Raimondo on How European Industry Is Getting Crushed | Odd Lots

U.S.-Europe relations are described as deteriorating amid U.S. tariffs and political friction, raising strategic and economic risks for European industry. Gina Raimondo warns Europe against pivoting closer to China, arguing Chinese competition is hollowing out European industry and highlighting the strategic importance and legacy of the CHIPS Act. She also flagged AI as a potential source of mass unemployment and democratic destabilization, signaling policy and regulatory risks for tech and industrial sectors.

Analysis

European political drift and attendant policy responses will not be binary; the most actionable outcome is a multi-year bifurcation of supply chains rather than an immediate wholesale pivot to China. Expect procurement and subsidy flows to favor onshore-capable suppliers (advanced lithography, specialty chemicals, precision capital goods) where relocation costs and IP controls are highest — these pockets can sustain 10-30% higher margins for incumbents over a 12–36 month window.

A second-order effect is margin compression for global commodity-oriented contract manufacturers and logistics providers as dual networks (Asia-anchored and Europe/North America-anchored) raise working capital and fixed-cost intensity; EBITDA multiples for asset-light integrators will be more negatively re-rated than for capital-intensive automation vendors.

Geopolitical fragmentation also raises tail risks around export controls and licensing frictions for key process technologies; a single export ban or targeted denial (measured in months) can re-route multi-billion-dollar capex decisions and create near-term order book volatility for equipment suppliers.

The consensus trade — simple long China-exposed exporters — underestimates the winners concentrated in advanced equipment, defense industrial contractors, and enterprise software that automates bifurcated supply chains. Markets are underpricing optionality in European champions that can capture a disproportionate share of reshoring capex; symmetric downside remains if politics normalizes and subsidy programs evaporate within 6–12 months.

Key Decisions for Investors

• Long ASML (ASML) 12–24 months — asymmetric exposure to EU/US chip onshoring. Position size 3–5% of portfolio; target +25–40% upside if EU/US capex accelerates, stop -20% on policy reversal or order slowdown.
• Long semiconductor equipment pair: Lam Research (LRCX) long / TSMC (TSM) short (equal $ exposure) 9–18 months — capture equipment demand vs foundry revenue cyclicity. Expected payoff 15–30% if CHIPS-style capex persists; hedge using Jan-2027 call on LRCX to cap downside.
• Long European defense/industrial re-shoring play: Rheinmetall (RHM.DE) 6–12 months vs short Boeing (BA) 1:1 by notional — play intra-industry reallocation toward EU contractors. Target +30% on RHM.DE if NATO/EU procurement rises; BA short protects against broad defense softness and civil aerospace cyclicity.
• Buy selective long-dated call spreads on ASML or LRCX (12–36 month expiries) instead of outright equity to cap downside while keeping upside on policy-driven capex; cost <6% of notional with 3–4x upside if onshoring accelerates.
• Maintain cash/hedge buffer for 3–6 month policy shocks (export controls/tariff headlines). Reduce cyclical, low-margin EM manufacturing exposure by 50–70% in small-cap sleeve and redeploy into automation (ABB) and specialty materials suppliers benefiting from dual-source premium.