Tariffs bite into Europe as earnings season begins – which sectors will be hit hardest?

Arabian Post

2 days ago

A tide of tariffs is sweeping across Europe, and the damage is becoming visible just as earnings reports begin to drop.
President Trump's trade decisions are no longer a future threat; they're now a present force reshaping European corporate performance. The timing is brutal.
What was expected to be a modestly positive second quarter for European earnings has shifted into decline, with weakness now concentrated in a few critical sectors.
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Investors are bracing for confirmation that Europe's earnings engine has stalled. The continent's largest firms are being squeezed between softer demand and policy-driven pricing pressure.
The hardest-hit? Energy, consumer-facing multinationals, and financial institutions—all of which are deeply entwined with global trade flows, dollar liquidity, and sentiment cycles.
The latest data point to a shallow contraction in European earnings per share for the second quarter—just months after analysts were still forecasting robust growth.
This kind of whiplash signals something deeper than seasonal volatility. It reflects the speed and scale at which expectations have been rewired in response to Trump's aggressive trade stance and the rising cost of doing business across borders.
The energy sector has been among the swiftest to feel the impact. Oil prices, already under pressure through much of Q2, found no relief in tariff announcements. On the contrary, producers now face increased uncertainty around demand, pricing structures, and the stability of international supply chains.
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Crude has recovered somewhat since Trump's latest volley of trade threats, but that rebound masks the structural challenges beneath. Tariffs hit everything from upstream investment to downstream distribution.
The big European energy names are not just contending with weak prices—they are navigating a much more unstable commercial environment than their US counterparts, who now benefit from friendlier domestic regulation and renewed geopolitical leverage.
The consumer sector has its own set of problems, and they are compounding quickly. Currency pressure from a weakening dollar has lifted the euro to multi-month highs—bad news for exporters relying on US demand. But it's the tariff shock that has most dramatically reset the mood.
European brands selling into the US market now face an awkward mix of falling margins and unclear guidance. From luxury icons to mass-market manufacturers, the story is turning sour. Investors are no longer looking for growth; they're looking for resilience.
That's especially true for discretionary names with high exposure to the US consumer. As inflation softens stateside but tariffs rise, spending patterns are shifting in unpredictable ways. European brands reliant on price stability and repeat purchases may now struggle to justify forward earnings multiples.
Some will hold the line. Others will crack. Commentary accompanying these results will be closely parsed for signs that demand has deteriorated faster than expected.
Then there's the financial sector—until recently, the unshakable pillar of European earnings growth. That pillar is now wobbling. Bank profits have ridden high on rising rates, deal speculation, and net interest income. But tariffs, by design, depress cross-border investment. They cloud merger activity, discourage capital flow, and introduce costs that even the most efficient lenders can't hedge away.
While forecasts still point to slight profit expansion this quarter, the momentum is clearly fading.
The bigger concern for investors is whether this is the beginning of a trend. European banks are heavily exposed to global supply chains, especially those facilitating trade between the EU and the US. Tariff policy disrupts those flows.
It also raises credit risks for firms caught in the middle—many of which are mid-sized manufacturers or logistics players dependent on transatlantic trade routes. The revaluation of these risks is already underway, and the sharp rally in European bank stocks earlier this year now looks increasingly out of step with the operating reality on the ground.
Put simply: the Europe-versus-US divide is growing. While Trump's tariffs are raising costs in Europe, the US is simultaneously offering support to its domestic industries, including energy and digital assets.
This divergence is altering the investment case for entire sectors. Europe is still the world's largest trading bloc—but trade is exactly what's under siege. It makes this earnings season less about individual company performance and more about policy drag.
For long-term investors, this is a wake-up call. Valuations built on the assumption of stable, rules-based global commerce are being tested. In a world where tariffs can be imposed by tweet, diversification across regions isn't enough. Sector exposure, policy sensitivity, and forward guidance credibility all need to be reassessed.
This reporting season will deliver more than financial updates. It will reveal which companies are best-positioned to survive the age of economic confrontation—and which are still clinging to a fading version of globalisation.
Nigel Green is deVere CEO and Founder
Also published on Medium.
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