Trump Tariffs Erode European Defense Stocks

Shares in European defense companies dropped sharply Monday following sweeping tariffs imposed by U.S. President Donald Trump, triggering the steepest sector-wide selloff in years and reigniting fears of a global economic slowdown.

The Aerospace and Defense Stock Index—home to major firms like Rheinmetall and BAE Systems—fell 8.9% by 09:03 GMT, after an 8% drop last Friday. If the downward trend continues, the index is on track to post its biggest single-day loss since April 2020, as per Reuters.

Despite an 18% rise so far in 2025, the index was up 30% just a week ago. The recent slide has erased much of the year’s earlier gains that were driven by expectations of increased European defense spending.

Germany’s Rheinmetall, Hensoldt, and Renk saw shares tumble between 9% and 10%, while U.K.-based BAE Systems closed down 4%. French firms Dassault Aviation and Thales lost between 6% and 9%. Sweden’s Saab fell 7%, and Rolls-Royce, Chemring Group, Babcock International, and Qinetiq all dropped between 6% and 7%.

“The weak performance of the defensive sector can be explained by the disproportionate rise in stocks since the beginning of the year,” Stefan Maichl of LBBW Bank was quoted as saying by Reuters. “The increase in valuations as a result of this rise has made stocks sensitive to corrections. Investors are currently temporarily moving their high profits to safe havens.”

Adding to the pressure, China’s restrictions on the export of rare earth elements are sparking fears about production delays. Tom Guinchard, equity analyst at Pareto Securities, warned that “this situation puts pressure on delivery processes.”

Defense companies had been among Europe’s top-performing stocks in 2025 amid growing regional security concerns and increased government budgets. But Monday’s market reaction suggests investor sentiment has shifted quickly.