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Luxembourg is one of the minor nations in HOI4. It is one of the tiniest nations, considering it starts off with only one province. It has very in the little way of resources, manpower or industrial power.
Luxembourg is a minuscule concern to that of the great powers. Its position in the middle of France, Belgium and Germany saw that it would be part of the important Benelux Region. It has very little significance in the greater schemes of the great powers, and usually is barely a footnote in history. Should a war start between Germany and France, Luxembourg is likely to get invaded in the process since, akin to Belgium, it allows to bypass the heavily fortified French-German border. without offering any major resistance.
Strategies and Guides
NOTE: This strategy has not been properly tested and may not be viable. If this strategy proves itself as non-viable, remove it
Given that Luxembourg is a tiny country consisting of only a single province that has very little in the way of resources, manpower or industrial power and, most problematically, shares borders with Germany, a country indefinitely superior to Luxembourg in almost every way that also has plans to invade you, playing as Luxembourg (and surviving for that matter) is very hard but doable. The first thing you would want to do is to make friends with Germany. Raising your relations high enough will allow you to join the Axis, effectively removing the threat Germany poses and even turning it into a form of protection for you. In order to avoid being invaded however, you must get the axis membership in order before 1939. In order to do this, however, you must become Fascist to improve your relations with Germany. Choose a Fascist Demagogue as you political advisor to increase the Fascist Party popularity to the point that a Fascist coup d'état occurs. Once your government has become Fascist, work on improving relations with Germany until you can join the Axis. If your relations are good enough, it should be possible to pull of. Once you join the Axis, use your political power to change your conscription law to either Limited or Extensive Conscription as the situation demands in order to increase your manpower to protect against invaders. Go for Political Effort, then Collectivist Ethos followed by Militarism, Military Youth and Paramilitarism to make building up an army easier.
Research takes on different role due to Luxembourg's limitations. Researching new equipment is only done in order to make the researched equipment available for production once the sufficient means of production have been acquired. Having everything ready and researched is useful in the long run but initially, you should prioritize on researching better Infantry- and Support equipment to make your army stronger in the count since your initially limited manpower and size means that your manpower is precious and every casualty and defeat you sustain will be a significant loss for you. Researching the aforementioned subjects will allow you to increase your chances of success and minimize casualties. Motorized/Mechanized infantry and Tanks can come later as Luxembourg's limited industry does not allow for efficient production of them. Researching better Airplanes is also useful for protecting against bombing raids and for attaining air superiority in your own territory. Given that Luxembourg is landlocked, researching naval ships of any kind is somewhat pointless until you gain the ability to deploy them (by annexing a state that has a Naval Base in it). Researching should be done liberally but production of researched equipment should be done with consideration as your initially limited industrial capacity and resources means that you will only be able to produce limited quantities of everything due to your limited industry. You should initially only attempt to produce Infantry- and Support Equipment as your limited industry means that they will be the only thing you can produce effectively.
As far as resources are concerned, you have very limited resources. All you have is 2 units of Steel and nothing else. Given the situation, almost all of your resources will likely come from foreign trade, meaning that picking a side (preferably a successful one) is a must in order to ensure that you gain the resources necessary to sustain yourself. Picking sides will be hard as the Axis is the only faction that you can join in order to avoid getting crushed by Germany in 1940, effectively meaning that once World War II breaks out (with Historical AI focus), the Axis and the Soviet Union will be only countries you can obtain resources from and once either Germany or the Soviet Union declares war on the other, you will be left with just the Axis powers and non-aligned countries to trade with. If you can achieve self-sufficiency by annexing enough territory, it will be a huge benefit to your cause.