The Escalating US-EU Trade Tensions and the Feasibility of the "Sell America" Strategy

The U.S.-EU trade relationship, long a cornerstone of global economic stability, has entered a volatile phase in late 2025. Renewed tariff threats, geopolitical brinkmanship over Greenland, and the collapse of a July 2025 trade deal have reignited fears of a "Sell America" strategy-a coordinated divestment of U.S. assets by foreign investors. This article examines the feasibility of such a strategy, analyzing the interplay of geopolitical risks and financial market dynamics to assess whether U.S. equities and Treasury markets are truly vulnerable.

The Geopolitical Flashpoints

The Trump administration's 2025 tariff actions, framed under the International Emergency Economic Powers Act (IEEPA) and Section 232 of the Trade Expansion Act of 1962, have escalated tensions with the EU. A July 2025 trade deal-reducing U.S. tariffs on EU goods to 15% in exchange for European energy purchases-was suspended by the EU parliament after Trump threatened retaliatory measures tied to the Greenland dispute. By late 2025, the administration announced a new tariff regime: 10% on goods from eight NATO-aligned EU nations, with a planned escalation to 25% in mid-2026 if Greenland negotiations stall. These threats have triggered retaliatory preparations, including the EU's potential activation of its Anti-Coercion Instrument, which could restrict U.S. corporate access to European markets.

Financial Market Reactions: Volatility and Resilience

The immediate financial fallout has been pronounced. U.S. Treasury yields surged to 4.3% on 10-year bonds in early 2026 amid the initial tariff escalations, reflecting heightened risk premiums. The S&P 500 experienced a sharp correction, erasing its 2025 gains, with technology stocks like Apple and Nvidia among the hardest-hit sectors. Safe-haven assets such as gold and silver reached record levels, while the U.S. dollar weakened against a broad basket of currencies-a rare phenomenon attributed to hedging activity by non-U.S. investors rather than a loss of dollar confidence.

However, the market's resilience has also been notable. Emerging markets outperformed U.S. equities in 2025, with the MSCI Emerging Markets Index gaining 34.4% compared to the S&P 500's 18% return. This suggests that while U.S.-EU tensions have disrupted short-term sentiment, broader global trends-such as commodity demand and tech innovation-continue to underpin market optimism.

The "Sell America" Strategy: Feasibility and Constraints

The "Sell America" strategy hinges on the idea that foreign investors will systematically divest U.S. assets in response to perceived policy instability. A high-profile example emerged in January 2026, when Danish pension fund AkademikerPension announced a $100 million divestment from U.S. Treasurys, citing concerns over U.S. fiscal sustainability. While this move signaled a shift in investor sentiment, it was not indicative of a broader trend.

Data from the Treasury International Capital (TIC) system reveals that foreign investors accumulated a record $1,569 billion in long-term U.S. securities between 2025 and 2026, including Treasurys, corporate bonds, and equities. The Eurozone, the largest foreign holder of U.S. Treasurys at 21% of total foreign holdings, has not materially reduced its exposure despite trade tensions. Even a large-scale Eurozone divestment would have limited impact on Treasury yields, as these holdings represent less than 5.5% of total outstanding securities.

The U.S. dollar's role as a global reserve currency further complicates the "Sell America" narrative. While the dollar weakened during the January 2026 crisis, its decline was driven by hedging activity rather than a structural loss of confidence. This underscores the difficulty of executing a coordinated divestment strategy without triggering broader financial instability.

Sector-Specific Vulnerabilities

The S&P 500's performance has been uneven. Technology and industrial sectors, heavily reliant on global supply chains, have faced outsized pressure from tariff threats and trade uncertainty. Conversely, energy and commodities have benefited from EU commitments to purchase U.S. energy under the July 2025 deal. This divergence highlights the importance of sector-specific hedging strategies for investors navigating the current environment.

Conclusion: A Strategy in Peril

The "Sell America" strategy remains a theoretical construct rather than a practical reality. While U.S.-EU trade tensions have introduced significant volatility, the underlying demand for U.S. assets-driven by dollar dominance, market depth, and global diversification needs-continues to outweigh short-term geopolitical risks. For investors, the priority should be hedging against sudden shocks through diversified portfolios and options strategies, rather than betting on a full-scale divestment of U.S. assets.

As the Greenland dispute and tariff escalations persist, the key question is not whether the "Sell America" strategy is feasible, but how quickly markets can adapt to the next round of geopolitical turbulence.