Innovating through uncertainty

By Colin Watt, marketing director at ABGI, global specialist in structuring and financing for research, development and innovation projects

As I write this – early April 2025 – the words “significant volatility” do not do justice to the impact on global markets of the

sweeping tariffs introduced by US president, Donald Trump. These tariffs include a baseline ten per cent duty on all imports, with specific rates reaching up to 20 per cent for European Union (EU) products. This abrupt shift in trade policy is poised to have profound implications for various sectors within Europe, notably in research and development (R&D) investments.

Immediate economic impact on Europe

The imposition of these tariffs has led to a marked downturn in European stock markets. The FTSE 100, Germany’s DAX, and France’s CAC 40 have experienced significant losses. Analysts predict that Germany, Europe’s largest economy, may face a third consecutive year of contraction due to its substantial trade exposure to the US.

This economic strain is likely to compel European companies to reassess their financial strategies, with potential cutbacks in discretionary spending areas, including R&D.

Sector-specific challenges

Industries heavily reliant on exports to the US are particularly vulnerable. The automotive sector, for instance, faces a 25 per cent tariff, which could lead to decreased revenues and necessitate budgetary adjustments, potentially at the expense of R&D activities. Similarly, the pharmaceutical industry, a significant contributor to R&D in Europe, is under threat. The US tariffs could disrupt established tax and manufacturing strategies, compelling companies to reconsider their investment allocations, including those earmarked for research and innovation.

Investor sentiment and R&D funding

The pervasive uncertainty stemming from the tariffs is likely to dampen investor confidence. Venture capitalists and other investors may adopt a more cautious stance, leading to extended fundraising timelines and suppressed valuations for European startups and tech companies. This environment could hinder the flow of capital into R&D-intensive enterprises, slowing the pace of innovation and technological advancement.

Policy responses and strategic adjustments

In response to the economic challenges posed by the tariffs, European governments and the EU are contemplating various measures. Proposals include the introduction of temporary subsidies or tax relief for affected industries, as well as increased public investment in R&D to bolster competitiveness. Such initiatives aim to mitigate the adverse effects on innovation and maintain Europe’s position as a leader in research and technology.

Long-term implications

The current trade tensions underscore the need for Europe to diversify its economic partnerships and reduce reliance on the US market. This situation may accelerate efforts to strengthen intra-European collaborations and forge new alliances, fostering a more resilient and self-reliant R&D ecosystem.

Additionally, the emphasis on deglobalisation highlights the importance of cultivating domestic innovation capabilities to sustain economic growth and technological progress.

Conclusion

R&D investment in Europe faces significant challenges. The immediate economic impact, sector-specific vulnerabilities, and shifts in investor sentiment collectively threaten to constrain resources available for research and innovation.

We hope to see proactive policy responses and strategic adjustments from national governments and the EU that have the potential to mitigate these effects and reinforce Europe’s commitment to maintaining a robust R&D landscape.

Since ABGI was established 35 years ago, we’ve seen a number of market ‘events’ – ‘Black Wednesday’ in the UK in 1992, the collapse of the tech bubble in 2000, the 2008 financial crisis and, of course, the global financial impact of Covid-19, to name but a few.

We know that during periods of volatility and change, businesses crave any degree of certainty. We also know that successful businesses find a way to continue to invest in innovation – ensuring they emerge from crisis still on a path to long-term growth.

With a 35-year heritage, 520 experts and advisers, ABGI manages global tax incentives, grants and subsidies annually for a broad range of clients including some of the world’s best-known brands.

Our aim is to help clients accelerate and fund their innovations. We operate on the entire value chain of innovation through our multidisciplinary international teams.

We believe it pays to choose a provider with a proven track record – both in the UK and internationally – whose unique combination of highly qualified and experienced technical staff with proven methodologies consistently deliver results for clients.