Shelter from the Trump tariff storm: 10 UK stocks least likely to be impacted

President Trump will impose a 10% tariff on eight European countries, including the UK, France and Germany, on 1 February, rising to 25% in June if no agreement is struck to allow the US to acquire Greenland. EU leaders will hold an emergency meeting on the tariff threat in the coming days. 

Tariffs would likely be imposed under the International Emergency Economic Powers Act (IEEPA), which is subject to a judgment by the US Supreme Court that could come as early as tomorrow. Treasury Scott Bessent said over the weekend that he now thought it unlikely the Supreme Court would slap down tariffs under IEEPA. More on that here.

The broad trade deal struck between the US and EU last summer is now in jeopardy. A vote to ratify this deal is scheduled for this week but the leader of the largest grouping (EPP) has indicatedthis will be on hold whilst Trump continues to threaten Greenland.

Related to the trade deal, €93bn worth of tariffs on US goods was suspended for six months and would require a vote to suspend again. The six months expires 6 February. Unless the commission, in consultation with member states, take steps to extend the suspension,the measures kick in on 7 February.

Europe could also respond with its trade ‘bazooka’ - the anti-coercion instrument, or ACI. 

With all this in mind we need to consider the possibility of an escalation of the EU-US trade war, which could draw parallels to the Liberation Day tariffs imposed last year.

This has led to a kneejerk selloff in sectors with the greatest estimated exposure to tariffs, such as European carmakers and luxury stocks. In London, stocks with heavy US exposure such as Diploma, Burberry, Spirax, Convactec and Diageo, which have somewhere in the region of 40-50% US sales, were the main fallers. 

But it’s not a one-way selling street and we are seeing some positive rotation into more defensive corners of the market.

In short, time to dust off some ideas we looked at back then and hunt for defensive plays within the UK market.

Endeavour Mining and Fresnillo offer clean, leveraged exposure to gold and silver prices, which have jumped to fresh record highs following the threat of tariffs over the weekend. These are long-term structural plays on precious metals and ongoing concerns about US economic policy uncertainty and USD devaluation.

It’s worth noting that some officials over the weekend even talked about US exposure to European investors. European countries own around $8 trillion of US bonds and stocks and while tactically speaking the EU cannot weaponise private holdings we could a re-emergence of the Sell America trade that will pressure Treasuries and the USD.

Defence sector stocks are a clear play on rising geopolitical tensions and fears about a widening rift between Europe and the US that could have security implications. While Trump has not ruled out a military intervention in Greenland, it seems more likely that pressure will be applied in other ways, as the threat of trade tariffs strongly implies. Nevertheless, whatever happens I strongly sense that defence is the area where European spending will continue to rise, supported by fiscal expansion and financial repression – ie the ECB keeping rates low. Although these stocks have already rallied sharply this year, the defence narrative is supportive for the likes of BAE Systems, Babcock and QintetiQ as the purest defence sector plays, as we note downside risks for Rolls-Royce due to its exports to the US.

Tobacco stocks Imperial Brands and British American Tobacco have strong defensive characteristics, high dividend yields and would likely be relatively immune from a trade war. Domestically focused telecoms businesses BT and Vodafone enjoy limited US exposure. Vodafone generates no sales in the US, while BT is reducing its global footprint to focus on the UK, selling its US government contracting arm BT Federal earlier this month. Finally UK-focused utilities such as Severn Trent are largely insulated from tariffs.