Dollar Faces Pressure From Trump's Fresh Tariff Threat to Europe

U.S. President Donald Trump announced on Wednesday a 25% tariff on certain AI chips, including the Nvidia H200 and AMD MI325X, citing national security concerns. This move is part of a broader effort to boost domestic chip manufacturing and reduce reliance on foreign supply chains. The tariffs will not apply to chips and derivative devices used in data centers and other non-military applications.

Trump's tariff strategy is expanding to include new sectors. Last week, the president threatened to impose tariffs on eight European countries—Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and Britain—over their involvement in NATO exercises in Greenland. This followed a similar move in December against Chinese semiconductor imports, with enforcement delayed until June 2027.

European leaders have strongly criticized Trump's Greenland-linked tariffs, calling them unacceptable and a form of blackmail. The European Union is preparing retaliatory measures, including potential $93 billion in tariffs on U.S. imports, as reported by the Financial Times.

The U.S. dollar faced immediate pressure following Trump's tariff announcements. The euro and British pound gained ground, with the euro rising from a two-month low and the pound recovering from its trough. Investors moved funds into safe-haven assets like the Swiss franc and Japanese yen.

Why Did This Happen?

Trump's tariff actions are framed as necessary to protect U.S. national security and economic interests. The administration claims the U.S. currently produces only 10% of the chips it requires, creating a significant security and economic risk.

The administration also cited geopolitical concerns, particularly with Greenland, which the president views as crucial for U.S. security. Denmark, which administers Greenland, has resisted U.S. overtures to buy the territory. Trump has previously suggested taking it by force if necessary, a stance met with bipartisan opposition in the U.S. Congress.

How Did Markets React?

The dollar's decline was evident across major currency pairs. The euro rose 0.19% against the dollar to $1.1619, and the British pound recovered 0.17% to $1.3398. The Swiss franc and Japanese yen also saw gains, reflecting a shift toward safe-haven assets.

Precious metals rallied, with gold rising 1.7% to $4,671 an ounce. Stocks, however, faced downward pressure, with S&P 500 and Nasdaq futures falling in early Asian trade. European markets braced for a potential response to Trump's tariff threats.

Analysts noted increased uncertainty in global trade relations. The U.S. and European financial markets are highly interconnected, with European countries holding nearly $8 trillion in U.S. assets. This creates a significant risk of retaliatory measures that could disrupt global markets.

What Are Analysts Watching Next?

Markets are closely watching for European retaliation and the possibility of a broader trade war. The EU is expected to leverage its economic ties with the U.S. to pressure Trump on the Greenland issue. Analysts suggest that any further escalation could undermine the fragile trade truce between the U.S. and Europe.

Investors are also monitoring Trump's broader tariff agenda. The administration has indicated it may expand tariffs to other sectors, including pharmaceuticals and heavy-duty vehicles. These moves could further impact global trade and financial markets.

Political developments will also play a role. U.S. lawmakers have introduced legislation to block Trump from seizing Greenland by force. A bipartisan congressional delegation is visiting Denmark to show support for its position and to encourage diplomatic solutions.

The upcoming World Economic Forum in Davos will see key discussions on the Greenland issue, with European leaders aiming to counter Trump's approach. The outcome could shape the trajectory of U.S.-Europe trade relations and global economic stability.