Key Takeaways
- It’s been another busy week in terms of geopolitics as the US continues to ramp up rhetoric around the ownership of Greenland.
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President Trump announced 10% tariffs on eight European countries, with levels ramping up to 25% in June if a deal on Greenland is not reached.
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The legality of these announcements is uncertain, and European nations are standing firm in their opposition.
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Europe’s leaders have a range of options at their disposal. They could refuse to ratify previously agreed deals and could even implement an anti-coercion instrument.
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Thus far markets remain largely unmoved, but uncertainty continues to hang over sentiment.
It’s been another week in which geopolitics and financial markets are interacting. Over the weekend, news broke that US president, Donald Trump, is intending to implement tariffs on eight European countries, including the UK, France, Germany and Denmark, who have sent a very limited number of military personnel to Greenland last week. The tariffs will initially stand at 10% before increasing to 25% in June if, as the president describes, a deal is not reached for a “complete and total purchase” of Greenland.
It is worth bearing a few things in mind here. This is not an executive order — it is just a social media post at this stage. Indeed, we saw a similar post last week in which Trump threatened 25% tariffs on countries who continue to trade with Iran. That announcement was pretty much ignored by financial markets.
Another factor to bear in mind is that these are tariffs that would take effect under the International Emergency Powers Act, and there remains a large question mark over the legality of such steps. This issue is set to be resolved by the US Supreme Court at some point soon.
European leaders have plenty of scope to push back, with lots of options to retaliate from the EU’s point of view. They can refuse to ratify the trade deal agreed in 2025, and could also push through tariffs on €93 billion of US goods. These tariffs were proposed last year before the trade deal was agreed but never implemented.
Significantly, there is also the anti‑coercion instrument – a measure the EU has put in place but never used. They could go much further in terms of trade restrictions, intellectual property and so on, although it would take time to implement and is more of a last resort option. We are not yet at this stage.
The question now for Trump — but mainly for European leaders — is how the “coercion” will take place in terms of getting allies to agree to the president’s territorial ambitions from here.
Markets have sold off a little this morning, but the moves have not been too dramatic. It seems there is still a degree of disbelief that the announcements will take place. A 25% tariff – as proposed for June – would amount to about 0.2% of EU GDP. The figures are not too dramatic economically, but more pertinent is the fact that the US is willing to put real pressure on political and military allies in this way.
So, the question for the US is: is it worth it? Is the purchase or annexation of Greenland worth jeopardising the continued stability of NATO – an organisation that is far more important to national security? Remember, there is an agreement between the US and Denmark dating back to 1951 that allows the US to station as many troops as it wishes in Greenland. Currently, the US has a modest 200 troops located there, though in the past this figure has been as high as 10,000.
I believe that the key point from the European perspective is that the policy we saw in 2025 — essentially, appeasement of the US administration — may now be coming to an end. There is set to be a more forceful pushback against some of Trump’s ambitions. You can see why appeasement was used in 2025: it was all about keeping the US on side in terms of the peace deal – or potential peace deal – in Ukraine with associated US security guarantees and support for Ukraine more broadly.
What happens next is uncertain, but for now we are clearly seeing some big dents in the transatlantic alliance. This could well turn into an existential threat to NATO. The US is significantly testing the sovereignty of an EU nation, so pushback is inevitable. That is going to cause more uncertainty in financial markets.
Finally, it is worth repeating that the announced tariffs are not set in stone, but more geopolitical uncertainty is feeding into markets. At the time of writing markets are down slightly but still coping reasonably given the unknowns.
