The EU–US trade war is edging closer after US President Donald Trump announced a new round of tariffs targeting eight European countries, reigniting tensions over Greenland.
The proposed measures would affect Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland.
The US plans to introduce the new import tax in February at 10%. It would then rise to 25% in June unless European leaders agree to what Trump described as “the Complete and Total purchase of Greenland.”
Markets quickly shifted into a risk-off mood. Safe-haven assets surged, while instruments across Europe and the US declined, reflecting early signs of tension in the EU–US trade war.
EU leaders have widely condemned Trump’s ambitions. European Commission spokesperson Olof Gil said the bloc “has tools at its disposal and is prepared to respond should the threatened tariffs be imposed.”
The EU–US trade relationship reached a value of $2 trillion in 2024 when combining goods and services. A major disruption to this relationship would have far-reaching consequences. It would reshape the global economy, trade flows, and geopolitical power balances.
Immediate Stock Market Impact
Across the board, European stock markets opened lower on Monday. Major EU indices declined, with Germany’s DAX down 1.4% and France’s CAC falling 1.6%. The UK, although no longer an EU member, also saw its FTSE 100 slip by 0.3% amid rising uncertainty.
However, investors are not favouring the US over Europe. Although US markets were closed for Martin Luther King Jr. Day, US-listed stocks trading in Europe also fell. In Frankfurt, Alphabet shares dropped 2.4%, Microsoft declined 2.2%, and Nvidia fell 2.2%.
Major US index futures also moved sharply lower ahead of Tuesday’s open. The S&P 500 reached a one-month low, declining between 1.5% and 1.6%, while the Dow Jones recorded a similar drop. Nasdaq 100 futures saw the steepest losses, sliding between 1.8% and 1.9% as big tech stocks came under pressure.
This price action reflects rising market uncertainty and shows that there are no clear winners in a potential EU–US trade war.
Forex Market Reaction to the EU–US Trade War
In this dispute, forex traders appear to favour the EU amid the ongoing EU–US trade war. EUR/USD rallied by 0.4% and extended its gains into Tuesday, breaking above the 1.07 level in a sharp move.
This strength does not reflect confidence alone. The euro has performed well in recent weeks, strengthening against most major peers, with the exception of the AUD and NZD. By contrast, the US dollar has posted a much weaker recent performance.
Gold and Silver Surge as Trade War Fears Grow
As market concerns rise, traders predictably rush towards safe havens. Gold and silver have both reached record highs amid the increased market tensions.
Spot gold saw a 1.6% rise, briefly hitting a peak at $4,690. Silver rose even more steeply, growing by 3.3%, touching the $94 mark and stabilising just above $93 on Monday.
The Political Context
Trump’s attempt to claim Greenland comes from an alleged effort to strengthen national security, with the territory seen as strategically important in the wider context of the EU–US trade war and global geopolitical competition.
According to Trump, Greenland cannot protect itself from the US’s two primary competitors and would provide them with a direct assault line if taken.
Some critics argue this reasoning is weak, since the US already shares a border with Russia through Alaska. Others doubt Trump’s stated motive and suggest the real goal may be access to Greenland’s rich mineral resources, such as rare earth elements that are vital for modern technology and defense industries.
The Kremlin, meanwhile, has stated that Greenland is Danish territory, and that it has no interest in meddling in the island’s affairs. This may, of course, be political posturing, but there have been no indications that either Russia or China aims to take Greenland.
There also seems to be a personal element in Trump’s aspirations for Greenland. “Considering your Country decided not to give me the Nobel Peace Prize for having stopped 8 Wars PLUS, I no longer feel an obligation to think purely of Peace, although it will always be predominant, but can now think about what is good and proper for the United States of America.”, Trump wrote in a letter to the prime minister of Norway.
Currently, the US plans to purchase Greenland. This presents a conundrum, as Denmark is firm on Greenland not being for sale. Greenlanders are almost unanimous in not wanting to be a part of the US.
Trump’s recent actions in Venezuela have also raised concerns of an attempted military takeover. While the likelihood of this is slim, the EU is clearly backing Greenland on the matter, fortifying its military presence on the island gradually.
Potential EU Response: ‘Trade Bazooka’
If the US implements its tariffs, the EU may activate its Anti-Coercion Instrument (ACI), often called the “Trade Bazooka.” Introduced in 2023, the framework has never been used. It allows the EU to impose measures such as customs duties, levies, and import or export restrictions.
The EU could implement its retaliatory tariff package as early as 6 February, targeting US imports worth €93 billion. German Finance Minister Lars Klingbeil declared, “We Europeans must make it clear: the limit has been reached. Our hand is extended, but we are not prepared to be blackmailed.” These measures may escalate tensions in the ongoing EU–US trade war.
What an Escalating EU–US Trade War Could Mean
Trump’s tariff threat has affected US and EU markets similarly, but the EU has not taken action yet. Activating the ACI could shift the balance in the ongoing EU–US trade war, although neither side would gain a clear advantage.
Trump is not known for de-escalating conflicts. Activating the ACI could provoke the US into additional actions, potentially sparking a chain reaction in the EU–US trade war as each side retaliates.
From a market perspective, these moves are likely to increase volatility and uncertainty for the duration of the EU–US trade war. Market decisions may be unpredictable and occasionally occur outside regular trading hours, exposing traders to overnight shock risks. Investors holding longer positions in EU and US-based assets should exercise increased caution.
Safe havens are also likely to strengthen, as evidenced by gold and silver’s immediate rise. Traders may also eye JPY, as it’s historically been a forex safe haven when Europe and the US falter.
Finally, markets seek calmness. If a resolution to the current situation becomes possible, markets are likely to (over)correct back towards more normal price activity, potentially causing significant swings in assets that rose or fell rapidly.
Conclusion
In conclusion, the growing risk of an EU–US trade war has injected significant uncertainty into global markets. With tariffs, retaliation measures, and geopolitical tensions all in play, investors are likely to remain cautious until a clearer path toward de-escalation emerges.
Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication.
