US-EU Trade Tensions: Impact Analysis on European Industrial Stocks and German DAX Valuations

Based on my comprehensive analysis of the latest market data, trade developments, and industry responses, I provide the following detailed assessment of potential US-EU trade tensions under Trump’s policies and their impact on European industrial stocks and German DAX valuations.

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The transatlantic trade relationship has entered a period of significant strain following President Trump’s return to office in January 2025. Most recently, on January 16-17, 2026, Trump announced new tariffs of 10% on exports from Denmark, Sweden, Norway, France, Germany, the Netherlands, Finland, and the United Kingdom—escalating to 25% by June 2026—unless these countries support US acquisition of Greenland [1][2]. This represents a dramatic expansion of trade tensions beyond traditional economic disputes into geopolitical coercion.

The German engineering association VDMA has characterized Trump’s demands as “ludicrous,” with President Bertram Kawlath warning that “if the EU gives in here, it will only encourage the U.S. president to make the next ludicrous demand and threaten further tariffs” [3]. The German Chamber of Commerce and Industry (DIHK) has similarly condemned the approach, stating that “highly controversial political goals are being tied to economic sanctions in an unacceptable manner” [3].

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According to a German Economic Institute (IW) study funded by the Federal Foreign Office, the damage to German export interests has already materialized significantly [4]:

Sector	Export Decline (Q1-Q3 2025 vs. Prior Year)
Automotive	-14.0%
Machinery	-9.5%
Chemicals	-5.2%
Overall German Exports to US	-7.8%

These three sectors—automotive, machinery, and chemicals—account for more than two-fifths of German exports to the United States and have contributed more than two-thirds of the overall export decline [4]. The study warns that this performance may represent a “new normal” given that US import tariffs are unlikely to return to previous levels.

The collapse has pushed German exports to the US back to levels seen in 2022 or even early 2019 in key industries [4], representing a multi-year reversal of competitiveness gains.

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Despite ongoing trade tensions, the German DAX has demonstrated notable resilience:

[5]:

Metric	Value
Period Return	+5.45%
Highest Close	25,450.56
Lowest Close	23,990.34
20-Day Moving Average	25,275.37
50-Day Moving Average	25,012.76
Distance from 20-MA	+0.09%
Distance from 50-MA	+1.14%

The index has outperformed the broader Stoxx Europe 600 during this period, with the DAX gaining approximately 5.45% compared to 4.8% for the broader European index [5]. This outperformance is attributed primarily to:

1. German Defense Spending Boost
   : The historic December 2025 announcement of increased German defense spending catalyzed significant inflows into defense-related stocks, with Rheinmetall gaining 154% in 2025 [6].
2. Domestic Stimulus Expectations
   : Germany’s economic stimulus measures are expected to take effect in 2026, supporting domestic demand [7].
3. Chinese Economy Recovery
   : Potential second-round effects from Chinese economic revival could benefit European exporters [7].

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: The European industrials sector demonstrated relative strength, gaining +0.42% on January 16, 2026—the best-performing sector that day [8]. This reflects:

• Diversification away from US-dependent revenue streams
• Strong order backlogs from domestic infrastructure programs
• Defense-related industrial demand

: German automotive stocks face the most significant headwinds:

• Mercedes-Benz and BMW have high revenue exposure to the US market
• The 15% EU auto tariff (agreed in July 2025, reduced from 25%) provides partial relief [9]
• 25% heavy truck tariffs effective October 2025 directly impact Daimler Truck [9]

: BASF and related stocks face的压力 from:

• Reduced industrial demand from export-dependent manufacturing
• Higher input costs from steel/aluminum tariffs (up to 50%)
• Energy cost sensitivities amid geopolitical uncertainty

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Recent trading data reveals divergent performance among major DAX constituents [10]:

Top Gainers	Daily Change	Top Losers	Daily Change
RWE AG	+2.84%	Mercedes-Benz	-2.24%
Vonovia SE	+2.50%	Commerzbank	-2.80%
Daimler Truck	+1.98%	—	—

The defense-related rally (RWE) contrasts sharply with automotive weakness, illustrating how trade tensions are creating sector rotation within the DAX.

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:

• EU maintains unified response via the Anti-Coercion Instrument
• Targeted retaliation without full-scale trade escalation
• DAX remains in 24,000-26,000 range with continued defense and infrastructure exposure

:

• 25% tariffs implemented in June 2026
• EU-US trade war escalates beyond Greenland dispute
• DAX could test 22,000-23,000 support levels (2025 lows)
• Automotive sector faces significant multiple compression

:

• US-EU trade resolution with tariff reductions
• German domestic stimulus accelerates economic recovery
• DAX breaks above 26,000 toward all-time highs
• Industrial stocks benefit from infrastructure and defense spending

According to Berenberg chief economist Holger Schmieding: “Hopes that the tariff situation has calmed down for this year have been dashed for now—and we find ourselves in the same situation as last spring” [1]. JPMorgan strategist Mislav Matejka remains optimistic about European equities in H1 2026, citing German stimulus and potential Chinese economic recovery as tailwinds [7].

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For investors considering European industrial exposure:

1. Overweight
   : Defense contractors (Rheinmetall, Hensoldt), infrastructure plays
2. Neutral
   : Diversified industrials with US revenue diversification
3. Underweight
   : Pure automotive exporters, US-dependent consumer brands

The DAX’s technical position remains constructive, trading marginally above both its 20-day and 50-day moving averages [5]. However, the January 2026 tariff threats represent a clear downside risk that could trigger renewed volatility.

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• EU unity in retaliation response (Anti-Coercion Instrument deployment)
• German automotive export data for Q4 2025
• June 2026 deadline for 25% tariff escalation
• Federal Reserve policy interactions with trade tensions
• Ukraine ceasefire developments (potential positive catalyst)

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[1] Reuters - “World markets face fresh jolt as Trump vows tariffs on Europe over Greenland” (https://www.reuters.com/world/europe/world-markets-face-fresh-jolt-trump-vows-tariffs-europe-over-greenland-2026-01-18/)

[2] BBC News - “Trump tariff threats: Europe won’t be blackmailed, leaders say” (https://www.bbc.com/news/live/c1j8kw866p3t)

[3] Reuters - “German industry lashes out at Trump’s ‘ludicrous’ demands” (https://www.reuters.com/world/china/german-industry-lashes-out-trumps-ludicrous-demands-2026-01-18/)

[4] Euronews - “Germany’s export model hit from both sides as US and China demand slumps” (https://www.euronews.com/business/2025/12/23/germanys-export-model-hit-from-both-sides-as-us-and-china-demand-slumps)

[5] Market Data - German DAX Index Performance (November 2025 - January 2026) [Data Tool]

[6] CNN - “US stocks had a remarkable 2025. But international markets did even better” (https://www.cnn.com/2026/01/04/investing/global-stock-market-year-international)

[7] Marketscreener - “Outlook 2026: DAX Caught Between Economic Hopes and Geopolitical Risks” (https://www.marketscreener.com/news/outlook-2026-dax-caught-between-economic-hopes-and-geopolitical-risks-ce7e59dddc89f62c)

[8] Sector Performance Data - January 16, 2026 Trading Day [Data Tool]

[9] Digital Dealer - “Volkswagen Argues Auto Tariffs Violate USMCA” (https://digitaldealer.com/news/us-tariff-tracker-impact-automaker-response/164521/)

[10] Investing.com - “DAX Companies Stock List” (https://www.investing.com/indices/germany-30-components)