Investing.com - European stocks have outperformed their counterparts in the U.S. so far this year, although the threat of President Donald Trump’s tariffs is the "elephant in the room" for the region, according to analysts at Barclays (LON:BARC).
Trump’s advisers were finalizing plans to roll out sweeping reciprocal tariffs on Wednesday, according to Reuters.
The levies would be the latest salvo in Trump’s attempt to impose a more protectionist, transactional relationship between the U.S. and its international trading partners -- a policy shift that has fueled worries over an impending global trade war.
Earlier this week, Trump unveiled fresh 25% tariffs on all steel and aluminum imports, sparking condemnation from the European Union, Canada and Mexico. Companies exposed to the duties also raced to adjust their operations before the levies take effect in March, although the move was welcomed by some American workers and firms.
Trump previously slapped an additional 10% tariff on Chinese goods, a move which led to countermeasures from Beijing that are coming into effect this week. Trump also placed 25% tariffs on Mexico and Canada, but later postponed them for one month after he received promises from the two countries to tighten border security.
Against this backdrop, the Stoxx 50 index representing blue-chip companies in Europe has risen by 10% in 2025, while the benchmark S&P 500 has moved up by 3%. Large-cap firms not exposed to Trump’s tariffs, particularly financial firms, have helped to underpin the uptick in European equities and offset weakness in shares considered to be potentially impacted by the levies, the Barclays analysts said.
In a note to clients, the analysts argued Trump’s tariffs have so far looked like "a negotiation tool" used by the president in an attempt to wrangle favorable trading deals out of other countries.
They flagged that there remains "some risk" in the price of European stocks exposed to the levies and headwinds from a stronger U.S. dollar. However, both of these groups of stocks "could see some relief" if the duties "aren’t as bad as feared," the analysts said.
They added that the impact of the changes on European corporate earnings is likely to be "manageable," citing their own calculations which suggest that European indices probably have 5% to 10% earnings per share risk from 10% U.S. tariffs in a "worst case scenario."
The analysts said they would "stay away from sectors most at risk" of being hit by Trump’s tariffs, such as the automotive and consumer staples industries. They have also added telecoms stocks and are "overweight" on financial names "as hedges" against the levies.