European Companies Face Earnings Strain Amid US-China Trade Tensions

European companies are projected to report a modest 0.5% year-on-year increase in third-quarter earnings, according to the latest data from LSEG I/B/E/S. This slight improvement comes despite escalating trade tensions between the United States and China, including the U.S. announcement of a 100% tariff on Chinese imports and export controls on critical U.S.-made software, set to take effect on November 1.

The revision in earnings forecasts reflects a complex economic landscape where European businesses are navigating the repercussions of global trade disputes. While the updated projection marks an improvement from the previous week's forecast of a 0.2% decline, it still represents the weakest quarterly performance since the first quarter of 2024. The ongoing U.S.-China trade tensions have led to significant adjustments in corporate strategies and market expectations.

Prior to the announcement of the U.S. tariffs in February 2025, analysts had anticipated a robust 12.5% growth in third-quarter earnings for European companies. The subsequent introduction of tariffs led to a significant downward revision of these forecasts.

On October 10, 2025, U.S. President Donald Trump announced a 100% tariff on Chinese imports and export controls on critical U.S.-made software, both set to take effect on November 1. These measures are in response to China's plans to expand export controls on rare earth materials, essential for various high-tech industries.

Approximately 72% of companies in Europe, the Middle East, and Africa have reported implementing price increases in response to global import tax surges. Revenue forecasts have also improved slightly, now expected to rise by 0.4% year-on-year, compared to the 0.3% decline anticipated the previous week.

Specific companies are already feeling the impact of these trade tensions. French tire manufacturer Michelin has revised down its full-year operating income outlook due to poor North American market conditions. Similarly, German automakers such as Porsche, Mercedes-Benz, and Daimler Truck have issued warnings about the adverse effects of the tariffs.

Earnings reports from companies like ASML and Volvo AB are anticipated to provide further insights into the impact of trade tensions on European businesses. ASML Holding NV, a leading supplier to the semiconductor industry, has seen its stock price affected by these developments.

The escalation of trade tensions and the imposition of tariffs have broader implications for the global economy. Supply chains are being disrupted, leading to increased costs for consumers and businesses. The technology sector, in particular, is vulnerable due to its reliance on rare earth materials and critical software.

The pan-European STOXX 600 index has been negatively impacted by the announcement of new tariffs, reflecting investor concerns over the potential economic fallout from escalating trade disputes.

As European companies prepare to report their third-quarter earnings, the interplay between improved forecasts and escalating trade tensions underscores the fragile nature of the current economic environment. The forthcoming earnings reports from companies like ASML and Volvo AB will provide further insights into how European businesses are navigating these challenges.