Make Europe Relevant Again

Trump's Venezuela gambit reaffirms Europe’s geopolitical impotence. But it could reward European companies’ strengths.

14 January 2026

Key takeaways

• Trump's Venezuela gambit has again exposed Europe's strategic irrelevance
• It further confirms an era of Hard Power, Tough Choices and Real Assets
• To regain its geopolitical standing Europe must exploit its few areas of leadership in industrials, semiconductor equipment and real assets
• As European investors we think these areas of the market can perform strongly, underpinned by multi-year growth, and deserve a 'sovereignty premium'

Barely a few days into 2026, President Trump's audacious move to capture Venezuelan President Maduro in an elite special forces raid has reaffirmed Europe's geopolitical impotence. Not only does Europe lack the capability to carry out such a swoop, the operation's success has emboldened the Trump administration to move on Greenland, which Europe is scarcely able to prevent. If that’s not enough by way of geopolitical humiliation, Europe remains unable to dictate the path of negotiations between Russia and Ukraine and has been largely sidelined in the Middle East.

This new hard-power reality, where the toughest and best-resourced militarily nations direct the affairs of the world, leaves Europe with only one clear option; significantly boost investment in its own strategic autonomy through defence and fundamentally overhaul its priorities.

Europe must leverage its few areas of genuine global leadership to carve its own path, rather than prioritising 'soft power' through the export of goods and services like luxury goods, beverages, cars and tourism. In the stock market, we think Europe's areas of 'hard power' that it can leverage lie in its leading industrials sector in both aerospace & defence and capital goods, semiconductor equipment and hard assets like energy and metals. In this new era of hard-power reality, in our view these areas of the market look particularly attractive, with strong, multi-year growth outlooks. We believe Europe's still-underappreciated 'strategic' assets will start to trade with a 'sovereignty premium' over time, creating opportunities for European investors. This view underpins our overweight exposure to these areas in our European equity strategies.

In what sectors does Europe have genuine strategic leadership?

Where does Europe have genuine strategic leadership?

Aerospace & defence – the foundation of strategic autonomy

If Europe is to retain any hard-power relevance, aerospace & defence sits at the centre of its sovereignty. After a strong period of performance, aerospace & defence now represents around 5% of the MSCI Europe ex-UK benchmark¹.

At the end of last year, European defence stocks sold off from their October peaks by circa 25%* to a trough in November, as the market began to price in a ceasefire in Ukraine. Since the December lows, defence has rallied strongly by 30%*. We think the sector has the scope to break out to new highs as the events in Venezuela, heightened tensions between US/Russia and posturing over Greenland highlight continued geopolitical uncertainty.

Chart 1 : Goldman Sachs European Defence Index  

In defence, Europe retains genuine sovereign capability across land, air, naval and electronic warfare. BAE Systems anchors the UK’s defence industrial base, Rheinmetall has become Europe’s dominant munitions and land systems producer, Thales leads in radar, cyber and electronic warfare, and Leonardo remains a cornerstone of combat aviation and sensors. Together, these firms form the backbone of Europe’s rearmament at a time when NATO spending is structurally resetting higher. Consolidation remains elusive – but we are encouraged by the memorandum signed between Airbus, Thales and Leonardo to create a new European space champion fit to take on the US in a similar mould to missile consortium MBDA. Read more of our thoughts in our blog "Forming a Pan-European Space Champion” from late October.

In civil aerospace, Airbus has emerged as the global champion, with a decade-long order book and a deeply embedded European supply chain. Around it sits a world-class propulsion and launch ecosystem led by Safran, Rolls-Royce and MTU Aero Engines.

Chart 2: Airbus versus Boeing performance

Airbus has outperformed Boeing by circa 147% over the last five years since the Covid pandemic.*

Capital goods – electrification, power and industrial muscle

Europe’s second pillar of leadership lies in capital goods — the infrastructure of electrification, automation and heavy engineering. These industries represent circa 8%* of the European benchmark. Siemens, Schneider Electric and ABB dominate global power distribution and industrial automation, technologies that sit at the heart of energy security, reshoring and defence-industrial expansion. Prysmian, the world’s largest cable manufacturer, is now strategically critical to grid expansion and offshore wind.

Europe's electrification market cap is higher than that of the US large cap names.

Siemens Energy has become Europe’s system integrator across gas turbines and grid infrastructure, while industrial champions such as Atlas Copco, Sandvik, Epiroc and Alstom dominate high-precision machinery, mining equipment and rolling stock. These companies provide the industrial capacity required for Europe to re-arm, re-build and re-industrialise.

Semiconductors – owning the choke points

While Europe lacks leading-edge fabrication plants (fabs), it controls the most valuable choke points in the global semiconductor supply chain. ASML is the world’s most strategically important technology company, with a monopoly in EUV lithography - equipment without which no advanced AI or defence chip can be made. ASM and BESI dominate key deposition and advanced packaging steps.

In power semiconductors - critical for EVs, data centres, electrification and defence — Infineon is the global leader, now embedded in next-generation AI infrastructure through its partnership with Nvidia. STMicroelectronics and NXP anchor Europe’s automotive and industrial chip stack, while ARM remains the dominant global CPU architecture. In a world where chips are national security assets, Europe’s ownership of the tools, IP and power electronics provides reasonable strategic leverage.

Real assets – energy, materials and infrastructure

Europe also retains strategic leverage in energy, materials and infrastructure. Its integrated energy majors — TotalEnergies, Shell and BP — remain globally competitive operators, now repositioned as energy security and transition champions. Electricity grids operated by the likes of National Grid in the UK and E.ON in Germany are becoming strategic assets as Europe accelerates investment in transmission, interconnection and defence-resilient infrastructure.

In materials, Europe is now explicitly re-nationalising industrial competitiveness through policy, with steel at the centre of its strategic agenda. Steel is not a cyclical commodity but a foundational input into defence, infrastructure, energy systems and industrial machinery. Through a combination of import quotas, safeguard measures and the Carbon Border Adjustment Mechanism (CBAM), Europe is imposing an effective tariff wall around its steel market — reversing decades of undercutting from subsidised Chinese, Turkish and Russian producers, and structurally restoring pricing power to domestic producers. EUROFER expects European steel imports to fall circa 40%² once the full effects of the quotas are implemented - a significant boost to the European steel industry.

Chart 3: European Finished Steel Imports

Figure 8: After surging to a multi-year high in Q4, imports should plunge in FY26

EU Quarterly Finished Steel Imports (mt)

CBAM is also being used to protect strategically important industries like cement and fertilisers, and could be expanded to chemicals.

Future pillars – chemicals and autos

Europe is now extending protection to additional strategic industries, notably chemicals and automotive manufacturing. Once treated as cyclical export sectors, both are being reframed as sovereign capabilities tied to defence, batteries, semiconductors and energy security. The EU’s EV subsidy investigation, CBAM expansion and state aid under the Net-Zero Industry Act point to a more explicitly protectionist industrial model. In our view, companies such as BASF, Solvay, Volkswagen, Mercedes-Benz, BMW and Stellantis stand to benefit as Europe deploys tariffs, subsidies and domestic-content rules to defend its industrial base.

Tom O’Hara, Jamie Ross and David Barker manage European Equities strategies at GAM Investments. You can find out more information on the team and the strategies they are responsible for here.