Transatlantic Trade Tensions and the Resilient Sectors of European Equities: A Strategic Investment Outlook

The transatlantic trade war of 2025, marked by tit-for-tat tariffs and a fragile preliminary agreement, has created a seismic shift in European equity markets. As U.S. President Donald Trump escalated steel and aluminum duties to 50% and threatened a 20% tariff on EU exports, European investors faced a dual challenge: navigating sector-specific vulnerabilities while identifying opportunities in industries poised to thrive under protectionist pressures.

The Winners and Losers of Tariff Volatility

The automotive sector, a cornerstone of the EU economy, bore the brunt of U.S. trade aggression. Steel and aluminum, critical inputs for car manufacturing, saw prices surge as tariffs climbed. European automakers like Volkswagen and Stellantis faced margin pressures, while wind energy developer Ørsted—a major U.S. project player—suffered a DKK 1.2 billion impairment in Q1 2025, with further losses anticipated. Analysts at Citi warned that the 50% tariff could erode profitability in green energy infrastructure, a sector already grappling with supply chain bottlenecks.

Conversely, steel producers emerged as unexpected beneficiaries. Swedish firm SSAB, for instance, saw its shares jump 6.36% after investors speculated that higher U.S. steel prices would bolster its North American operations. Jefferies analysts noted that while tariffs generally hurt EU exporters, companies with a strong U.S. presence or domestic production capabilities could capitalize on reduced competition.

The defense sector also showed resilience. Hensoldt, a German defense contractor, surged 11.6% after JPMorgan upgraded its stock, citing potential U.S. procurement opportunities. Despite U.S. claims that the EU agreed to boost military spending, European officials clarified that defense procurement remains a national decision, not a binding treaty obligation. Nevertheless, investors interpreted the preliminary trade deal's emphasis on “strategic products” as a green light for defense exports.

Energy and Currency Dynamics

OPEC+ supply cuts and U.S. tariff-driven uncertainty pushed oil and gas stocks higher, with European energy giants like TotalEnergies and Eni outperforming the broader market. Meanwhile, the euro and British pound strengthened against the U.S. dollar, reflecting a “Sell America” narrative as investors anticipated a weaker greenback under Trump's protectionist policies. The FTSE 100's marginal gains, despite a broader European selloff, underscored the UK's unique position outside EU trade frameworks.

Strategic Positioning for 2025 and Beyond

The preliminary trade deal—capping EU exports to the U.S. at 15% tariffs and exempting pharmaceuticals—offers a temporary truce but leaves long-term stability in question. For investors, the key lies in sectoral diversification and regulatory resilience.

1. Avoid Overexposed Sectors:
2. Automotive and energy infrastructure remain high-risk due to U.S. tariff volatility. Companies reliant on U.S. steel inputs (e.g., Škoda, Renault) should be approached with caution.

3. Technology stocks are vulnerable to broader trade uncertainty, as seen in the 1.2% decline of the Stoxx 600 Tech index.

4. Target Resilient Sectors:

5. Steel and heavy industry: Firms like SSAB and ArcelorMittal, with U.S. operations or domestic production, could benefit from sustained protectionist policies.
6. Defense and aerospace: The EU's regulatory autonomy in defense procurement and the U.S. focus on “strategic products” suggest growth potential for companies like Hensoldt or Leonardo.

7. Energy producers: Continued geopolitical tensions and OPEC+ dynamics make oil and gas a defensive play, despite the green transition narrative.

8. Monitor Currency and Policy Shifts:

9. The euro's strength against the dollar (up 0.75% post-July 2025) highlights the importance of hedging foreign exchange risks. Investors should track Trump's re-election prospects and the EU's counter-tariff strategies.

The Road Ahead

While the July 2025 deal provides a pause in hostilities, its durability depends on U.S. domestic politics and EU unity. Germany's cautious approach to auto tariffs contrasts with France's hardline stance, creating internal fissures. For now, investors should prioritize sectors with pricing power, regulatory flexibility, and U.S. market exposure.

In conclusion, the transatlantic trade war has reshaped European equity dynamics. By focusing on resilient sectors and hedging against sector-specific risks, investors can navigate the volatility and position themselves for long-term gains. As the EU and U.S. recalibrate their economic strategies, agility—not speculation—will define successful investment outcomes.