why Buy? While not Spain-specific, GII holds infrastructure firms like Ferrovial and Iberdrola, which benefit from Spain's €5B green energy push. The fund's 8% Spain exposure aligns with Asia-focused projects.

Risks and Mitigation Strategies

• Tariff Escalation: A US-EU deal by July 9 could ease tensions, but failure risks higher tariffs. Mitigation: Focus on companies with hedged revenue streams (e.g., Grifols' China sales).
• Geopolitical Volatility: Spain's NATO stance could strain US ties. Mitigation: The EU's €100B retaliatory tariff package ensures Madrid isn't isolated.
• Overreliance on Asia: Currency fluctuations or protectionism in Asian markets could disrupt supply chains. Mitigation: Diversify into ETFs with global exposure (e.g., Vanguard FTSE Europe).

Conclusion: Seize the Dislocation

The EU-US trade war is a catalyst for Spain's reinvention, not a crisis. By combining EU unity, Asian diversification, and sector-specific tailwinds, Spain's equities offer asymmetric upside. Investors should allocate 5–10% of their international portfolios to EWP or GII, with a focus on renewable energy and infrastructure. The key takeaway? Spain's defiance isn't just about tariffs—it's about repositioning itself as a gateway to Europe for Asian investors. This is a play for the long game.