Navigating the EU-U.S. Trade Turmoil: Strategic Opportunities in European Defense and Luxury Sectors

The EU-U.S. trade landscape in 2025 is a volatile chessboard, with tariffs, geopolitical alliances, and sector-specific concessions reshaping economic dynamics. While the July 2025 trade deal averted a full-scale trade war, it introduced structural pressures for European industries, particularly defense and luxury exports. Yet, within this uncertainty lie opportunities for investors to capitalize on resilient sectors and companies with pricing power, strategic positioning, and long-term growth potential.

Defense: Saab's Strategic Resilience in a Shifting Geopolitical Climate

The EU's agreement to purchase U.S. military equipment under the 2025 trade deal has intensified competition for European defense firms. However, Saab AB (STO:SAAB-B.ST) has emerged as a standout performer, leveraging its technological edge and global demand for advanced defense systems.

In Q2 2025, Saab reported record sales of SEK 19.8 billion, a 32% year-over-year increase, driven by a robust order backlog of SEK 198 billion. Its Dynamics division, which includes the Gripen E fighter jet and EXCON training systems, saw a 73% sales surge. The company's EBITDA margin hit 14.3%, reflecting disciplined cost management and high-margin contracts. Notably, Saab secured a SEK 2.9 billion support contract for the Gripen E with Sweden and a DKK 550 million (SEK 500 million) 20-year framework agreement with Denmark for its Combat Training Centre.

Saab's expansion into India and the U.S. through new manufacturing facilities underscores its ambition to capitalize on rising global defense spending. With European defense budgets projected to grow as NATO allies commit to 5% GDP targets by 2035, Saab's focus on interoperability and system integration positions it to outperform peers. Investors should monitor its capacity investments and gross margin trends, as rising corporate costs from digitalization could temper profitability.

Luxury: LVMH's Pricing Power Amid Tariff Pressures

The luxury sector faces a dual challenge: the 15% U.S. tariff on EU goods and shifting consumer demand. Yet, LVMH (EPA:LVMHF.PA) has demonstrated resilience through brand strength and strategic pricing. In H1 2025, the conglomerate reported €39.8 billion in revenue, a 4% decline year-over-year, but operating free cash flow surged 29% to €4.03 billion. Its Fashion & Leather Goods segment, despite an 8% revenue drop, maintained a dominant market share, driven by iconic brands like Louis Vuitton and Dior.

LVMH's ability to absorb cost pressures is evident in its pricing strategy. The company has incrementally raised prices for high-demand products, offsetting the 15% tariff impact while maintaining exclusivity. For example, its Watches & Jewelry division, including Bvlgari and TAG Heuer, has seen stable demand despite global economic headwinds. Meanwhile, the Wines & Spirits segment, though affected by U.S.-China trade tensions, has pivoted to premium champagne and cognac, where pricing power remains strong.

LVMH's CEO, Bernard Arnault, has emphasized innovation and selective retail strategies to sustain growth. The company's 2025 guidance, while cautious, reflects confidence in its long-term positioning. Investors should watch its Q3 2025 results for signs of recovery in aspirational customer segments and its ability to navigate U.S. market access challenges.

Burberry: A Cautionary Tale of Pricing Strategy

While Burberry (LON:BRBY.L) lacks detailed 2025 financial data in the provided analysis, its historical reliance on aspirational pricing and brand differentiation offers insights. The company's recent focus on premiumization—such as limited-edition collaborations and heritage-inspired collections—could help it weather the 15% U.S. tariff. However, its exposure to price-sensitive markets like the U.S. and China makes it more vulnerable to demand shifts. Investors should assess Burberry's Q3 2025 earnings for clarity on its pricing resilience and cost management.

Investment Thesis: Balancing Risk and Reward

The EU-U.S. trade turmoil creates a bifurcated market: sectors like defense and luxury face headwinds but also opportunities for firms with pricing power, technological leadership, and diversified revenue streams.

1. Defense Sector: Saab's strong order backlog, recurring revenue contracts, and global expansion make it a compelling long-term play. However, investors should monitor supply chain risks and margin pressures from digitalization.
2. Luxury Sector: LVMH's brand ecosystem and pricing agility position it to outperform peers. Its focus on premiumization and selective retailing could mitigate the 15% tariff's impact.

Conclusion

The 2025 EU-U.S. trade deal has redefined transatlantic economic relations, but it has also highlighted the importance of strategic adaptability. For investors, defense firms like Saab and luxury brands like LVMH offer a roadmap to navigate uncertainty. By prioritizing companies with pricing power, technological innovation, and global demand, investors can position their portfolios to thrive in a fragmented trade environment. As the EU grapples with its economic sovereignty, the resilience of these sectors will be a critical barometer for transatlantic stability—and for long-term investment success.