UBS analysts say recent U.S. tariff developments will probably not translate into large direct profit shocks for European capital-goods manufacturers, but the changes introduce additional uncertainty and modest regional shifts in competitive positions.
Following a U.S. Supreme Court ruling that limited the use of IEEPA tariffs, the U.S. administration moved to impose duties under Section 122. UBS evaluated the likely impact and concluded that the adjustment is "largely an increase in uncertainty and likely administrative burden for European Capital Goods players and their customers rather than a significant change in tariff environment and hence impact to P&L."
In a note led by analyst Andre Kukhnin, UBS quantified net regional effects as generally small. The bank said it scopes for a net benefit for China-to-U.S. exporters amounting to a 7% reduction, while Europe-to-U.S. exporters would face a slight incremental headwind of about 1%.
Within European capital goods, UBS identified a set of companies it views as potential relative beneficiaries and others that could see some downside. Firms noted as possible beneficiaries include Fluidra, Assa Abloy, Kone and Schindler, with Legrand also viewed as a net winner. By contrast, Renishaw, Hexagon and Wartsila were listed as potential losers, although UBS described Wartsila's downside as marginal.
At the country level, UBS estimated differences in tariff outcomes that favor several emerging exporters. China is estimated to see tariff reductions of about 7.1%, India roughly 5%, and Brazil a larger fall of around 13.6%. European markets display varying exposure - the U.K. and Italy were among the most exposed in the bank's analysis, facing estimated tariff increases of roughly 2.1% and 1.8%, respectively, while the EU overall is estimated to experience an increase of about 1%.
UBS also broke the effects down by subsector and supply footprint. The bank expects mixed but generally contained impacts: companies tied to electrification and building markets with China-to-U.S. exposure could register near-term benefits, while many machinery and cable manufacturers appear largely insulated due to more localized production footprints.
Summary
UBS judges the recent tariff adjustments to be more of an added layer of uncertainty and administrative burden than a major shift in the tariff landscape for European capital-goods companies. Net winners are expected among China-to-U.S. exporters, while Europe-to-U.S. exporters face a modest incremental headwind.
Key points
- UBS expects modest net regional effects - roughly a 7% improvement for China-to-U.S. exporters and about a 1% incremental headwind for Europe-to-U.S. exporters.
- Certain European capital-goods names are singled out as potential beneficiaries (Fluidra, Assa Abloy, Kone, Schindler, Legrand), whereas others could be disadvantaged (Renishaw, Hexagon, Wartsila).
- Subsector differences matter - electrification and building-related firms with China exposure could benefit; machinery and cable players are often insulated by localized production.
Risks and uncertainties
- The ruling and subsequent reclassification of tariffs introduce administrative burdens and uncertainty for companies and customers, which could affect costs and planning in the capital-goods sector.
- Country-level tariff changes create uneven exposures across markets - notably the U.K. and Italy are estimated to face larger increases, which could weigh on exporters from those countries.
- While UBS projects contained subsector effects, localized production footprints and evolving trade patterns mean actual firm-level impacts could vary from these estimates.