Strengthening Europe’s edge: infrastructure investment through a period of trade unpredictability (Part 2)

Abstract 

As tariffs continue to lead headlines, the second part of our trade series explores how Europe should be capitalising on the uncertainty to attract infrastructure investment and reinforce its economic resilience.

This analysis draws on historical market data, spanning across two previous U.S. tariff cycles in 2002 and 2018. It also draws on investor insight and wider commentary on how the European Union may revisit its options to deliver a more attractive market opportunity.  

1. Where we are in 2025 

The Trump Administration’s announcement in April of a 90-day pause on tariffs dampened market anxiety but did not eliminate it; a 10% baseline duty and sector surcharges - 25% on steel, aluminium and autos; and 15% on selected critical minerals - remain in force [1].

This uncertainty has led to a softening in global deal activity in the first half of 2025. European infrastructure transactions fell, with aggregate value sliding 6.5%, while the U.S. recorded a 4.9% rise in total value to US$201 billion, as capital concentrated in a smaller number of larger transactions. Despite the volume drop, U.S. valuations remain high, showing that even amid a broader global slowdown, investors still assign a premium to American assets.

Figure 1: EU and US deal value and volume H1 2024 vs H1 2025. Source: Infralogic 

When one looks at input costs, they tell a slightly different story. Delivered steel for US EPC contracts averaged US$1,320/t in Q2 2025, roughly US$410 above Asian export quotes and €390 above European import prices, despite the pause [2,3]. European bidders can lock prices for nine months because most favoured nation (MFN) tariffs remain near 3% and suppliers are diversified [4].

Past tariff regimes are worth examining. In the 2002 Bush era, steel safeguards pushed U.S. hot rolled coil prices more than 40% higher and slowed infrastructure deal flow within a year, while Europe preserved its flow of deals [5]. In 2018, the Section 232 duties added about US$9 billion in annual cost, coinciding with a 7% drop in U.S. solar installs even as EU builds rose 9% [6,7].

History would suggest a modest decline in U.S. installations and deal flow over the next two quarters if tariffs snap back this August; conversely, a negotiated rollback would clear part of today’s backlog, but investors would still price a volatility premium into U.S. assets until policy stabilises. 

Figure 2: Closed transactions by region during George W. Bush’s first term. 2001-2005. Source: Infralogic  

Figure 3: Solar closed transactions by region and value during Donald Trump’s first term and tariff period. While progress stalled in 2019, overall US solar investment continued to perform well. Source: Infralogic 

2. European infrastructure opportunities amid tariff uncertainty 

Europe is not merely the lucky recipient of capital fleeing tariff risk; it sits at the tip of three long-term demand waves, decarbonisation, digitalisation and energy security, and has begun to build investment channels wide enough to absorb them. 

Recent announcements highlight how Europe is delivering policy clarity and pipeline visibility in these uncertain times: 

• Grids. Record renewable-curtailment payments in Germany eased to €2.77 billion in 2024, yet rising electrification targets still make transmission and distribution the single largest opportunity [8]. ENTSO-E estimates the EU will require ~€600 billion in grid CAPEX by 2030, while recent tariff determinations preserve a 5.5–6% regulated-asset return, creating quasi-bond-like cash-flows [9,10].
• Flexible generation & storage. The Clean Energy Package now enforces 70% cross-border interconnection availability, obliging TSOs to procure fast-ramping assets [11]. The UK T-4 capacity auction for 2027/28 cleared at a record £65kW-yr (Feb 2025) [12]. Guidance for Spain’s 2025 hybrid PV-plus-battery tender signals reserve prices in the low-€40s/MWh, pointing to bankable revenue stacks that still out-compete tariff-distorted U.S. peakier projects [13,14].
• Data centres and digital backbones. AI adoption is driving ~8% CAGR in European server-rack demand to 2030 [15]. Corporate PPAs in the FLAP-D markets are now signing below €50/MWh on the back of offshore-wind scale, while Nordic sites continue to offer more than 90% renewable power and free-air cooling [16]. Revised TEN-E Regulation (Article 6) folds digital backbones into Projects of Common Interest, unlocking CEF-Digital grants [17].
• Green hydrogen and e-fuels. The EU Hydrogen Bank’s first auction (Feb 2025) cleared at a weighted-average €0.48/kg, with the lowest, Dutch–Spanish bids awarding 800MW at ~€0.37/kg [18]. Germany’s H2Global contracts-for-difference guarantee a 10-year offtake, while Spain has fast-tracked 11GW of renewable-powered H2 corridors under the H2Med initiative [19,20].
• Transport electrification. Fit-for-55 fleet CO2 targets and the Alternative Fuels Infrastructure Regulation (AFIR) create predictable build-out tracks for EV charging, rail-freight electrification and shore-power at ports - segments where metallic-input tariffs play only a minor role, giving Europe a relative cost edge [21].

Figure 4. Europe’s infrastructure deal pipeline by value and volume, Jan 2021 - July 2025. Source: Infralogic 

What unites these subsectors is the layering of revenue certainty, regulated returns, CfDs, long-dated PPAs, on top of comparatively stable input costs. That cocktail explains why Europe’s infrastructure pipeline is 72% larger than that of North America.  

3. Supply chain realignment  

Tariff diversion is already visible. Solar modules that would face U.S. duties arrive in Rotterdam at 10–15% discounts to 2024 levels, trimming project costs by up to €5/MWh [22]. Furthermore, Critical Raw Materials Act (CRMA) financing of €30 billion supports onshoring of processing and manufacturing without sacrificing today’s price advantage. So far, Chinese suppliers remain welcome in non-security sensitive segments; however, telecoms, ports, data centres and semiconductors face tighter FDI screening. 

At the same time, the EU’s inbound-review regime has matured from a patchwork into a common filter. The 2019 FDI Screening Regulation became fully operational in October 2020, and by early 2025, Member States had adopted national screening laws, most recently Denmark and Portugal. A Commission proposal issued this year widens the net to cover critical raw material projects and advanced semi-conductors, dovetailing with the NetZero Industry Act.  

Across the Atlantic, the FY 2023 National Defense Authorization Act broadened CFIUS to scrutinise certain outbound transactions, though implementing rules remain pending adding another layer of uncertainty for U.S. sponsors.  

Europe’s base 3% MFN tariff keeps input costs near world prices, offsetting higher labour, making projects marginal in the U.S. become bankable in Europe, narrowing the IRR gap that often steers capital toward North America. 

As cheaper, tariff-diverted solar panels sail into Rotterdam and CRMA financing kick-starts a home-grown supply chain, Europe is poised to graduate from the world’s green-tech buyer to its builder. For investors, the window to lock in discounted components and generous IRR spreads will close once reshoring gathers speed. When it does, entry prices and margins will flatten along with the advantage. 

4. Europe’s path forward 

Europe’s competitive position is stronger than in earlier tariff cycles, yet bottlenecks threaten to squander the advantage. The Green Deal Industrial Plan and supporting legislation give Brussels an unprecedented set of levers to pull, provided they are pulled fast and coherently. 

Europe should act now on a number of issues: 

• Deploy Green Deal funding at scale. Of the headline €400 billion REPowerEU allocation, only 18% has reached on-the-ground projects. Front loading the remainder through EIB project bonds could shave 40-60 bp off weighted average cost of capital, more than offsetting Europe’s labour cost premium [23].
• Operationalise the NetZero Industry Act (NZIA). The NZIA promises one-year permitting for strategic net-zero technologies and a single EU level auction platform. Making those timelines real would narrow the average EU vs US permitting gap from 18 months to near parity.
• Scale Contracts for Difference and Innovation Fund grants. H2Global, Dutch and French hydrogen CfDs, and the EU Hydrogen Bank, demonstrate appetite, but capacity is limited. Expanding annual CfD volumes to €15 billion, roughly equal to one-third of US IRA tax credit outlays, would crowd in additional private capital without breaching fiscal envelopes.
• Lock in predictable carbon pricing. Legislating the ETS price corridor would anchor industrial power hedging and prevent future political price shocks.
• Fastrack permitting and grid interconnections. The Grid Action Plan’s twin pillars, a two-year permitting ceiling and smart grid digital twins, should be enacted into binding regulation, not mere guidelines, by the end of 2026. 

5. A rebalancing of global investment flows  

Dry powder in infrastructure funds stands at US$355 billion in 2025 [24]. LP surveys (Preqin, May 2025) indicate a planned 5-7% increase in EU allocations by 2026, largely funded by trimming U.S. exposure [25]. Secondary market pricing corroborates the tilt: mature European regulated asset stakes trade at a 6–8 % premium to NAV, while North American equivalents sell at a 3-5% discount [26].

Emerging markets, too, could benefit. Southeast Asia positions itself as an alternative low-cost manufacturing hub feeding the EU, while MENA sovereign funds coinvest with European developers on green hydrogen corridors. A ‘middle path’ Europe - open yet strategically hedged - could anchor a new trade geometry that channels capital away from this current tariff uncertainty. 

6. Conclusion - Europe’s edge 

Tariffs act like an economic piston: every downstroke lifts U.S. costs and pumps capital toward more predictable regimes. Europe has ridden that piston twice before; the 2025 version is bigger, faster and more volatile.  

If Brussels accelerates permitting, locks in predictable carbon pricing and balances openness with precision screening, the continent can turn a short-term influx into a lasting renewal of its infrastructure base. If it hesitates, today’s flow of capital could reverse the moment that Washington finds a new equilibrium.

Footnotes

[1] White House, Fact Sheet: President Donald J. Trump Imposes Tariffs on Imports from Canada, Mexico and China (Feb 2025) LINK

[2] ENR, 2Q 2025 Cost Report – 20-city fabricated-steel component (23 June 2025). LINK

[3] GMK Center, “Global prices for hot-rolled coils decreased by 1–7 % in May” (21 May 2025). LINK

[4] WTO, World Tariff Profiles 2024 – European Union (Table A.1).  LINK

[5] SteelBenchmarker, Price-history series LINK

[6] Wood Mackenzie / SEIA, U.S. Solar Market Insight – 2018 Year in Review (March 2019). LINK

[7] MAC Global Solar Energy Index, Sector Update – December 2019. LINK

[8] Bundesnetzagentur, Monitoring Report 2025 – Curtailment costs (§ 3.4). LINK

[9] ENTSO-E, Ten-Year Network Development Plan 2024 LINK

[10] S&P Global, Western Europe Regulated Power Handbook 2025 (May 2023). LINK

[11] Regulation (EU) 2019/943, Internal Market for Electricity (Clean-Energy Package). LINK

[12] UK DESNZ, Capacity-Market Auction T-4 2027/28 – Results (27 Feb 2025). LINK

[13] MITECO Spain, Renewables Auction Portal – May 2025 guidance LINK

[14] A US peaker project is a power-generation asset built specifically to run during periods of highest electricity demand (peaks) rather than around the clock.

[15] Grand View Research, Europe Data Center Market Size Report 2025. LINK

[16] BloombergNEF, Corporate PPA Price Index – 1H 2025 Europe LINK

[17] Regulation (EU) 2022/869, Revised TEN-E – Art. 6 (digital backbones). LINK

[18] European Commission, EU Hydrogen Bank – First Auction Results (13 Feb 2025). LINK

[19] H2Global Foundation, Programme Factsheet (April 2025). LINK

[20] Council of the EU, H2Med Corridor – Council ConclusionsLINK

[21] Regulation (EU) 2023/1804, Alternative Fuels Infrastructure Regulation (AFIR). LINK

[22] PV-Tech, “European solar-module price rise heralds new pricing balance” (Jan 2025). LINK

[23] European Commission, REPowerEU – Three Years On (Factsheet, May 2025). LINK

[24] CBRE IM, Infrastructure Quarterly – Q1 2025 (April 2025). LINK

[25] Preqin, Press Release – Infrastructure dry powder at record-low share of AUM (21 May 2025). LINK

[26] Jefferies, Global Secondary Market Review (Jan 2025). LINK