Executive Summary
US tariffs are reshaping supply chains, prompting retaliation and heightening uncertainty. Companies will continue to adapt as the trade war is here to stay. Ongoing trade tensions, coupled with the need for fiscal consolidation in many countries, will continue to weigh on the economy and affect sectors differently. Despite deals and moratoriums over the summer, competition for manufacturing capacity remains a high priority for governments across the US, Europe and Asia. Moreover, geopolitical tensions in Ukraine and the Middle East continue to increase volatility in commodity and energy markets. The result is a global economy in which tariffs, cost competitiveness, fiscal and monetary policy and trade policy are pulling some sectors upward while pushing others downward.
The global sector risk picture remains cautious, and firms will continue to reduce cross-border risks. Most sector ratings are clustered in the medium (45%) and sensitive (43%) categories. Only 9% of sectors are rated low risk, which is well below the pre-pandemic share of 15%. There are clear regional disparities: Asia is the safest region, while Latin America is the riskiest, with Central and Eastern Europe also under pressure. Allianz Trade’s sector risk ratings deteriorated slightly in Q2, with the majority of the weakness concentrated in the automotive sector. Tariffs, soft demand, rising operating costs, shrinking subsidies and intense price competition are squeezing the profitability of Japanese, South Korean, Mexican and European automakers in particular. Beyond the automotive sector, downgrades affected several others, including
agrifood, electronics, machinery, paper, metals and pharmaceuticals, primarily shifting from medium to sensitive risk. Upgrades were more scattered and led by transport equipment and IT services.
The good: IT services and pharma remain safe havens through solid demand and relocation strategies that circumvent tariffs. Information technology services continue to thrive amid the digitalization and AI waves. Revenues are growing rapidly, driven by substantial corporate investment in cloud computing and automation. The sector is proving both profitable and resilient to broader economic turbulence thanks to recurring contracts and healthy margins. The pharmaceutical industry also offers stability. Demand is anchored by aging populations and the prevalence of chronic diseases. Meanwhile, high barriers to entry and strong pricing power for patented drugs provide robust cash flows. Despite some uncertainty surrounding US tariffs, the pharmaceutical sector remains one of the most resilient in the current climate. Furthermore, both sectors are likely to circumvent US tariffs by increasing capacity in the US – a step that many firms have already taken.
The bad: A second cluster of sectors benefits from positive structural trends but are vulnerable to policies, geopolitics and trade tensions. Demand for agrifood is steadily expanding as populations grow. However, climate shocks, high input costs, protectionism and immigration policy continue to create volatility in the sector. Strong demand for electronics and semiconductors is driven by AI and automation. However, their globalized supply chains remain highly exposed to the US-China rivalry and tariffs. The energy sector is in transition. Record investments in renewables are occurring, but rising costs, overcapacity in some segments and a reversal of policies in the US are hurting the sector. Oil and gas are profitable for now, but they face declining demand in the next decade. Automation, Industry 4.0 and the reshoring trend are buoying machinery and equipment producers, yet the sector’s cyclicality and capital intensity make it sensitive to slowing global growth. After years of heavy investment in 5G, telecoms are finally seeing accelerated revenues and margins, though high debt and new competition from hyperscalers limit the upside.
The ugly: for a wide group of sectors (highly cyclical, capital intensive and protectionist; limited coping), profitability is under pressure. Costly supply-chain diversification and rerouting is underway: In July, more than 60% of imports from China into the US were rerouted through India and ASEAN. Automakers are facing slowing sales, costly electrification, new Chinese and Tech expert competitors, and tariffs that are disrupting their supply chains and are difficult to adjust to in the short term. Retailers are enjoying a rebound in consumer demand, thanks to disinflation. However, rising import costs and shifting consumer habits are compressing their margins. Textile firms are restructuring supply chains away from China while adapting to consumer preferences for sustainability and resale. Manufacturers of household equipment are experiencing a tentative recovery as interest rates fall; however, they remain vulnerable to housing cycles and Asian supply dependencies. The construction industry is still reeling from rate shocks and remains high risk, with only infrastructure spending providing relief. The chemicals industry is constrained by high energy costs and weak demand. Meanwhile, metals producers face volatile prices and underinvestment, despite booming long-term demand for green minerals. The transport equipment sector is clearing post-pandemic backlogs, yet it remains burdened by high debt. For most of these sectors, profitability is being squeezed by tariffs, costly rerouting and investments in the US.
Transatlantic update: the corporate earnings gap between Europe and the US looks intact. In the US, S&P 500 profits surged +12% year over year in Q2 2025, driven by mega-cap tech and AI-linked stocks, as well as strong gains in financials. However, this strength masks the looming impact of tariffs, which has already put pressure on the energy and consumer sectors. In contrast, Europe achieved only about 4.3% earnings growth, hindered by a strong euro and tariff headwinds. Banks, Defense and healthcare were bright spots, but exporters and consumer-facing firms struggled. All major European banks surpassed forecasts, but luxury and auto companies reported rising costs and fragile demand. US earnings are still bolstered by tech and pre-tariff resilience, while Europe’s growth depends on a few sectors (e.g. tech, financials and pharma). With tariffs now taking effect, the next few quarters will reveal whether US momentum can endure, given the impending demand shock and shrinking margins. They will also reveal whether Europe can strengthen as we approach better prospects in 2026.