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- Another week, another geopolitical flashpoint with Greenland, a self‑governing territory of Denmark, in focus. US President Donald Trump has been ramping up his rhetoric over recent weeks, claiming ownership of the island is crucial to US national security, despite Greenland already sitting under the umbrella of NATO. Last Saturday, Trump announced via social media his intention to impose 10% tariffs from the start of February on imports from eight European countries who had sent a (very limited) number of military personnel to Greenland, namely the UK, Denmark, Norway, Sweden, France, Germany, Netherlands and Finland. Trump threatened to increase these tariffs to 25% from the start of June if a deal is not reached for (in Trump’s words) “the complete and total purchase of Greenland”. Trump framed the tariffs as necessary, insisting that only full US control of Greenland could prevent China and Russia from seizing the territory, reiterating that Denmark was incapable of protecting it.
- Unsurprisingly there was significant pushback from European politicians to President Trump’s announcement; equally we saw US and other equity markets slide, the US dollar weakened and gold post further all time highs. By Wednesday evening, Trump had backtracked on his threats, saying he had “agreed the framework for a future deal” on “Greenland and the entire Arctic region” after a “very productive” meeting with NATO Secretary General Mark Rutte. Earlier on Wednesday, Trump withdrew his threat of taking Greenland by force, talking of “seeking immediate negotiations”, and later in the day via social media, Trump dropped his threat to impose tariffs on European countries from the start of February. The US will negotiate with Denmark and Greenland with talks “aimed at ensuring that Russia and China never gain a foothold – economically or militarily – in Greenland” per a NATO spokesperson.
- Japan’s Prime Minister Sanae Takaichi said she will call a national election for 8 February, declaring “Let the people decide whether or not Takaichi should be prime minister.” Takaichi will seek voter backing for increased spending, tax cuts and a new security strategy expected to accelerate Japan’s defence build-up. Parliament will be dissolved today, after which the shortest campaign in Japan’s post war history will begin. Calling the election now is driven by her strong popularity, based on polling that consistently points to an approval rating around 70%.
By the numbers
- 3.4% – UK inflation in December, up from 3.2% previously and ahead of expectations. This was the first acceleration in CPI for five months. The consensus view remains that the disinflationary trend is intact and that this spike was due to the impact of the budget on tobacco prices and the timing of the survey which picked up a jump in airfares relating to pre-Christmas travel. Market expectations for Bank of England policy adjustments were not impacted by the data.
- 5% – China’s level of GDP growth in 2025, meeting the government’s growth target despite the trade war with the US. Fourth quarter growth slowed to 4.5%. For the year as a whole, export growth was similar to 2024 levels, climbing 5.5%, highlighting once again China’s ability to find new export markets to offset a slump in exports to the US.
- 633 million – the size of China’s population by 2100 based on current trends. China registered the lowest number of births in 2025 since records began, marking the fourth consecutive year in a row of population decline. 7.92 million babies were born in 2025, down from 9.54 million in 2024. During the year, 11.34 million people died, leaving the overall population at 1.405 billion. The fertility rate, at 0.98 is well below the 2.1 level for a stable population. China is 17% of the global population, but only 6% of births.
Market movers
Japanese government bonds reacted violently to news of a snap election in Japan set for early next month. Prime Minister Sanae Takaichi has gambled that her strong personal popularity rating will result in a stronger majority for her LDP led coalition government, easing the possibility of more deficit financed government spending to reinvigorate the Japanese economy. Takaichi has proposed removing consumption taxes on food, an expansionary move but one that will weigh on government finances. Takaichi also risks the potential for an election upset given the merger of the main opposition party with her former coalition partners, leading to risks of no group having an overall majority and yet more political uncertainty. Takaichi’s experiment highlights the risks of running expansionary fiscal and monetary policies against a backdrop of high debt and elevated inflation. Bond markets do not like what they are seeing. Japanese government bond yields have climbed to record highs, which is already having ripple effects globally. Higher yields in Japan, after an extended period of being kept artificially low, raises the prospect of disruption to global capital flows as Japanese money no longer needs to seek a return overseas with more attractive returns available at home.
The investment lens
The World Economic Forum in Davos this week certainty captured the headlines given President Trump’s pronouncements on Greenland and tariffs last weekend. The forum gave a platform for western leaders to forcefully push back on President Trump’s plans, which resulted in a rapid climbdown. We have seen in the past that negative stock market reactions and political opposition has the ability to force a rapid change of policy from the Trump administration. It was no different this time. But the overarching theme of a more isolationist US and a new world order remains. Canadian Prime Minister Mark Carney summed up the situation, saying the rules based international order is undergoing “a rupture, not a transition”, as he urged the world’s “middle powers” to unite in response. Carney said, “when the rules no longer protect you, you must protect yourself. But let us be clear-eyed about where this leads. A world of fortresses will be poorer, more fragile and less sustainable.”
We may now have some political and market calm restored but the events of the past week will further erode trust between Europe and a Trump-led United States. Despite the policy reversal by Trump, the US antipathy towards Europe and NATO will not be forgotten quickly by European leaders.
This week’s dramatic tariff headlines again raise the question of how seriously to take President Trump’s threats on tariffs. While the list of tariffs threatened, but not imposed, over the past 12 months grows ever longer, the US effective tariff rate still sits at 14.4% compared to 2.5% twelve months ago. This week’s events are a reminder that threatened tariffs, particularly when they are politically motivated, appear to be a tool for negotiation and brinkmanship, but that still does not mean they can be ignored completely.
From the geopolitical perspective, the US appears to have grasped that the continued stability of NATO rather than occupation/purchase of Greenland is most critical to US national security. With trust eroded however, from a European political perspective, the policy of ‘appeasement’ (for want of a better description) of Trump, mainly to keep support for Ukraine, may be coming to an end. European politicians were pragmatic enough last year to hold back on a tariff response and seek a trade ‘deal’ given the continued need for US support for Ukraine, and for security guarantees for Ukraine in the event of a ceasefire. Despite President Trump’s climbdown, this week further undermined the transatlantic alliance, but for now at least, the existential threat to NATO has receded.
