Rising uncertainty in the global markets, driven by reciprocal tariffs from President Donald Trump, has made investors more risk-averse, prompting a shift toward safe-haven assets as economies navigate tariff-induced tensions.
Recently, President Trump escalated trade tensions by threatening new tariffs on the European Union (EU). The proposed 25% tariffs would target key EU exports, including automobiles, semiconductors and pharmaceuticals, further escalating tensions across the global trade landscape.
Following Trump’s announcement of the proposed tariffs on Feb. 26, EURO STOXX 50, a broad market index representing blue-chip leaders in the EU, fell about 2.2% ahead of market open on Feb 28.
Tariff Trouble for the EU
The EU economy, already under pressure, faces further challenges as Trump’s proposed tariffs on EU imports could spark economic uncertainty, slow growth and drive inflation higher. However, the UK finds itself on the opposite side of the equation, with the tariffs potentially acting as a boon for the British economy.
Per the Kiel Institute, as quoted on the Guardian, if the United States proceeds with its proposed tariffs on the EU, exports could decline significantly, potentially causing the single currency bloc’s economy to contract by 0.4%. This could trigger an economic turmoil in the region.
The European automotive industry employs 13.8 million people, making any disruption a potential trigger for widespread economic consequences. Already grappling with rising competition from Chinese electric vehicle manufacturers, the sector’s instability could leave investors bracing for volatility.
In addition to the proposed tariffs on automobiles, semiconductors, and pharmaceuticals, Trump also announced a 25% tariff on all steel and aluminum imports, set to take effect on March 12, according to Kitco. Brussels estimates that these tariffs could impact European exports worth around $30 billion, with Germany already facing an economic slowdown, expected to be among the hardest-hit countries.
A Silver Lining for the UK
According to President Trump, during a joint press conference with Prime Minister Starmer last Thursday, as quoted on Yahoo Finance, a trade deal could happen swiftly to shield the UK from his frequently threatened tariffs. It also signals the White House’s recognition of the statistical logic that the U.S. and U.K. maintain a balanced trade relationship.
According to Neri Karra Sillaman of the University of Oxford’s Said Business School, as quoted on CNBC, avoiding tariffs entirely is the optimal outcome for the British economy, as it could strengthen the economy’s key industries.
If the UK remains tariff-free, it could be uniquely positioned to attract investments and new trade partnerships, emerging as a preferred gateway for companies seeking to bypass trade restrictions, especially the EU.
Per Sillaman, sectors such as pharmaceuticals and advanced manufacturing could experience a surge in investment and trade opportunities. Additionally, the UK’s automotive, aerospace and financial industries may benefit from increased demand as American buyers seek alternatives to tariff-impacted suppliers.
ETFs to Consider
As per Dan Boardman-Weston, BRI Wealth Management CEO, as quoted on CNBC, the UK’s potential to avoid U.S. tariffs, combined with its relative political stability and attractive valuations, makes it a compelling market for investors. As a result, the UK could be a prime destination for investors to have an overweight position in 2025.
Investors can increase their portfolio exposure to the UK with the following pure-play UK.
iShares MSCI United Kingdom ETF (EWU)
iShares MSCI United Kingdom ETF seeks to track the performance of the MSCI United Kingdom Index with a basket of 75 securities. The fund has gathered an asset base of $3.24 billion and charges an annual fee of 0.50%.
iShares MSCI United Kingdom ETF has gained 4.60% over the past month and 14.17% over the past year. EWU has added about 2.2% over the past week (as of March 4).
Franklin FTSE United Kingdom ETF (FLGB)
Franklin FTSE United Kingdom ETF seeks to track the performance of the FTSE UK Capped Index with a basket of 103 securities. The fund has gathered an asset base of $732.2 million and charges an annual fee of 0.09%.
Franklin FTSE United Kingdom ETF has gained 5.26% over the past month and 16.04% over the past year. EWU has added about 2% over the past week (as of March 4).
First Trust United Kingdom AlphaDEX Fund (FKU)
First Trust United Kingdom AlphaDEX Fund seeks to track the performance of the NASDAQ AlphaDEX United Kingdom Index with a basket of 76 securities. The fund has gathered an asset base of $60.4 million and charges an annual fee of 0.80%.
First Trust United Kingdom AlphaDEX Fund has gained 3.3% over the past month and 15.48% over the past year. EWU has added about 0.64% over the past week (as of March 4).
iShares MSCI United Kingdom Small-Cap ETF (EWUS)
iShares MSCI United Kingdom Small-Cap ETF seeks to track the performance of the MSCI United Kingdom Small Cap Index with a basket of 212 securities. The fund has gathered an asset base of $39.3 million and charges an annual fee of 0.56%.
iShares MSCI United Kingdom Small-Cap ETF has gained 1.86% over the past month and 9.13% over the past year. EWU has declined about 0.85% over the past week (as of March 4).
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First Trust United Kingdom AlphaDEX ETF (FKU): ETF Research Reports
iShares MSCI United Kingdom ETF (EWU): ETF Research Reports
iShares MSCI United Kingdom Small-Cap ETF (EWUS): ETF Research Reports
Franklin FTSE United Kingdom ETF (FLGB): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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